Information Technology in Minnesota: From Big Iron to Blue Gene and Xbox 360
By Jessica M.L.Fendos
PDF of article (8 Pages)
The seeds of Minnesota's computer industry sprouted after World War II when Engineering Research Associates was contracted to develop computers for the U.S. Navy. Many of that company's founders later helped launch Control Data Corp., the Minneapolis firm that was led by chief designer Seymour Cray and went on to became the third largest computer manufacturer in the country. Control Data Corp. sold Big Iron  supercomputers to government and commercial businesses for engineering and scientific use.
Although these early achievements did not create the critical mass necessary to make the state a high-tech hub like Silicon Valley or Massachusetts' Route 128, Minnesota is home to important companies and innovations. They include the Rochester-based IBM research and development headquarters, which produces the world's fastest Blue Gene L supercomputers and the microprocessors that run Nintendo Wii and Microsoft Xbox 360 game consoles worldwide. Geographically, Minnesota's computer manufacturing industry is clustered in the seven-county metropolitan area and in parts of McLeod County to the west and Olmsted County to the south .
Despite its success, the computing world has faced challenging trends such as outsourcing, off-shoring, process automation and the 2001 dot-com crash. These have hit this industry cluster hard. As a result, national employment in the broad category of high tech declined 10 percent and high-tech manufacturing declined 27 percent between 2001 and 2007, according to Cyberstates 2008 .
In Minnesota the high-tech industry added a net 1,100 jobs in 2006 to bring total employment to 128,600. Minnesota's employment in high-tech manufacturing, NAICS code 334, ranked fifth nationally with 54,700 jobs, including electro-medical devices manufacturing, while the state was 18th in employment in high-tech services, as defined in Table 1, with 73,900 jobs.
Defining the IT Industry
This article examines Minnesota's core computer and electronic product manufacturing industry, NAICS 334 (excluding electro-medical devices), as well as the computer IT services industry, which includes software publishers, computer system design and related services, and computer training (see Table 1 for computer IT industry and cluster industries). Employment in computer and electronic product manufacturing declined 23.5 percent between 2001 and 2007 but has performed better in Minnesota than it has nationwide. Moreover, employment in Minnesota's industry is more highly concentrated than nationwide, with a location quotient  of 1.66. The smaller industries that comprise computer and electronic product manufacturing have all shed employment at a rate slower than the national trend with the exception of communications equipment manufacturing. Growth in computer IT services has been in line with the national trend, while computer training shed jobs at a faster rate in Minnesota than it did nationwide. As a whole, the computer IT industry showed slow employment recovery starting in 2003 (see Charts 1 and 2).
|Minnesota Computer/IT Cluster Trend
||Emp Chg %
|Computer & Electronic Product Manufacturing
|*NAICS 334 Computer/Electronic Product Mfg. ex. Electromedical
|NAICS 3341 Computer and Peripheral Equipment Manufacturing
|NAICS 3342 Communications Equipment Mfg.
|NAICS 3343 Audio and Video Equipment Manufacturing
|NAICS 3344 Semiconductor / Other Electronic Component Manufacturing
|NAICS 3345 Navigational / Measuring and Control Instr. Manufacturing
|NAICS 3346 Manufacturing and Reproducing Magnetic and Optical Media
|High Tech Services
|NAICS 517 Telecommunications
|NAICS 518 Internet Services Providers
|*NAICS 5112 Software Publishers
|*NAICS 5415 Computer System Design and Related Service
|Engineering and Tech Services
|NAICS 54133 Engineering Services
|NAICS 54138 Testing Labs
|NAICS 54171 R and D in Physical, Eng. And Life Sciences
|*NAICS 61142 Computer Training
|IT Intensive Industries
|NAICS 334510 Electromedical and Electrotherapeutic Apparatus Manufacturing
|NAICS 516 Internet Publishing
|NAICS 52 Finance and Insurance
|NAICS 321 Wood Product Manufacturing
|NAICS 323 Printing and Related Support Activities
|NAICS 511 Publishing
|NAICS 311 Food Manufacturing
|NAICS 336 Transportation Equipment Manufacturing
|NAICS 333 Machinery Manufacturing
*The asterisked industries are those included in the computer IT industry analysis. Other industries in the table are peripherally related to Minnesota's computer IT industry cluster. National rankings are extracted from Bureau of Labor Statistics web site.
|Source: Bureau of Labor Statistics, Location Quotient Calculator
Panorama of Minnesota's Computer IT Industry
In 2007, 75 percent of Minnesota's IT firms had between one and five employees and 95 percent employed fewer than 50 workers. However, the majority of employment (72 percent) and wages (76 percent) in the industry were from large employers.
Computer system design contributes the largest share of employment, followed by computer and peripheral equipment manufacturing. In comparison, computer training and audio and video equipment manufacturing contribute a tiny share of employment to the IT industry as a whole (see Chart 3).
|Minnesota Computer IT Industry Related Quick Facts
|Percent of Households Using the Internet, 2007
|National State Technology and Science Index, 2004
|Value of Mfg. Exports in Computer and Electronics, 2005
|Number of Fortune 500 Companies, 2008
|Utility Patents, 2002-2006
|Employment in High-Tech Industries, 2006
|Venture Capital Investment, 2007
|Employment in Computer and Mathematical Fields, 2006
|Source: DEED, Compare Minnesota
Industry Perspective – Developing Rocket Science at a Grocery Store Margin
The following Strengths, Weaknesses, Opportunities, and Threats (SWOT) analysis (see Table 3) was compiled from survey responses from 10 computer IT companies in Minnesota during 2007 . Most respondents have a global supply and demand network, but they base their headquarters and think tanks in Minnesota. While the survey is admittedly small, most interviewees stated that the compelling reasons to do business in Minnesota included transportation and utility infrastructure, quality workforce and work ethic, and a positive community.
