Opening up to asset management

Company executives are generally hesitant to invest in anything, unless it brings direct value into the business. So it is worth noting that more and more local companies are putting asset management strategies in place, as they start to view it as an increasingly essential area of their business, rather than a corporate hassle. Admittedly there is still a long way to go, but strategies are being adopted, says Realyst MD Peter Trickey.

"From a local perspective, many companies are putting in new systems and getting going. They have realised that if they put these new systems in place, they can be more productive."

Rentworks rental solutions sales and marketing GM Stuart Lewis agrees. "More and more companies are taking it seriously. I don`t think it is purely the domain of large multinationals. There is definitely a drive for top executives to say: `We need to understand our own assets, we need greater control.` It has become too high profile for companies to leave their assets uncontrolled."

But it wasn`t always that way. Players in this space report that South African companies have a poor asset management track record. It is a difficult and touchy issue, says Spartan Technology Rentals CEO Kumaran Padayachee.

"I don`t think people have fully understood the implications of asset management. It comes down to the individual company, how seriously they take it, and how closely they manage it."

The reasoning behind companies` reluctance to invest in an asset management strategy is twofold. Not only are they hesitant to admit they don`t actually know how many assets they own and what they are worth, but there is also a cost factor. If a company wants to put a strategy in place, it must be willing to invest a fair amount. However, companies are starting to view this not only as a good return on investment, but as a way to optimise their assets.

Research firm Meta Group predicts that, through 2005, disparate asset management programmes will evolve from their cost savings focus to become asset centres of excellence (COE) that financially optimises assets across all enterprise IT resources. Meta also predicts that users implementing asset COEs will build business credibility and maintain a best-of-breed cost advantage of more than 25%.

I don`t think people have fully understood the implications of asset management.

Kumaran Padayachee, CEO, Spartan Technology Rentals

In SA there have been two key drivers behind companies taking their asset management more seriously, says Padayachee.

"Corporate governance, which requires that companies be able to document all their assets, has played a big role both locally and internationally. It`s been around for a few years now, but we have seen a stronger emphasis on it in recent times, and companies are reacting.

"Another driver is that companies are continually challenged by budget constraints in a competitive environment. Companies realise now that they can extract further value and alleviate budget strain by better managing their assets."

From a more global perspective, mergers and acquisitions have also played their part, says Padayachee. "It will have a profound effect, and will drive the need for asset management. Also, globalisation will drive up volumes for asset management, and thus its importance."

From an IT perspective, asset management is not only about the cost savings achieved by accounting for and consolidating IT assets. Its true value lies in improving IT services management at every level by providing insight into how well your assets are functioning - thereby automatically achieving the best possible levels of IT governance, says FrontRange Solutions SA MD Tracey Newman.

"The whole point of knowing what and where your assets are is to be able to use that continuously updated information in other systems that help you deliver services to your customer. A neat list of software and hardware in your organisation, probably out of date because it was done manually a few weeks or months ago, isn`t a management tool. Unless it`s related directly and intelligently to what you need to do with your IT infrastructure on a minute-by-minute basis, it`s just clutter."

Industry players have identified interesting developments in asset management. Says Rentworks` Lewis: "We are seeing that finance is far more involved now in IT asset management than in previous years. The people covering it now have more of a financial background than before."

Companies are also starting to adopt a "less is more" approach regarding IT equipment. Many large corporations are looking to consolidate on the server side, and whereas they had originally bought a number of smaller servers, they are now looking to get fewer larger ones, because they are easier to manage, says Lewis.

We are also seeing fewer devices in the office space. "It`s a simple case of `the more equipment you have, the more expensive and difficult it is to manage`. All you have on your average work desk is a keyboard, a mouse, a monitor and a box connected to the main server," he adds.

Realyst`s Trickey says there is also a changing trend as to how companies view their assets. The focus nowadays is on the asset and returning revenue to the shareholder, and assets nowadays need a return on revenue, he says.

InfoQuest CEO Fani Mabilane says there has also been a paradigm shift in terms of how assets are maintained. "Now companies need to analyse and predict the failure of an asset before it happens, so they can maintain or replace it before that occurs."

Perhaps the most notable asset management trend of all is the increasing number of companies opting for rental.

According to research conducted by Rentworks, rental accounts for about 10% to 15% of the hardware market, and is worth between R3 billion and R4 billion a year in SA - this despite the fact that technology costs are constantly decreasing.

