Technology Round Table December 2010

Though North Carolina’s been a high-tech leader for decades, components of the sector must mature to push the state forward.

North Carolina long has been a technology leader, with Research Triangle Park its showplace. But the tech sector in the state remains in its maturation process, with startups in particular needing improved access to capital and experienced leadership. That was the consensus of a group of experts at a recent round table on the state of technology and its impact on the economy. Participating were John Hardin, executive director of the N.C. Department of Commerce’s Office of Science and Technology; Jeffrey Hart of Chapel Hill, chair of the venture-capital practice group at Robinson, Bradshaw & Hinson PA; Alexander Macris, CEO of Themis Group Inc. in Durham; Brooks Raiford, CEO of the North Carolina Technology Association in Raleigh; Joe Robertson, a senior project manager in the Charlotte office of Balfour Beatty PLC; and Jon Zimmerman, senior vice president of solutions management at the Raleigh office of Allscripts Healthcare Solutions Inc.; Business North Carolina Publisher Ben Kinney moderated the discussion, held at the offices of the North Carolina Technology Association and sponsored by Balfour Beatty. Following is a transcript, edited for brevity and clarity.

What is the state of the Tar Heel technology industry?

Hardin: Technology cuts across industries, so the state of technology depends on the type of industry and the locale. Certain regions are doing well: the Research Triangle region; the Piedmont Triad, not so badly. Charlotte has a lot of technology, but a lot was around the banking industry, and that has been hurt.

Raiford: Almost every company uses technology and has technology functions within it. The state is up 4.5% year-over-year in existing employees in technology and engineering. Our job outlook for tech jobs, after tanking in late ’08 and early ’09, has seen about seven or eight months of steady uptick this year.

Zimmerman: Technology has a continuing exploding role in society across the board. Facebook is now the third- or fourth-largest nation in the world, right? We’ll see a convergence, actually, between gaming, home entertainment and health-care information technology in the not-too-distant future.

Hart: There’s a commitment in North Carolina on the public and private sides to commercialize technology that originates in the state. That’s in addition to taking note of technology that’s being developed outside of the state and trying to commercialize it and bring it here.

What role does technology play in the construction industry, and how is it changing?

Robertson: We have some vertical market divisions within Balfour Beatty. But our mission-critical group, which is focused on the technology side, really spans all markets, whether they’re educational or our business-as-usual or banking clients.

How is that group faring?

Robertson: Fortunately, that market didn’t take the nosedive that some of the other markets did, to just the commercial upfits and such. Data centers were a need- to-have, not a nice-to-have. For companies to thrive and keep growing, they have to keep upgrading their technology, so we have seen a pretty steady market.

The gaming industry has made some pretty big strides, especially in the Triangle. What’s happening with it?

Macris: We recently had the state really start to see the potential that we’ve got building. We got a tax credit passed that will attract companies. Right now, we’re sitting at about 40 companies that work in interactive software, employing about 1,200 at a really high wage level. We’ve started to collaborate with universities to create degree programs in simulation, modeling, game design.

Hart: You’re also starting to see a lot of accelerated programs, or incubator programs, for young companies. One in particular is for gaming. Joystick Labs just opened in the American Tobacco Campus in Durham, which along with LaunchBox relocating to this region shows even more of a beachhead in the gaming environment here.

Macris: That’s something that’s been really needed. Raising capital here as a video-game company is very challenging. If you are a biotech or medical-devices startup, it’s a great place to be. But if you’re a video-game company, you’ve had to get your money in Boston or on the West Coast. I’m hopeful that Joystick will begin to build an investment community because that’s going to be key to seeing new companies and keeping existing companies here.

Hart: That’s an obstacle that this region has faced for a long time — the lack of seed-stage, venture-stage capital. Ten years ago — even five years ago — you didn’t see that many funds out of Boston or California looking for deal flow in this region. That is finally starting to change. It seems like we’ve had a lot of good ideas and not a lot of money. We also haven’t had a significant number of entrepreneurs who have had successful exits and then turned around and put that money to work again in the market.

Reinvesting it here?

Hart: We need that to happen. I wouldn’t say the sector is in its infancy, but it still isn’t mature. A lot of the money here is more private-equity or financial-services-based out of Charlotte endowments, foundations that historically haven’t put a lot of money in venture capital. But you’re seeing that more, and the state has a new commitment with the new innovation fund.

Hardin: There are some reasons why you see that emerging now. First is that there is only so much space for hotbeds of capital. There’s only going to be a handful, and you have to have a certain critical mass to be among them.

Isn’t the Triangle known for high tech?

Hardin: Yes, but it has not always been known as a small-business startup, high-tech region. We’ve had RTP, which has a lot of large companies. But more and more there are small companies spinning out of the universities or out of the large companies. Then there are the economic changes, with a lot of people laid off. A lot of people who’ve always wanted to start a business sometimes need something to give them a little kick in the seat.

