Business software as company’s asset: real or fantasy?

Business software is software specifically designed to process information in businesses. This is as opposed to word processor software, for example, which can be used by practically anybody, be they in businesses, non-profit organisations, governments, research labs, or poets, novelists, students. Smith, Skousen, Stice & Stice in Intermediate Accounting, 1995, defined assets as probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events. Note the stress on economic benefits. Not just abstract benefits, but economic benefits. Does business software really fit in definition of assets?

Windmilss made it easier to tread grains. Photo by sillpojken

To understand the value of business software, we have to consider the value of automation as a whole to businesses. All along history, people has been trying to find ways to accomplish tasks easier. An early example is windmill. Before windmill, considerable labor works must be done to tread the harvested grains. With windmill, people were able to harness the power of the wind to tread the harvested grains much faster than simply using people. On top of that, since windmills are able to work for numerous years after construction, the effect is a lower overall costs. This, of course, at the expense of labor. People would have to find other job beside treading the grains, because that job could then be done by windmills faster, and cheaper.

Steam engine
Single steam engine can perform tasks of many people. Photo by rooruu

Industrial revolution also was a case in point. With the invention of steam power, jobs that normally required factory with hundreds of people inside could then be done with machines and much fewer people. The machines ended up doing the job faster, with more consistent quality, and cheaper. Again, labor felt the strongest impact. Many, many people had to find other jobs because theirs were being taken over by machines. More recently, robotics technology enabled businesses to use robotic machineris to do jobs like welding in car manufacturing faster, with more consistent quality, with more consistent precision, and cheaper than using people. People were sacrificed again, this time replaced by robots.

The development of computerisation is one of the most recent example of revolutionary automation. Computers in business can do 2 things extremely efficiently: storing information and retrieving information. That was why in the early adoption of computerisation in businesses, the department in charge of maintaining the computers are called Electronic Data Processing (EDP) department or Management Information System (MIS) department. That’s also why the term Information Technology (IT) is the best in describing the value of computerisation to businesses (and to population as a whole). Before computerisation, information was stored and retrieved from paperworks. It was a labor intensive task. With adoption of computerisation, labor works involved in paperworks can be decreased significantly. Computerisation has brought about a new era, where labor are being replaced by computers.

People queueing at ATM
Without computers, ATMs wouldn't be possible. Photo by Alex Segre

As a case study, let’s take banking. Banking sector has always been one of the sector that spends most liberally on computerisation, for good reasons. In big banks, millions of people make transactions with it everyday, done in hundreds of its branches. One can only imagine the gargantuan task of recording all those transactions on paper. Using just paperworks, for example, how can you ensure that the millions of people withdrawing money everyday actually has enough money deposited with the bank? Without ATMs, which need the bank’s business software to operate, how can they serve their customers with such small branches? How can the bank compile its profit (loss) report every month based on those ridiculously large amount of paperworks? The number of employees required would increase dramatically, rendering the bank unprofitable with its current revenue structure. For big banks, spending hundreds of millions of dollars on business software is still cheaper than having the same job done by people.

So, in conclusion, business software, just like any other automation technologies that preceeded it, does enable businesses to perform task faster, with more consistent quality, and cheaper than using people. Which business software to buy is another matter. And to decide on that, companies should use the same approach as deciding which machineries to buy, ie do a cost vs benefit analysis. Smaller companies buy cheaper machineries, larger companies can buy more expensive machineries. So, smaller companies should buy cheaper business software, and larger companies can buy more expensive ones. What to do with workers displaced by business software is yet another matter. And companies can use the same approach on this matter as for deciding what to do with ones displaced by (new) machineries.


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