What if the price you pay for your equipment is not what it really costs you?

Behind this mysterious question lies the concept of Total Cost of Ownership.
In basic terms, this means that there are significant hidden costs that are part of the life cycle of any equipment, from solar panels to self-checkout. The costs for maintenance, upgrades, training, repairs, security, insurance etc can have a considerable impact on your budget, as they are often underestimated at the time of purchase and exceeded in the long term.

“The TCO concept is like the submerged part of the iceberg: 90% of the giant block of ice is invisible to the eye because it is located underwater.”

Buying will always be more interesting than renting. Or will it?

This preconceived idea comes from the real estate world. But what is generally true for buying real estate, doesn’t apply to equipment depreciating in value over time such as IT, cars or professional equipment. For these assets, renting is the right choice.

With an as-a-service model, the management of hidden costs is transferred to a third party. This is not only an important financial advantage, but also an added value in organisational terms. It is not the core business of companies to maintain IT or to upgrade tech equipment.

It is possible to save 20 to 30% of the total amount by integrating the complete life cycle of the asset. Via an as-a-service model, you save costs by not having to deal with recycling and data wiping and you always have up to date tech. In case of breakdown or outdated equipment, you receive a replacement device right away and don’t have to support heavy maintenance costs.

TCO makes you aware of hidden costs

• Time spent negotiating the purchase
• Administrative follow-ups
• Hardware installation
• Productive time lost by users (during installation and afterwards, given the new work habits to be put in place)
• Equipment maintenance
• Network maintenance
• Updating and securing
• Inactivity of an employee in case of breakdown
• Cost of computer support
• Management of obsolescence and resale (or replacement)

Gartner estimates that the TCO of a PC purchased at £660 ranges from £1,940 to £3,180 per year. The question of value is therefore central.

Switching to as-a-service models allows companies to reduce costs and have the right flexibility when business increases or decreases. A leaner organisation becomes more agile and keeps its cash for core activities.

With a TCO under control, you optimise your budget

The number of buyers looking for as-a-service models is constantly increasing, in order to benefit from the following:

• no risk of failure or obsolescence,
• everything is integrated and included,
• no bad surprises putting a strain on the budget
• financial visibility is increased and costs are reduced

A controlled TCO is also a way to support companies in their digital transformation.
A subscription model helps avoid unnecessary or inefficient purchases thanks to controlled financial planning, greater productivity and the latest hardware and software.

Taking the time to question the TCO means taking the necessary action to optimise your development strategy. It is difficult to anticipate the future when your assets prevent you from taking off. By calculating the TCO for each of your fixed assets, you can have an overall view of the future room for manoeuvre available to you.

To reduce your TCO, an as-a-service model is the ideal solution for all organisations.

What if companies were able to take the “farm to table” approach from the food sector to the tech bubble to fight against digital exclusion and e-waste?

Econocom – an international provider of subscription models for servicing the technology needs of companies, as well as providing the financing and an e-waste plan for them and TechInclusionUK – a new social enterprise enabling digital inclusion – have joined forces to securely wipe and refurbish tech donated by Econocom. Notebooks and tablets have been refurbished to be distributed out to young people in education across Tower Hamlets, through a collaboration with the Tower Hamlets Education Partnership.

Why now?

Shiny and new is great but it is time companies, corporations and their C-suite start taking accountability for their e-waste and energy efficiency. At Econocom, we believe there is secondary value in everything. As the world has gone through a massive change with the pandemic, what becomes clear is that the COVID-19 crisis has shown the effects of the digital divide in the education sector.

Thousands of young people lost a significant amount of contact with school, with those digitally excluded being impacted most unfavourably with little or no access to computer equipment. Students, but also teachers, felt out of the loop due to the lack of sufficient technological resources and digital skills. The most adversely impacted families were those who suffered from a loss of income and in turn struggled to support their children with the new normal of home online learning. At Econocom, we think it’s possible to bridge the global digital divide if we promote innovative ways of doing business and this great partnership is one way of achieving this.