In recruiting tech companies, what kind of pitch works?

Raiford: We can offer tax abatements. RTP has certain requirements that you’ve got to buy so much land to even be out there, so that’s going to eliminate a lot of smaller companies.

Robertson: From a construction standpoint, the labor cost is a lot less for companies looking to build in the Carolinas. If you’re looking to build here versus Atlanta, it’s a lot more affordable here. Also, there is clean, reliable power in the Carolinas that’s very affordable.

Raiford: The Downtown Raleigh Alliance has a focus on drawing tech workers to downtown, not just tech companies. Larger enterprises have multiple sites for workers, and smaller numbers of tech workers could be located in an office that may not be in their headquarters. Durham also would like to have them.

Does it come down to incentives?

Raiford: Not always. A company that recently began a presence in North Carolina told us that no amount of incentives mattered. It had done due diligence to find talent and zeroed in on the Triangle. It met with potential employees who were out of work. They had families and mortgages and needed jobs. Even so, they would not move. So the company decided to locate an R&D facility here. We’re starting to hear more and more about the talent being the key driver.

Macris: Most of game-industry talent is on the West Coast, so the big issue for us is getting someone to come here. Will there be enough companies for them to be able, if they’re laid off from one job, to find another without having to leave the industry or the area. The lack of tax credits was really hurting our efforts to recruit. Everyone from Montreal to Louisiana was just simply providing better benefits.

"What does health care need? Communication and collaboration."

What about quality of life?  

Macris: One can talk quality of life all day long, but when it’s the CFO of a publicly traded corporation who is making the decision on where a company moves, he’s not seeing it. He’s seeing a spreadsheet. We needed to make the spreadsheet work. From a quality-of-life point of view, the families are happy here. People can move in and they have great schools and a nice house in the suburbs. But the young people are still comparing the Triangle with places like Austin where they have a music festival and all this.

Raiford: Every night of the week.

Macris: Yeah, we still have some catching up there. In the Triangle Game Initiates, we say, “How do we make Raleigh more cool?”

What are other recruiting strategies?

Hardin: The Commerce Department is hiring a new person who’s going to have more discretion and take a proactive role in targeting certain types of companies. It’s likely that those are going to be smaller, high-growth, high-tech types of companies in diverse sectors.

Zimmerman:The universities and the attractiveness of youth are a tremendous asset. You have some of the best medical centers in the world here. The one thing that I think that the state could do better is to facilitate a technological convergence. The differences among a medical device, a communications device and an information device are blending. When you look at smart pumps in the hospitals, they are all three in one, right? It’s a computer, a medical device and a communication device because it’s wireless.

Raiford: Apple announced it might double the size of its already billion-dollar data-center project in Maiden. Medical technology was one of the examples of what the center would help support. In fact, gaming also was a big part of the reason.

Zimmerman: Look at the Xbox Live gaming network. There are a ton of communications that go through it. What does health care need? Communication and collaboration, right? It would be really tremendous for this state to say, “We’re not only about technology, we’re about convergence, too, for new applications and new things to be done.” There are new worlds ahead of us.

Macris: Within the gaming industry, there has been the rise of something we’re calling serious games, or immersive learning, which uses video-game technology to educate people. It’s supported by scientific evidence that the reason we enjoy play is because that’s how the mammalian brain has evolved to learn. It turns out that in the invention of video games, we’ve accidentally invented this powerful tool to train our brains.

Games help you learn?

Macris: Researchers are finding that people who play video games have faster reflexes, higher spatial awareness, quicker cognition. We have some pioneering companies in the Triangle that are taking leadership in creating immersive-learning technologies. What I would love to see is the state say, “Hey let’s take advantage of this technology and these companies. Let’s bring them into our schools.”

Zimmerman: If I could, I’d like to start it right now.

Hardin: What we’ve seen in the last few months is a resurgence in interest in science, technology, engineering and math education. That’s always been important, especially since the ’50s, though the acronym STEM hasn’t been around that long. The new interest is a product of the economic downturn and the fact that innovation is a hot word.

"Innovation is about changing in the face of other changes."

How does STEM education fit in?

Hardin: Innovation is about changing in the face of other changes. You’ve got to be smart to do that, you’ve got to be resourceful, you have to be creative, and you have to know how to work with others. STEM education helps enable you to do all of that.

Zimmerman: Wouldn’t it be great to make learning cool?

Hardin: North Carolina this past year had its first in-state robotics competition. That is so much about hands-on learning, and corporate sponsors are paying for a lot of the teams’ expenses. The goal is to make learning cool, to make those winners as big a deal as the football or baseball team.

Raiford: One of the three pillars of NCTA is the knowledge workforce. We’re too small to really move the football, and we’re not the experts. But what we can be is a sandbox to bring people to.