"Another thing to highlight is the fact that, because of various economic factors, including the strong rand, we have had a period of `wait and see`. Now companies have more cash to spend and we are starting to see momentum gathering."

It certainly appears to be a good period for local rental companies, with both Spartan and Rentworks reporting significant growth in rental volumes.

Trickey says there is a move towards renting. "It makes a lot of sense, because it improves cash flow, which is essential. Also, companies have been burned once too often regarding banks and overdrafts."

PM Tech Holdings director Michael Leeuwen believes rental is the way to go for many companies, including small and medium enterprises. It enables companies to utilise these brands without breaking the bank. Finance is in many cases less than some business owners` monthly car repayments, says Leeuwen.

"For example, a bundle of equipment including 10 desktops, four laptops, a business server, multifunctional printer that includes a copier, scanner and fax as well as all the various business-critical software and virus protection can be rented over a 36-month period for about R7 000." This rental option also includes vital support and services, a luxury few smaller businesses can afford.

For R7 000 per month, small and even medium business can equip their daily operations with the latest, reliable IT infrastructure that will add to increased productivity and save costs, he adds.

The industry is also seeing an expansion of asset classes now being considered for rental. Originally, it was only office equipment that was being considered for rental, but that is changing, says Padayachee.

"We are now doing finance for standalone software - without any hardware at all. From our research we are seeing that financing software is a growing area. It is the biggest driver for us."

Government is also starting to open up to rentals, adds Padayachee, with 65% of Spartan`s business base situated in the public sector. "We are focusing more on parastatals - arivia.kom is our biggest client. In my opinion, government is certainly not far behind business in terms of rental adoption, and it opens up a lot of possibilities for rental companies."

Another clear indication that government is opening up to rentals can be seen in public tenders, adds Lewis. "The SITA Senior Management Service tender includes an option for government to rent its IT, which is a first for SA. This shows government is opening up to it, and which is allowing them to look at a different tool for procurement."

But with growth comes competition. With the cost of technology constantly dropping, and the market becoming increasingly competitive, rental companies are having to couple value-added services with their offerings, such as including asset management software in a deal. This will probably make rentals even more appealing to businesses.

It is no secret that some companies have been burned in the past when renting, and while companies are now wiser to the possible risks, some are still being caught out by unforeseen expenses, says Realyst director Tony Maddison. "There are so many hidden costs. While something may seem affordable to rent now, it could easily escalate. There could be clauses in your maintenance agreement, for example, which mean you could end up paying maintenance for assets you don`t have. And things like this happen all the time."

Spartan`s Padayachee agrees that companies can often end up spending more than planned, but says this is still down to not paying enough attention to the contract. "I think they need to be more vigilant in this regard. Rental companies are not trying to sneak additional costs out of their clients - that would send them to our competitors - but that is how it is reflected."

As a result, rental companies are now drawing up contracts with a greater focus on transparency, and also assisting their clients to examine contracts more closely, he says.

Licensing is another important issue to consider, because it remains a challenge to choose the right licensing model that will benefit a business in the long run. Licensing models can make or break a business.

PM Tech`s Leeuwen says it`s imperative to partner with a software company that allows you to purchase its products without crippling the budget. With more and more software now featuring Web-based licensing, most licensing models are invoiced in dollars, which makes it difficult to budget for.

"If a company has opted for `maintenance` they will have to pay annually, or whatever the case may be, and with a fluctuating currency it`s almost impossible to predict what the next payment will be.

"Considering the above, the fact still remains that partnering with an IT company that allows more room for adequate budgeting is definitely a foolproof approach. However, ensure you do some solid research, weighing up the various choices and opting for the one that will benefit your business the most," advises Leeuwen.

A truly effective asset management solution should help companies manage warranties, vendor contracts, and internal and external service level agreements, says FrontRange`s Newman.

"Actually, the line between IT services management and asset management is so porous as to raise the question of why the latter has been such a neglected area until now. The need for out-of-the-box integration between the two disciplines becomes terribly clear if one applies a little logic to the processes involved in both."

There are so many hidden costs.

Tony Maddison, director, Realyst

Newman believes organisations should base their choice of asset management solution on the degree to which it incorporates best practice. "One of the best ways of ensuring you use your asset management system to greatest effect is to follow a guide such as the Information Technology Infrastructure Library (ITIL), which gives you step-by-step assistance in setting up optimal asset management processes.

"Better still, buy an asset management solution founded on ITIL. That way, the optimal processes are built in and already adapted to asset management specifically, saving a great deal of research and decision-making."