Companies either noticed the collapse and took action, or they didn’t and the problem grew like well moistened fungus.
A variety of things contributed to the collapse. The pace of business got brisker, the number of items falling into the “fixed asset” category began to reach melt down point, particularly when IT and communications networking infrastructure was added to the pot. Merger and acquisition activity brought together companies with qualitatively different asset management strategies. Better analysis and business intelligence tools helped boards to take greater stock of exactly where the company’s money was being tied up and why. Plus more and more companies, inspired by a sharper focus on adding shareholder value began to see that managing assets more effectively could have a powerful impact on the bottom line.
Alison Morgans, senior business consultant with PeopleSoft, is a chartered accountant and a former auditor with Ernst & Young. In her experience, fixed assets have traditionally got sidelined as “one of those things that people care least about”.
“Auditors knew that they could nearly always find a good management reporting point to make about the way a company deals with its fixed assets, because it was generally so poorly done. Loads of companies ran high value assets on bits of paper or spreadsheets,” she says.
Today, however, with e-procurement putting the spotlight on a company’s purchasing activities, there is much more awareness that managing the purchasing side of asset acquisition – which is just one phase of managing the life cycle of an asset – can generate substantial savings. “Companies are finding that e-procurement gives them the ability to produce cost savings directly, through contract negotiation. Plus an integrated e-procurement offering allows the company to take advantage of the back office integration, so new purchases can be accurately interfaced into the asset register right at the point of purchase,” she comments.
Things are getting slicker and there is much more awareness of what is being lost when companies fail to manage assets. According to Morgans, consultants have an excellent opportunity here to help companies put their houses in order. “We find companies coming in the door saying that they know they have a problem as far as managing their assets are concerned, and that they know the way they are currently doing things is costing them substantial sums in under-utilised assets – and this is before one even gets into the issue of preventative maintenance, or the sale of surplus assets,” she says.
Stephen Moriarty, managing director of AssetWare Technology agrees. He argues that more and more companies are coming to the conclusion that the best way of handling their asset problem is to outsource asset management to a third party. Some are going a lot further and are moving to a sale and lease back position for whole categories of asset, from properties to plant, car fleets and IT infrastructure. “Gartner has forecast that 50% of asset management in Europe will be outsourced by 2004. It is already a good line of business for the Big Five consultancies as companies turn over everything, lock stock and barrel, to the outsourcer to manage,” he says.
Moriarty argues that one of the real drivers making companies focus on the asset issue is the sheer volume of kit companies are acquiring as part of their IT infrastructure. “The problem that is of growing concern to financial managers is that they are finding it increasingly difficult to get a complete, accurate picture of their organisation’s IT assets,” he says. Moriarty claims that the source of the problem, very often, is not that there are no asset management systems in place. It is rather that there are too many fragmented systems. The company will have a fixed asset system which does the depreciation on high value property and plant items. It has facilities managers whose emphasis is on maintenance and who keep a different set of records on some classes of asset. Procurement has another set. Then there is the IT department which has perhaps the most complicated set of records of all, having to deal with configuration management, software licensing, hardware upgrades, mobile phones, laptops, PDAs, desktop and network infrastructure items.
“Multiple systems means duplicated redundant and conflicting data. According to some estimates, companies are over-spending by as much as 20% because of under-utilisation, inefficient maintenance, unnecessary purchasing and petty theft of assets. We have also found them paying hefty insurance premiums for non-existent or retired assets,” he says. Often it is not until the problem is flagged up by the company’s auditors, or through the shake up generated by an acquisition, that the true magnitude of the mess is realised.
A report from fixed asset applications provider and ASP DataStream, called Asset Life Cycle Management, highlights a “disconnection” in asset management. It points out that while the CFO of a company is ultimately responsible for the performance of corporate assets, ownership of asset management is generally relegated to an operational level. As such, it says, it is carried out without “front office sponsorship”. Broadly interpreted, this means that fixed assets have dropped off the CFO’s radar, and asset management is “rarely synchronised to corporate financial objectives”.
“Over the last five years, the priorities of most corporations have been determined by Y2K and the so-called ‘Internet ultimatum’, financial (ERP) and sales (CRM and e-business) initiatives. The result has been the creation of a solid information foundation in these areas but one that lacks a strong linkage to fixed asset performance. In many instances, the CFO focus has been on tracking financials and increasing revenue, missing opportunities to manage costs and add revenue through asset lifecycle management,” DataStream says.
