Anatomy of a software house

Purpose:

 The purpose of this chapter is to study in detail a

company in order to understand the applications in
practice of some ideas described in previous chapters.
 Company is hypothetical.
The company

 Syniad software Ltd was founded some ten year ago by four
friend who own most of the shares in company .
 All four are members of Board of Directors along with two others
who recruited later.
 Company specializes in production of tailored software for clients
with high quality with advanced work(which means they use
techniques which have been recently developed or some times
totally new techniques)
 Head office was in west of London. Later on offices opened at
other places.
Company structure
 The operations Director is responsible for all matters
regarding accounts. He ensures that all projects completed
satisfactorily and required resources are available to carry out
projects.

 Technical Director is responsible for:

 Quality management.
 Research & development.
 Marketing at a technical level.
 Technical training.
General Details
 The separation of responsibilities is much to be praised.

 Such operation is essential for effective quality control but

could lead to conflicts.

 There is a tension between operation directors desire to

maximize staff utilization and revenue and individual
employees career goal.

 Personnel function should be able to act as intermidiatery.

It is said that art of running of software
house is art of matching people to projects
in an optimal way……..
 Groups (consist of 15 and 50 working staff members) are
managed by a group manger.
 Each group serve to specific project are( such as marketing
and database).
 Staff have a sense of belonging to a group and group
manager.
 In practice, because projects often requires expertise from
more than one group staff find themselves working for more
than on group and the sense of identity becomes weak.
Clashing structures

 The most serious problem of organization structure which synaid

faces is clashing structures
 Example
 it is worth remarking that syniad organizational structure shows
elements o all three structures
 At board level, there is basically a functional division of responsibilities.
 Geographical element represented by director responsible for overseas
operations
 Centralized policies and procedures are widely used but they have usually
been developed within one part of company and have been adopted by
general contest
Management of staff

 Management of staff has been critical to company so

will remain so in future.
 The ability to expand company depends upon it ability
to recruit and retain the staff for company’s reputation
and quality of work.
 Management is aware of this and much time and
effort is devoted to it.
 When company was small things were simple and there were
few problems.
 Staff were loyal, recruited through personal contacts. Directors for their
part put a lot effort into keeping employees informed and take
sympathetic attitude to any personal problem. They pay to employs to
attend trainings.
 As company grew up problems became apparent.
 Loyalty dismissed.
 Management reacted swiftly to these problems with the objective that:
 Employee achievement and contribution were properly recorded.
 Staff knew what was expected of them and what they needed to achieve in
order to gain promotion.
 Proper plans for training and career development were made and regularly
reviewed.
 Employees were aware of company’s opinion of their performance.
But they still perceived a number of difficult
problems to overcome

 How to provide continuity of management as staff move from

project to project.
 How to exploit and foster group expertise (e.g. the collective
expertise of the company’s six database experts) in an
environment in which the members of the group are usually
working on different projects.
 How to maintain standards and company loyalty as the
company continues to grow.
The biggest difficulty is the unstable nature of the
business..
Producing the budget

Staff in the company are broadly divided into:

 Technical or revenue earning staff
 Non revenue earning staff;
 Thefinal includes management, secretarial,
accounting and so on.
Problem in producing budget

The root of the problem in producing the budget is to:

estimate the costs of the revenue earning staff and
the revenue which they can be expected to earn.
 7 GRADES

Revenue earning staff are divided into seven grades, numbered 1 to 7,

with grade 7 as the most senior. For each grade, the average direct
cost (i.e. salary +National Insurance+employer’s pension
contribution+perks) in 1999 was calculated, using the July 1999
payroll.
WHY VARiation FROM GRADE TO
GRADE
The average number of revenue earning days per employee in
each grade was calculated for the period 1 August 1998 to 31 July
1999; this number varies from grade to grade because:
• Different grades have different training needs;
• Senior grades tend to spend more time on non-revenue earning
activities such as sales support;
• Senior technical staff are usually more specialized and it
therefore takes longer to redeploy them once they have completed
a project.
The 2000 figures have been prepared using the 1999
figures as a base, adjusting them in the light of the
following inputs:

• The sales staff’s estimation

• The personnel department’s estimation
• The operations director’s view
• specific expansion plans, e.g. plans to open an office in a new
location;
• The financial director’s estimate of the company’s ability to raise
funds for expansion.
REVENUE < ESTIMATED

 If the revenue is lower than estimated, it will upset

plans and commitments already entered into.
 Nothing is worse for the morale of the staff than to be
forced to withdraw from plans that have already been
announced.
 Even if the position is better than predicted, the result
may be a scramble to implement ill prepared and
badly thought out plans for expansion.
ASSUMPTION:

