The Institute of Risk Management of South Africa (IRMSA) has recognised Escrow Europe’s role in assisting South African companies manage their mission critical business risks and named the company as the recipient of the Best Small Business Initiative Related to Risk Management Award for 2007 at its annual conference.
The awards were sponsored by Santam, the country’s largest short-term insurer.
Handing over the award to Escrow Europe director, Andrew Stekhoven, Santam’s Mpumi Tyikwe, Executive Head of New and External Markets, said that the institution of the award was a direct response to the widening gap in the implementation of risk management principles between listed and unlisted companies, and hence designed to encourage adaptation of risk management within this sector.
He says all winners had demonstrated outstanding achievements in the field of risk management and have served their shareholders and stakeholders well. Through their innovation, creativity and expertise they have helped to promote the discipline and have made a significant contribution to the industry as a whole, he adds.
Gartner Research believes technology escrow is a smart and effective component of a business continuity strategy that software licensees can use to protect their mission-critical applications in an ever-changing environment.
According to Director of the IT Asset Management and Applied Research Group, Jane Disbrow, inherent to every technology license agreement is a level of risk. Companies that supply and demand technology must adjust to a fast-changing marketplace, and with such uncertainty, precautions are needed.
Escrow is an insurance policy to make sure companies have access to that source code should that vendor no longer maintain that software for their organisation, so this gives an alternative.
Stekhoven says Escrow Europe is proud to be recognised by IRMSA and Santam, and hopes it will help raise the profile of escrow as a viable, sensible solution to risk management.
“For the SMME software house, an escrow arrangement levels the playing field,” he says. “Often, smaller ICT suppliers are precluded from tendering for major projects despite their expertise and intellectual property. This is simply because the contracting organisation believes it is less risky to deal with large, established firms than smaller concerns which may have the best-fit solution but do not have the resources to guarantee ongoing support.
“In theory, it is more risky to deal with smaller organisations – the intellectual property often resides with just one or two people; what happens if they leave the company or are unable to fulfil their work obligations because of illness or death? The smaller company also doesn’t have the financial resources to ride out turbulent economies and business cycles.
“However, software escrow is an effective method of minimising the risk of conducting business with smaller companies; in effect putting them on the same playing field as their larger competitors.
“A case in point is Gate C at Schiphol Airport, the Netherlands' main air-gateway and one of the world's busiest transport nodes. Each terminal at Schiphol operates as an independent profit centre, and Terminal 4 is infinitely more profitable than the others. This is partly because the terminal authorities were able to implement a powerful but low-cost access control system, developed and maintained by a team of only two ICT engineers, essentially SMME ICT vendors.
“A comparable system from one of the larger software houses would have cost significantly more to implement and maintain. Thanks to an active escrow agreement, which provides terminal managers with a guarantee of business continuity, it was possible to entrust this mission-critical application to a lower-cost supplier.
“Closer to home, Genasys Technologies, a Stellenbosch-based IT company whose leading management and customer information system for the short-term sector – Software Key for Insurance (SKI) – is sold locally, has been able to open up new markets in the UK because it has an active software escrow agreement.
“The risk of UK insurance brokers relying on a small software house over 10 000 kms away for a mission critical system was effectively taken out of the equation by the agreement."
Stekhoven asserts that SMEEs can buy themselves a huge amount of credibility and client satisfaction, as well as help grow their businesses, utilising active escrow.
An analogy Stekhoven often uses to describe the value of escrow is that of the fire extinguishers in a building – neither the tenant or owner of the building, nor the supplier of the fire extinguisher, is wishing for a fire. However, in the event that there is a fire – the extinguishers better be there and they had better have been checked to make sure that they are in a working condition.
He says: “Today, many companies – large and small – rely on core, mission-critical information technology processes that are dependent on software which they do not own but license to use from third parties, and, therefore are subject to conditions or events beyond their control.
“This reliance on third parties may not appear to present a problem, but companies who want to continue to use software important to their business where it needs constant support by a software supplier could be affected by an unforeseen development impacting on the software supplier’s business.
“Supplier insolvency, a change of ownership or a new strategic priority (for example, discontinuation of support and maintenance) could leave them stranded and have an extremely serious, possibly catastrophic, impact on the financial and business health of the company.
“Change of ownership is currently a growing threat in that larger ICT conglomerates such as Oracle with Hyperion, Siebel and Peoplesoft are buying up successful smaller companies sometimes for no other reason than to kill a competitive product, either directly by discontinuing support or indirectly by seizing annual maintenance revenue streams and increasing them unreasonably. Without an active escrow arrangement the end-user of the software would have a gun to his head and/or be left with ‘orphanware’.
“And, unfortunately, this risk is also excluded from all Directors & Officers (D&O) and loss of profit/business interruption insurance policies.
“To manage the risk of a business’s absolute dependence on a software supplier, active software escrow provides the business with guaranteed access to the source code for its mission critical systems and is the most elegant solution for managing the multifaceted risks and due diligence obligations facing directors.
“A sound, commonsense approach to providing for business continuity, active software escrow provides cost effective relief and security for a business. In today’s technology dependent business world, active escrow agreements between an end-user organisation and the supplier of the technology it utilises are a necessity, not a nice to have.
“Escrow Europe is able to tailor an active escrow solution for any company, regardless of its size,” he says.