The future of the UK and its finances is undeniably uncertain in the wake of Brexit. With a news landscape that changes daily, making decisions regarding the technology spend within an organisation is one of the CIO’s biggest challenges. In this unpredictable climate, it is only natural that every business will be hesitant to spend a penny more than it absolutely has to.
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In recent years CIOs have pursued the opportunities presented by cloud service providers, offering ‘flex-up, flex-down’ rental models for hosting & storage. No longer did CIOs need to invest their capital. Investments that demanded a clinical focus on sweating assets over a 3 to 5 year term to deliver the appropriate ROI. Now, rapid deployment and short term consumption are all made possible under the ‘cloud based’ operating model.
Today, despite the current market’s volatility and reluctance to spend on anything with a mid to long term return, businesses simply cannot afford to ignore their IT requirements or they will risk falling behind. Using outdated technology leads to a competitive disadvantage and real risk of failing to operate at full business potential. Furthermore, when and/or if the economic uncertainty settles, they will potentially have to undertake a large financial outlay to get up to speed. The good news is there are ways to stay ahead of the curve and efficiently manage financial IT investment.
Historically, during the macro economic landscape in the eighties, many businesses moved from large scale enterprise to more flexible financing models and the current uncertainty will see this situation occurring again. Businesses need scalability and flexibility, and the Opex “pay as you go” model offers flexibility according to market demands. To preserve of the hosting & storage function, smart providers are now offering to de-risk investment in core infrastructure and the end-user estate. More than simply a leasing model for hardware (which still demands a full term commitment or face a cancellation penalty), the option to rent the full end-user or core infrastructure bundle is now a rare but realistic option. And critically the provider assumes the risk of the business de-aggregating or shrinking; stop using, stop paying.
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So for many, committing to a one-time capital expenditure – a Capex model – and a multi-year depreciation schedule just isn’t cost-effective, desirable or dynamic enough in the current climate.
Businesses that move from Capex investments to an Opex model can benefit from greater flexibility and diminished risk; with IT spend closely linked to the ebbs and flows of business demand and market forces. Opex allows companies to engage the resources and expertise of managed services, including cloud hosting, experts while eliminating the need for capital investment on technology project; replacing up-front cost with pay-as-you-go operational spending and the opportunity for increased agility.
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For those under pressure from the CFO who is naturally concerned that historic investments, which still have book value to be managed, the transition to a predominantly Opex model doesn’t have to happen in one migration. Blended models that make use of current investments in technology, coupled with historic contracts with sub-contractors, can be built into a service delivery model that evolves over time. Refreshing Capex financed assets with Opex leased equipment when the technology ceases to be fit for purpose or when the book value is fully written down. Integration happens both at the technology and commercial levels; but once migrated the flexibility and diminished risk become tangible benefits.
And to any ‘late adopters’ of the cloud model, Opex presents a great opportunity for organisations that were uncertain before, but now wish to test the water – by investing in rental, hybrid models – and only paying for the data or services used, with any peaks in demand covered using contractor resources. And thankfully the CIO can adopt when new investment become a necessity whilst sweating the existing investments in a fully hybrid model – there’s no material outlay to adoption.
Employing an Opex model will also potentially accelerate further adoption of cloud technology in business, as organisations continue to build trust in the cloud ecosystem.
Simon Scarrott is the Business Development Director at Timico Technology Services