Firms overlook software value

Companies need to assess the value of their software in order to stop seeing it purely as an expense to be minimised, a study by INSEAD has said.

According to a Micro Focus-sponsored study by Professor Soumitra Dutta, chairman of business and technology at business school INSEAD, software systems are the only major corporate asset category that is not properly evaluated operationally and too many firms still measure software by cost.

Dutta said this is a problem across the board, with most companies he's spoken to failing to properly value their software investments. Dutta called on companies to move from cost control to value enhancement when judging their IT systems, and to stop looking at software assets as an expense to be minimised. "The next threshold jump is managing software as a business asset," he said.

He called on chief information officers (CIOs)to better communicate the business value of core software assets so the board, and to realise that they represent a hidden value in firms which must be correctly measured for investment decisions.

But it's no easy change, according to Dutta. "The value from software is not linked entirely to software itself... it's linked to people and technology, so it's difficult to differentiate what value comes from which," he said.

Another problem is lack of time - few IT departments have the resources or time to properly assess everything. "There's so much backlog," he said. "Constantly working to execute the next project, so there's not enough time for evaluating... time is too short and the maximum value is seen in implementation instead of looking back."

IT departments also lack the proper assessment tools, which adds to the problem, Dutta said. "A lack of tools makes it more complicated," he added.

The move to assessing software value will be driven by the ubiquitous nature of software in enterprise, said Dutta. "Partly because there's so much software in organisations today... everything's so linked to software," he said. "People will eventually realise it's a new business opportunity to maximise."

Analysing software assets can also help companies manage their brand value by ensuring smooth interactions with their customers. "Today people realise brand management is not just nice graphics... it's every single interaction with the customer," said Dutta.

New regulatory rules will also push firms to focus more on how their software works and what it's worth, claims Dutta. Sectors such as finance, which are more exposed to technology and regulations than other industries, have had to look at the operational value of their software to meet regulatory standards such as Basel II. "Companies will be forced to look at software systems and manage them more carefully," said Dutta.

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