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.