5th Nov 2007 13:00
Micro Focus International plc05 November 2007 Media Contacts: Tim Brill Dan Chappell / Sam KaneMicro Focus Brands2Life+44 1635 565364 +44 20 7592 [email protected] [email protected] INSEAD STUDY CALLS FOR DRAMATIC SHIFT IN MANAGEMENT AND VALUATION OF CORE SOFTWARE ASSETS • Global companies rarely invest resources in valuing I.T. assets • Firms have managed core software assets as an expense item to be minimised for far too long • Time for large organisations to move from cost control to value enhancement of I.T. assets • INSEAD pinpoints Conjoint Analysis methodology as way forward for assessing true business value of organisations' core software assets Micro Focus sponsored INSEAD research paper offers CIOs a route to communicate the business value of hidden technology investments to the board NEWBURY, England, 05th November, 2007 - Micro Focus(R) (LSE.MCRO.L), a leadingprovider of enterprise application management and modernization solutions, andINSEAD the leading international business school today call for a radical shiftin management and valuation of IT assets at organisations worldwide. An INSEAD research paper published today by Professor Soumitra Dutta, INSEADChair of Business & Technology and sponsored by Micro Focus challenges C-levelexecutives to move away from managing their core software assets as an expenseitem often written off, and step-up to communicate the real value of coresoftware assets to the boardroom. Professor Dutta's study builds on quantitive research gathered from CIOs andCFOs announced in October by Micro Focus which uncovered evidence that despite aglobal annual IT spend of $1 trillion1 in 2006 alone, I.T. systems are thehidden corporate asset, highlighting how the size and value of I.T. assets arebeing ignored by the world's leading companies, compared to otherregularly-measured corporate assets such as cash, brand, property andintellectual property. 1 Source: IDC Jan 2007; IT spend $1.16 trillion in 2006 Professor Dutta's INSEAD report identifies that software is a key asset, crucialto business strategy, that is also an important vehicle for value creation inbusiness today. He also identifies a complete lack of adequate tools forassessing the business value of a firm's core software assets. "Firms have managed their core software assets not as an asset for valuecreation, but as an expense item to be minimised. This has to change," saidProfessor Soumitra Dutta, Chair of Business & Technology at INSEAD. "Both CIOsand CFOs need to be communicating the business value of core software assets tothe Board and make it a priority to measure the value of their software assets.Core software assets represent the hidden value in firms and need to becorrectly measured for making the right investment decisions; balance sheetpurposes; mergers and acquisitions; joint venture negotiations, licensing andfranchising and transparent investor relations." "The INSEAD report demonstrates that corporations are not valuing core softwareassets. Given global IT spend exceeds the GDP of India2, it is disappointingthat corporations have not focused on deriving maximum value from core softwareassets," said Stephen Kelly, Micro Focus CEO. "These core assets provide thelife support system for corporations and deserve the same respect and valuationas other asset classes like brand, property and goodwill." 2 Source: https://www.cia.gov/library/publications/the-world-factbook/print/in.html Professor Dutta suggests Conjoint Analysis as the best approach for measuringthe value of core software assets. "In a traditional conjoint analysisapplication, people make trade-offs across different product attributes. Forapplying the technique to software assets, the methodology requires people tomake trade-offs across different business outcomes associated with the softwareasset," said Professor Soumitra Dutta. "If organisations analyse the conversionof real business outcome attributes generated by core I.T. systems into measuresof business value, then there is a strong opportunity to calculate the realfinancial value of core software assets to the business." "Professor Dutta identifies a clear route for I.T. to move beyond a traditionalengineering background role, and offers the opportunity for CIOs take on a muchmore strategic responsibility by identifying and communicating the hidden valueof core software assets to the boardroom," said Stephen Kelly, CEO Micro Focus."There is huge business value within core software assets, often built upthrough many business processes over a number of years. For the first time CIOsand CFOs now have the ability to unveil and communicate the real value of thislast remaining unvalued corporate asset to the board." About Micro Focus Micro Focus provides innovative software that allows companies to dramaticallyimprove the business value of their enterprise applications. Micro FocusEnterprise Application Modernization and Management software enables customers'business applications to respond rapidly to market changes and embrace modernarchitectures with reduced cost and risk. For additional information pleasevisit