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London Eye: Right Software Can Provide Answers to Hard Problems

Posted on: Wednesday, 27 July 2005, 06:00 CDT

THE surest way for any small business to improve the bottom line on a permanent basis, and at the same time make sure that it is in a position to grow, is to spend more on application software.

Evidence that most SMEs understand this can be seen in figures showing that spending on this kind of software is rising at the rate of five per cent a year. Yet there are still many that hang back from making the fullest use of such application software.

Chris Winn, who chairs Sanderson Group which is one of the biggest UK suppliers of this type of software, says a major reason for this reluctance to invest more in software is that few SMEs have a dedicated IT department and hence they are concerned about who is going to both install a new system and, more importantly, make sure it works: 'That's where we come into the picture,' he says.

Chris has plenty of experience in the industry as he began his career with Olivetti in the 1970s and then in 1978 joined one of the first software companies to float on the Stock Exchange. In 2000 he played a key role in the management buyout of Sanderson Group and its subsequent refloat on the AIM market in 2004.

Chris is enthusiastic about what Sanderson can do in developing software to solve specific problems: 'One of our client companies had five sites and wanted to add more. But it had no software co- ordinating what went on at these sites. That meant it had to employ accounts staff at each site. We showed them how it could be done centrally with a major saving in costs. In another case a food company was concerned at the amount of wastage it was experiencing but could not track why it was happening. We were able to develop software linking automatic weigh-scales installed at key points. This enabled them to cut wastage to a third of previous levels.'

The need for 'traceability' is the reason why food companies are among the keenest users of application software. Food manufacturers must have an 'audit trail' that can pinpoint the exact source of ingredients used, right down to the day and even the hour at which a particular farm or importer supplied them.

An obvious reason why SMEs in other areas hang back from making the fullest possible use of new software is the cost. Chris says Sanderson's average client spends pounds 30,000 a year with it. But the spend can be much higher in the first year.

As Chris puts it: 'SME owners are not people who spend money easily. You tell an owner that he has to pay an initial pounds 125,000 to install a new system and his immediate response is quite likely to be: 'No way sunshine! My wife does the books and I've promised hershe can have a new car this year'.' Even when they have accepted that the investment must be made there is another problem: 'You have to tell them that on top of the pounds 125,000 that we might charge they will also have to budget for the internal upheaval involved in installing a new system. That could cost the company twice as much again. On top of which you must then explain it cannot happen tomorrow. We might need to spend up to 20 days on refining the software product before we can move to install it.'

The upside to all this is that Sanderson's own staff, in the process of developing application-specific type products over the course of perhaps two or three years, tends to develop NASAstyle enthusiasm for making sure it works when the crunch comes to installing it. As a means of tackling the reluctance of companies to spend their management time dealing with computer 'experts' who do not understand their type of business Sanderson has been developing 'market specific' software subdivisions.

One such is for mail order. Another area covered is manufacturing and printing. And for the food and brewingindustry it has developed ' Formul8" as its software brand name.

As a stock market investment the interesting feature of Sanderson is that it manages to make 20 per cent return on sales and also it has little debt. That puts it in a strong position to make acquisitions to add to organic growth. A pounds 2m acquisition was made last year and it is currently talking to two other software companies.

This lack of debt also makes Sanderson's board relaxed about paying out increased profits in increased dividend (unlike many other companies in this IT sector). So the analyst forecasts are that it is quite likely that the yield on the shares by next year will prove to be nearer four per cent rather than the yield of under two per cent currently shown in share tables, which of course is based on last year's payout. The share price of 66p compares with the 50p at which it floated last year.

Any SME owner interested in learning more about software might note the dates of the next IT Showcase days - one at Cheltenham racecourse on September 15 and another on October 6 at the Old Trafford Centre. Sanderson Group will be at both

Source: Daily Post; Liverpool

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