Industry leaders interviewed were concerned about the shortage of engineers from our higher education system and expressed the need to focus on developing and enhancing programs for science, technology, engineering and math (STEM) related careers and emerging industries such as bioinformatics and biotech. Outsourcing and off-shoring to overseas markets such as China and India were perceived as both an opportunity and a threat. There was also agreement on clustering or pooling centralized services now that firms are buying parts from others rather than producing their own in-house parts and products. The hope is that this will cut down on cost and time to market — the name of the game in the computing business.
|SWOT Analysis of Minnesota's Computer and IT Industry
The SWOT analysis identified workforce issues as one major area of concern for the industry. There is supporting evidence that lack of a qualified workforce may become an issue in the near future for this industry in Minnesota. According to one survey, interest among prospective students in computer science as a major dropped 70 percent between 2001 and 2005 . If this leads to a decrease in students graduating with a degree in computer science, the supply of new IT talent will shrink in the future. This, compounded by retiring baby boomers exiting the IT workforce, could impact Minnesota's ability to compete globally in this industry.
According to the Bureau of Labor Statistics (BLS), five of the top 10 fastest-growing occupations through 2016 for job seekers with four-year college degrees will be in the IT field. Hot IT jobs include network systems and data communications analysts, computer software engineers-applications, computer software engineers-system software, network computer systems administrators and database administrators.
The Minnesota job market reflects the same demand for these high-skill/high-pay occupations . Minnesota's computer and mathematical occupations provide high-paying jobs with a median hourly wage of $33.70, twice the median hourly wage for all jobs in the state . Table 4 provides information on eight important IT occupations.
|Computer and IT Occupations in Minnesota
||2006 to 2016 % Change
|Computer Software Engineers, Applications
|Computer Software Engineers, Systems Software
|Computer Support Specialists
|Computer Systems Analysts
|Network and Computer Systems Administrators
|Network Systems and Data Communications Analysts
|* Indicator represents demand for an occupation relative to other occupations in the same region. Rating ranges from five stars (most favorable current demand conditions) to one star (least favorable).
|Source: DEED LMI Projections and Occupation in Demand Data
The IT Industry Continues to Change
The buzz words that come with the newly revised Minnesota government IT users' manual are similar to health diet options on a menu — “lean” and “green.” A few initiatives have been jump-started to meet these goals. A state government reform initiative, the Drive to Excellence , aims to increase quality but reduce costs in government by applying lean methods and streamlined enterprise models. IBM's adoption of a Lean Six Sigma model and Theory of Constraint  as well as Lean Supply Chain Management are more examples of lean thinking business models.
Along with streamlining business processes, the computer IT industry has also been challenged to adapt to lean technology. In June 2006, Google and Intel, along with 25 other companies including IBM, Dell, HP and Lenovo, introduced the Climate Savers Computing Initiative .
Meeting the industry halfway, Gov. Tim Pawlenty has announced Minnesota's pledge to comply with the Climate Savers Computing Initiative as part of the National Governors Association's Securing a Clean Energy Future campaign . This resulted in a December 2007 mandate in Minnesota that desktop standards meet the energy-efficiency, Energy Star V4 standards. To respond to this new wave of lean technology, computer manufacturers have set a schedule to produce energy-efficient, carbon neutral, and low- or no-toxic waste computers and to develop virtualization technology for servers and data centers. With the title of the fourth most livable state, third in wind energy production and a leader in using renewable energy and developing biotechnology, Minnesota provides a natural platform for lean technology.
Catlin, Bill. “The High-Tech Fall.” MPR Minnesota in the .Com Age. Nov. 30, 2007.
See computer industry cluster map at http://map.deed.state.mn.us/chameleon/maps/ComEmp_3Regions.pdf .
Kazmierczak, M., et al. Cyberstates 2008: A Complete State-by-State Overview of the High-Technology Industry (11th ed.). Washington D.C.: American Electronics Association, 2008.
Go to http://data.bls.gov/LOCATION_QUOTIENT/servlet/lqc.ControllerServlet . Location Quotients (LQs) are ratios that allow an area's distribution of employment by industry to be compared to a reference or base area's distribution. An LQ greater than 1 indicates an industry with a greater share of employment in that sector than the overall United States. All LQs in this article are calculated from 2006 data since this is what was available for the U.S. at time of publication.
Minnesota DEED 2007 MOC Training - Minnesota's Computer and Information Technology Cluster Final Report.
McGrath, Matt. “Hot Jobs and Skills for 2007.” Certification Magazine. January 2007.
Based on DEED: LMI: Occupations in Demand analysis: http://www.deed.state.mn.us/lmi/tools/oid/default.aspx .
DEED LMI OES, fourth quarter 2007.
Drive to Excellence: The objectives of the Drive to Excellence are to improve quality, increase customer service and reduce the costs of government. http://www.state.mn.us/portal/mn/jsp/content.do?subchannel=-536892923&id=-536886806&agency=Excellence .
Supply Chain Management - Operations Services. IBM Corp., 2006.
Gohring, Nancy. “States Team with Google on Energy Savings Initiative.” PC World. November 2007.
Raths, David. “Green Initiatives Gain Attention from Government CIOs.” Government Technology's Public CIOs. Feb. 20, 2008. http://www.govtech.com/gt/print_articel.php?id=265029 .
Raths, David. “Virtualization Saves Money and Energy by Eliminating Physical Servers.” Government Technology's Public CIOs. March 5, 2008.