PeopleSoft’s Morgans cites the example of a major retail company that had no easy way of discovering how much value it had tied up in the refrigeration units, shelving and racking inside its supermarkets. They knew they were buying units from different vendors, but they had no way of answering simple questions, such as, am I getting better value from one supplier rather than from another? Are one supplier’s units costing less to maintain than another’s? “You need analytics which can look at refurbishment records, repairs, the frequency of servicing, and that can generate metrics for management to act on,” she says. “Companies need a 360 degree view of their assets. The problem is that from an accounts point of view, they tend to look at their assets at a very summary level. The devil is in the detail, but this is also where there are major savings to be made.”
Morgans also argues that companies that deploy a self-service enabling IT infrastructure across the enterprise can do a lot to encourage department level ownership of assets. Where a company’s policy is to simply charge an arbitrary overhead to a department and there is no departmental level accounting that includes assets within the equation, there is no incentive to manage.
“When departments have to bear a depreciation cost for assets, they need to know at an appropriate level of detail what they are being charged for.” She cites a training department that was being viewed as an unprofitable overhead. On analysis, it turned out that it needed more square feet than any other department, and it was being charged a penal overhead based on an arithmetical treatment of costs per square foot. “This made no sense in terms of the company’s strategic thinking about training,” she points out.
Moriarty reckons that many companies run into difficulties because their policy of defining fixed assets does not map to today’s realities. “If the company sets a policy which only registers assets over £4,000 in value, for example, what can happen is that the vast majority of its desktop PCs and other IT assets never get onto the register. Companies need a policy that captures information at the right level of detail,” he claims.
AssetWare’s core product is the asset register, but it has a consultancy wing which will go onto the customer’s premises and carry out a full audit of the assets. This division will also help the customer to determine how best to handle high volume, low cost assets such as PDAs and cell phones. “Some companies want to record just the serial number and description of each item. Others want to know everything about the asset, including whose briefcase it is in. We can apply a bar code that uniquely references each asset and makes the whole data gathering exercise for the register much simpler,” he says.
However, Moriarty points out that asset management is not a one off “load and go” exercise. New items are being acquired all the time. Old items are being disposed of. Companies need a coherent way of capturing information at source, at the point of disposal or purchase. “You have to have a way of tracking the movement of assets across offices. More and more, our business partners are providing outsourced asset management services to companies who want the whole thing done for them,” he says.
In many ways, Moriarty argues, the asset register is becoming the heart of the modern virtual company. Particularly as staff become more mobile, the asset register is proving an indispensable way of finding out who has what.
IDC’s white paper, snappily headed Web-based asset lifecycle management transforms businesses into smart companies, focuses on web based e-procurement, which can bring companies saving ranging between 5% and 8% of their procurement spend. However, IDC argues that this range of savings can be significantly extended if e-procurement is combined with life-cycle asset management.
“Companies that take this approach will realise further savings by having up to date information on how they acquire, deploy, manage and retire their assets,” it argues.
IDC argues that web-based asset life-cycle management will turn out to be crucial to the long term survival of mid sized companies. It is all about the intelligent allocation of resources to maximise productivity.
“Companies must develop a procurement and life-cycle management strategy that is easy to execute over the web, flexible in its cost structure and scalable in its architecture.”
IDC argues that businesses are undergoing a fundamental shift from “old style” traditional asset management, to a new, web-based approach, ideally suited to an ASP service. “We estimate that the worldwide spending on enterprise, collaborative and personal ASP services will soar to $7.8bn by 2004 ($300m in 1999),” IDC says. At the same time, companies are under increasing pressures, such as shortening technology refresh cycles and the IT skills shortage, when they try to roll out in-house implementations.
All of these factors point towards a shift to ASP delivered asset life-cycle management solutions, IDC claims. This shift will generally come about as companies buy ASP services in other areas, particularly in the field of e-markets or e-procurement, where managed services are gaining market share fastest. The payoff for companies who can put information about their assets into a single repository will be a much tighter control over its financial picture. Consultants and service firms have a role to play in helping companies to move towards a real time, properly maintained view of their assets, IDC concludes.
Anthony Harrington is a freelance journalist
Friday Afternoon Live: HMRC complaints rise; Deloitte scoops big audits; and corporate reporting woes
HMRC receives highest number of complaints in seven years; Deloitte scoops BP and Centrica audits; and corporate reporting under the microscope in our latest Friday Afternoon Live broadcast
Marco Schwartz appointed as KPMG's UK head of equity capital markets, as the firm targets further growth
Jaguar Land Rover engineer Bob Joyce joins Grant Thornton to drive solutions in its automotive division
A new head of solutions, Aidan Brennan, has been appointed at KPMG UK