www.microfocus.com. Micro Focus is a registered trademark of Micro Focus. All other products andcompanies mentioned in this announcement are the trademarks of their respective owners. RESEARCH BACKGROUND • The INSEAD paper, sponsored by Micro Focus is produced by ProfessorSoumitra Dutta, INSEAD Chair of Business & Technology based on qualitativeresearch interviews with C-level executives at global organisations. • Professor Dutta's INSEAD paper highlights the large proportion ofcompanies who do not know how much software they actually own and how much theyspend on it. More importantly that it is time for business and the CIO inparticular to uncover the huge hidden value of these core software assets forthe firm, so they can be exploited to provide even more business value. • A key finding by Professor Dutta is that CIOs are currently toofocused on developing software systems bigger and more complex than ever, whichneed to meet increasing demands for higher quality and performance. At the sametime CIOs are scrambling to cope with the pressures of managing cost of softwarepurchase and maintenance rather than concentrating on the extra value that coresoftware assets can bring to the business. • The INSEAD report builds upon previous quantitive research3 by MicroFocus which surveyed 250 respondents across France, Germany, Italy, UK and US,comprising 50% CFOs & 50% CIOs at companies with revenues from $100m up to over$1bn. Respondents surveyed included CIOs & CFOs from manufacturing, financialservices, and retail sectors. This study shows that less than half of all CIOs &CFOs (48%) ever try to quantify the financial value of their IT assets. Only 37%of CIOs have tried, compared to 60% of Finance Heads. Less than a third of allrespondents (29%) from both groups, ever try to quantify the contribution alltheir IT assets make to the business' performance. 3 Research carried out in partnership with research organisation Vanson Bourne • The quantitive research also found that nearly two thirds (60%) ofCFOs & CIOs do not know the size of their core software assets, whereas a third(29%) do not know what they spend on their core software assets each year. Thisresearch clearly shows that management are not investing the time and effort inassessing the real value of these assets. Dutta's INSEAD qualitative researchpaper points to the fact that this is happening despite the knowledge softwareassets capture about vital business processes crucial to global businessstrategy today and that the volume of software assets in organisations iscontinuously increasing. • This extensive qualitative and quantitive research project follows aKPMG/Micro Focus study in May 2007 which revealed 90% of leading companiesfailed to attribute value to IT investments in their annual accounts. Key anonymous C-level executive quotes cited by Professor Soumitra Dutta'squalitative research paper: "We have been doing ourselves a great disservice. We have created an enormousbase of intangible assets (our software systems) and then we have largelyelected to ignore it. We have under-invested in extracting value from our software assets. I thinkthat this will change as the performance pressures on firms increase." "They say that a cat has nine lives. Software for sure has more. Whenever youthink that you are ready to retire a piece of software, you always hear voicesasking for it to be spared. There are always good reasons given with the plea.Customers need it, old products need to be serviced, workers are too busy to betrained on the new system, etc., etc. You have to be strong and disciplined toretire software." "The long tail of the older software assets consume a significant portion of thetotal resources that my firm spends on technology today. These software assetsare the hardest to grapple with in terms of identifying total spend. Most ofthis spending does not even appear on my (central) budgets." "I have been involved in a number of mergers over the last years. In each case,I had significant challenges in doing the due diligence of the technologysystems. If I had a simple way to compute the business value of the softwareassets, my life would have become much easier." NOTES TO EDITORS: Conjoint Analysis Conjoint Analysis is a research technique used to measure the trade-offs peoplemake in choosing between products and service providers. It is also used topredict their choices for future products and services. Conjoint Analysisassumes that a product can be "broken down" into its component attributes. Forexample, a car has attributes such as colour, price, size, miles-per-gallon, andmodel style. Using Conjoint Analysis, the value that individuals place on anyproduct is equivalent to the sum of the utility they derive from all theattributes making up a product. Further, it assumes that the preference for aproduct and the likelihood to purchase it are in proportion to the utility anindividual gains from the product.4 4 Description taken from: http://www.populus.com/techpapers/conjoint.php This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
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