Stephen Kelly, CEO of Micro Focus, calls on businesses in the manufacturing sector to acknowledge the real value of software assets.
During 2007, the global economy has become increasingly volatile. Despite the M&A market still flourishing after the boom of 2006, the level of regulation and corporate governance has risen dramatically and the worlds financial markets have become increasingly shaky in recent months. All this adds up to the fact that global organisations are under more scrutiny than ever before, meaning all assets are constantly being revalued and reassessed in order to optimise market value. Yet, despite institutions in the manufacturing sector striving to get the most accurate assessment of the value of their business, they are ignoring one of the most valuable aspects and one of the most critical assets of their day-to-day business. Their IT.
Over the past 20 years, manufacturing organisations of all sizes have become totally dependent on their IT, not only to help them get by on a daily basis, but also to record every transaction and piece of data processed within the business. However, despite this huge reliance, IT assets are on the whole totally ignored or poorly evaluated compared with other assets such as brand, property and intellectual property. Recent research of CIOs and CFOs at global organisations, of which the manufacturing sector comprised 25 percent of respondents, with turnovers of up to 5 billion, revealed that only nine per cent think that the real financial value of core software assets is properly assessed compared with these other assets.
Even on its own, this is an alarming statistic. But when one considers that the same research discovered that over 75 per cent of companies deem these core software assets to be critical to their business strategy, it is staggering that they do not attribute any value to them.
Information technology has become a key strategic tool in enterprise today with CEOs and CFOs alike using the data gleaned from their respective systems to help make corporate decisions on how to develop the company. And increasingly, market leading companies are achieving competitive advantage by linking effective technology to other business imperatives such as customer satisfaction. So for the manufacturing sector to not recognize the value of IT, especially in this time of financial market nervousness, seems to indicate that they are missing a trick.
If you look at it from the differing angles of the individuals involved, it truly highlights the fragility of the situation. From a CFOs point of view, one of their main jobs is to know the value of the company, whether it is verifying if it has the resources to acquire, or if it is subject to an acquisition approach. Also, with heightened regulatory requirements, it is imperative that a CFO provides total transparency and the most accurate assessment possible to ensure compliance and not be liable to auditory investigations.
From a CIOs perspective, why wouldnt they want to have IT assessed? They lead departments of up to 200 people, helping to maintain an indispensable function to the business. Despite continual calls for the CIO to have a seat on the board of directors, we increasingly hear that the tenure of a CIO is one of the shortest amongst senior management. By quantifying the financial value of the contribution of IT to the business, the CIO can not only show the sterling work of his team, but also prove their individual value that they are providing such an important commodity to the business. Quantifying the value of IT and demonstrating the benefits it can bring to the business as a whole would also serve to bridge the current disconnect between the IT and business departments.
So how would a CIO go about demonstrating the real value of their software assets? Effective measurement of IT asset value is closely linked to the performance and contribution of the CIO at board level. However, in order to communicate this, research indicates that the CIO has to go back to square one and actually realise what they are dealing with. It may sound fundamental, but the research revealed that an astonishing 60 per cent of CIOs globally do not even know the size of their core software assets. How are they meant to show value to the board if they do not have this basic information?
CIOs need to identify where the business benefits lie in their current systems. This will enable manufacturing organizations to preserve existing IT investments and get the most out of IT without footing the cost of replacement with new, unnecessary software. This means taking a fresh look at how core IT assets can be further exploited. In todays economic climate, this issue is imperative for CIOs under pressure to get increased return from every pound spent on IT. Additionally, they need to have the tools in place to allow them to respond rapidly to market changes and embrace modern architectures with reduced cost and risk. By getting these basics in place, they will be able to start highlighting the value stored within their respective infrastructures and keep pace with todays hostile economy.
In a time of heightened financial anxiety, the integral role of IT and the effective investments in these key technology assets have never been of more importance. While companies reconsider investment programmes in the light of financial instabilities, there has never been a better time for the IT department to highlight the benefits it is bringing to the business. This will not only dissuade businesses to implement costly and disruptive rip and replace IT strategies, but will also finally allow manufacturing organisations to acknowledge the real value of IT assets, and therefore give a true representation of the value of the business. ITs worth thinking about.
 Vanson Bourne, Core IT Assets Survey, October 2007
 Vanson Bourne, Core IT Assets Survey, October 2007