Can you provide an example?

Raiford: When the state Department of Public Instruction mandated a graduation project for all high school seniors, one requirement was to have a STEM-oriented mentor. That project mandate has been put off, but counties were given the option to continue, and many have. So there is a need for STEM professionals to be available as mentors. We make people aware of opportunities. Both small and large companies have employees interested in doing what they can if they know how and where to do it.

Macris: One issue with getting young people into STEM is that they see what used to be white-collar jobs outsourced. They aren’t stupid. There are now fewer people working in computer manufacturing than there were in 1970 because all of those jobs have been sent overseas. Part of a commitment that as businesses we have to make is that we’re going to hire our own homegrown workers. If we do produce great STEM workers, let’s hire them.

Is that realistic?

Macris: Government needs to align with that at both the state and federal level to make it worthwhile. Because if you’re a smart kid right now, if you want to make good money, you go with finance or law or entrepreneurship. I don’t mean to be negative Nancy, but I work with more 20-somethings than most of you do, and that’s the message I hear.

Zimmerman: I would love to see what kind of incentives or commitments could be made to facilitate onshore innovation and make learning cool, because that will spread throughout the next generation.

Hardin: America’s been in this position before. We excel and then rest on our laurels. Often it’s not until we face a time of crisis that we dig down deep again. We’re in one of those times now.

Hart: That’s when you have these pockets of innovation that are concentrated and intense. We are in that stage.

Raiford: We had a panel discussion, and this question came up: What obligation does the private sector have to push entrepreneurship? I won’t name the panelists, but they’re the ones you would immediately think of as the major employers. They were asked, “Why aren’t you pushing good people and good ideas out?”

Is that typical?

Raiford: On the West Coast, the norm would be smart people with good ideas internally who come up with something incredible, the company almost purposely hand-holds them out the door and tries to get them to start their own business to become a partner, supplier and maybe even eventually a competitor. Here you might want to go to work for XYZ corporation and once you’re in, you breathe a sigh of relief and you stay there.

Hart: You’re starting to see some shifts in that culture locally. At UNC, Duke and State, there are more programs in the business and law schools to encourage entrepreneurs. The law school at Duke has just started a master’s program in entrepreneurship. UNC’s Kenan-Flagler Business School has a program matching students with technologies inside UNC, with researchers attempting to commercialize them. Duke’s business school does similar things. That is a culture that must develop and mature.

Zimmerman: This is a business strategy that companies do deploy. The book, Doing Both, about the growth of Cisco Systems, actually talks about that phenomenon as part of their business strategy. It is part of an innovation strategy to encourage spin-outs and spin-ins.

Macris: We also don’t have a class of professional CEOs the way they have in Silicon Valley. There are 200 guys in every Starbucks, and they’re all 30-something young CEOs. You just don’t have that here. So even if you have a bunch of bright students with some technology, you’re lacking that middle-tier young CEO that you can hand it to who can help steer it in the right direction.

Hardin: You don’t learn that through an MBA program, you learn that through the school of hard knocks.

Hart: We are really short in qualified management teams to run these companies. The well is somewhat dry there.

Macris: If we can get the capital in place and then we can start to get that critical mass, we’ll get those CEOs.

How can technology help traditional industries such as construction?

Robertson: One thing that could have a positive impact is Obama’s health-care initiative for unified record keeping. Projects to accommodate that could be a big push. The banks are continually upgrading their data storage. And Time Warner and SAS Institute and other tech clients are continuing to grow.

"I wouldn't say the sector is in its infancy, but it still isn't mature."

What areas are taking off?

Robertson: We’re making a lot of strides in the [Leadership in Energy and Environmental Design] initiatives. A LEED standard for data centers really will help because current standards are geared more toward office buildings or schools. North Carolina’s climate really helps as far as energy effectiveness. In our data centers, probably 43% of the energy goes to the HVAC system, and with the expanded humidity and temperature ranges that [the American Society of Heating, Refrigerating and Air-Conditioning Engineers] has put out there, you can utilize free cooling a good bit here.

Raiford: There’s also the [Building Information Modeling] process. This process of using technology, being more efficient, doing things right the first time, with long-term efficiency as a result, calls for a new set of skills. If you don’t adopt that approach, you’re not going to get hired because the architecture firms and the customers are demanding it.

Robertson: It’s almost a demand that you utilize some type of BIM modeling. And it’s not just a 3D drawing — it’s actually an intelligent model where you can access the information on all your equipment and pieces of the whole building and maintenance schedules, energy monitoring.

Zimmerman: Here’s the thing that’s subtle about Obama’s electronic-health records. The idea is to improve health care, not just the records. There’s a lot of value to be explored there to keep the workforce more productive and healthier. That’s what it’s for, right? Presenteeism as opposed to absenteeism.

This article originally appeared in the December 2010 issue of Business North Carolina magazine.