COVID-19 has been the greatest challenge the world has seen in decades, resulting in a dramatic acceleration in the need for digital transformation. Companies had to react quickly and switch to remote working, without all the necessary capital and human resources in place.

Unforeseen investments, including laptops, apps, cloud computing and security, have had to be generated. Due to declining revenues, fixed costs and deferred payments from customers, lack of cash has become a big problem.

In light of the cost pressure due to uncertain business and economic conditions, more and more companies are opting for “as-a-service” models and moving to OPEX for their IT investments.

Immediate need for digital transformation since the pandemic

To strive in this economic downturn, companies were forced to fast-track their digital transformation efforts. A survey by Gartner in September 2020 found that 69% of the board of directors accelerated their digital business initiatives.

Technology driven companies have been leading the path to a faster recovery.

To meet employees’ needs and customers’ demands, IT and Procurement leaders should continue transforming their operating models and investing in key enablers, such as cloud computing, intelligent automation, artificial intelligence, blockchain, and advanced data and analytics.

A recent report from IBM shows that 36% of business executives now assign high or very high priority to digital transformation compared to 17% in 2018. In 2022, this percentage is predicted to reach 62%. Another study by Nasscom, reports that more than 70% of CIOs are prioritising digital spend and moving to OPEX. In 2005, IT expenditure was 34% CAPEX vs 66% OPEX compared to 24 vs 76% in 2019-2020.

Cash is king and the emergence of as-a-service models

Having a favourable cash flow is particularly important in times of economic decline, when credit is harder to obtain. If a business can continue to ensure the regular inflow of liquid capital whilst controlling costs, it will be much better placed to ride out the storm of lower sales. In this context, the Device-as-a Service (DaaS) model of acquiring hardware by paying rental payments over time to preserve cash reserves is gaining significant traction in the technology sector.

Below are the main advantages given by the DaaS model:

• Companies shift large IT budget allocations to more manageable expenditures over a planned period of time. It reduces the Total Cost of Ownership (TCO), allowing business leaders to make more strategic decisions regarding future investments.
• Obsolescence risk is removed. Some goods require regular maintenance or even replacement. This is particularly the case for hardware. With an as-a-service contract, you avoid the risk of obsolescence and the problems of disposal of the equipment.
• Setting up an as-a-service contract means benefiting from a complete, fully customisable service, with optional add-ons: upgrades, technical support, data wiping, recycling etc. Each contract is adapted to your activity and your company’s needs.
• It increases flexibility: Unlike traditional IT infrastructures, the DaaS model allows organisations to ramp the number of devices up or down as required. At the end of the as-a-service contract, companies have three options: extend the subscription, return assets and renew the contract with upgraded tech or purchase the assets.
• The DaaS model promotes multiple device models and configurations, enriching employees’ productivity and experience.

In 2015, according to TechRepublic, no major PC manufacturers were offering DaaS options to their customers, compared to 65% now.

Most companies also opt for subscription-based models to better meet customers’ expectations. The flexibility offered by as-a-service models means consumers pay for things as and when required, with some accessing goods or services they wouldn’t otherwise be able to afford. And with the transition from ownership to ‘access’ comes the opportunity to build a circular economy by innovating and saving costs and energy while conserving natural resources and reducing e-waste.

New business priorities

With all this happening around us, how much have long term business priorities really changed?

Asked about the most pressing of these priorities, C-suite executives ranked “workforce safety and security” number one, closely followed by “crisis management”, “cost management” and “cash flow management” (IBM reports).

Most companies are now switching to OPEX models to better manage their costs and optimise their cashflow.

In times of crisis, cash is king. But the current environment presents a big opportunity for digital innovation, and business survival will mostly depend on strategic IT investments.
To help navigate the tension between financial cuts and critical investments, shifting from CAPEX to OPEX could be a good alternative; it frees up funds that organisations can allocate to core business activities.