The author’s experience suggests that this combination of

performance improvements will only be possible in a very well run
company blessed with excellent sales staff, in the most favorable
of market conditions. The 2000 figures might be acceptable as
performance targets but should not be used as a basis for planning.
MONITORING FINANCIAL
PERFORMANCE
COST AND REVENUE

 Assuming the budget

 Large projects will cause significant deviations from the budget
in various ways.
 In fixed price projects, revenue is accrued on the basis of the
increase in the value of work in progress
PROJECT COSTING

 Syniad also tries to monitor the financial performance of

individual projects, through a project costing system.
 The costs and revenue of each project are calculated each month
and the cumulative gross margin calculated as a percentage of
the total revenue.
 Project managers are set a target of 60 per cent for the gross
margin on their projects.
 In practice, this system does not work well. Project managers
complain that there is usually little they can do about the costs
SALES

 Two reports are used for assessing and monitoring the sales
position.
 confirmed sales report
 sales prospects report
CONFIRMED SALES REPORT

The confirmed sales report shows, for each grade, the number of
staff in that grade who are committed to contracts in each of the
following twelve months and the total expected revenue from that
grade in each month.
SALES PROSPECTS REPORT

The sales prospects report shows, for each sales prospect, the potential
value of the sale, its likelihood and the likely start date. The likelihood is
reported on the following scale:
• 0.1 indicates that the client has an identified requirement which is
expected to be met by commissioning a software house,
• 0.3 indicates that Syniad has been asked to quote for the business or
will be asked in the near future;
• 0.5 means that Syniad has quoted for the business and is short listed ;
• 0.7 means that Syniad has been offered the business, subject to
negotiation;
• 0.9 means that negotiations are concluded but no signed contract has
yet been received.
Taken together, the confirmed sales report and the sales
prospects report enable a reasonably accurate
assessment of future staff needs and revenue to be
made. In particular, they allow recruitment tactics for the
next two or three months to be determined.
 Long term planning
 As well as short-term, i.e. year-by-year plans, a successful company needs to
have strategic plans covering, say, the next five years.
 Strategic planning has two related aspects.

 The first is to identify appropriate long-term goals.

 The second is to identify and formulate plans to overcome those
problems which are inhibiting it from attaining these goals.
Expansion plans

 Expansion plan can help any growing company move up and to

the right and helps to organize your company into teams that are
efficient and motivated
 Expansion plans(cont..)

 The directors of Syniad want to see the company become one of the leading
companies in its field in Europe.
 Expansion of a company depends upon it market share with other companies

 Its UK market share is less than 5 per cent and wants to increase it upto
15%.
 Its market share elsewhere in Europe is tiny and wants to increase it
upto10% to attain a market share of 5 per cent in Holland , Germany,
Denmark and Italy
 Expansion depends upon the staff they are recruiting according to their
ability.
 A major strategic decision concerns the staffing of the foreign operations.
 it retains the idea technical staff available for any project, and thus easier to
maintain a satisfactory level of utilization.
 It is easy to manage the UK staff rather than European staff. employment
legislation, for example, varies very widely amongst the countries of the
European Community
 UK based staff cost less rather then European staff
Company image

 It is a composite psychological impression that continuously

changes with the firm's circumstances, media coverage,
performance.
Company image(cont..)

 Syniad already has an image as a software house producing high-quality

product, directors are happy with this image.
 Firms of management consultants have succeeded in building an image
of providing high value services at a high price (50% higher).
 It is a long-term aim of the company to bring its charging rates up to the
level of management consultants.
 Investing more in technology for improving the software development
process.
 All these, in turn, would improve the company’s quality image.
 Product mix
 At present, Syniad relies for its income entirely on fee-based revenue that is
revenue that is tied to fees charged for the services of individual employees

 The directors of Syniad look jealously at the producers of packaged software,

invest money that is very risky and expensive.

 They realize that the company does not have the expertise or the
infrastructure to enter the very crowded market for high-volume packaged
software
Finance
 Many of the problems that have been noted are a consequence of the under-
capitalization of Syniad.

 Not enough money to invest

 Investments are not notified in the balance sheet.
 Capital raised might be spent on hardware, showed.
 Most of it would be spent on new or improved procedures, standards and
methods ,improved library, information services.
 These increase the charge rates and company to win business.
 If Syniad were to be sold, the purchaser would probably be prepared to pay
somewhere between £15 and £20 million.

 Shares are held to four rich people but they have no access to wealth, they
can only live on their salaries.

 All these factors shows that fresh capital is needed which can be achieved by
selling by a part of the company or whole company.

 However it is done, such a change will affect the character of the company
and the working lives of its staff.
Conclusions
 Syniad , despite its problems, is a successful and well-managed
company.

 However, it seems probable that Syniad has now reached a

point where it can no longer thrive as a private company and its
future must, certainly, be very different from its past.
Task I
 Prepare a report of international
company’s expansion
 Group of 2 members
 3-5 word pages