Regardless of size or turnover, every business has had to find ways to cut costs and save on expenditure, since the onset of the global financial crisis of 2007/2008. One of the many ways businesses have achieved effective cost cutting is by embracing cloud computing and managed hosting. It’s been a real game changer for businesses of all sizes as it offers scalable infrastructure and capabilities as a services.
However, following the recent Brexit vote, and the discussions around a hard vs soft exit, the future of the UK and its finances is, without doubt, facing uncertainty. We’re at saturation point with the number of different theories, opinions and perhaps even misdirection given via the news. Making any large decisions regarding investment in new technology will not an easy one for any senior executive. In increasingly unpredictable times, it is only natural that organisations will be hesitant to make any large purchases until some clear answers have been given on where we’re all headed.
What can companies that require the flexibility and scalability that cloud computing can offer do, without taking on any unnecessary financial outlay and investment of their hard earned capital? For many, committing to a one-time capital expenditure (Capex) and a multi-year depreciation schedule is no longer cost effective, desirable or dynamic enough in the current climate.
The solution is to make the move away from Capex to Opex (Operational expenditure) which would see IT services provided through rental agreements and where computing resources are available as, and when, they are needed. But most importantly, businesses pay for the use on a pay-as-you-go basis.
Businesses need scale and flexibility, and the Opex model offers both of these, based on market demands. Once the preserve of the hosting and storage function, smart providers are now offering to de-risk investment in core infrastructure and the end-user estate. More than just a leasing model for hardware (which still demands a full-term commitment complete with ugly cancellation penalties), the option to rent the full end-user or core infrastructure bundle is, at present an uncommon yet realistic option. Also and perhaps most critically, the provider assumes the risk of the business de-aggregating or shrinking; in other words, if you stop using, you stop paying.
For example, instead of an organisation buying its own server hardware, (which would have a drastically reduced resale value compared to the cost of the initial investment), businesses can use the cloud, or rent servers – allowing them to register the costs as Opex rather than Capex. Another added bonus is that the costs associated with maintenance are usually covered in the rental agreements and remain the responsibility of the rental firm.
Another advantage of the Opex model is that companies are able to ‘flex up, or flex down’ rental models for hosting and storage, paying only for what they actually need and use. This means organisations no longer need to invest their capital or sweat assets over a three to five-year term to deliver the appropriate ROI. And we expect that this approach will soon become a thing of the past, especially for SMEs, now that rapid deployment and short-term consumption are all made possible under a cloud-based operating model.
Businesses that move from Capex investments to an Opex model can also benefit from diminished risk. Opex allows businesses to engage their resources elsewhere and use cloud based data storage and IT systems, effectively eliminating the need for capital investment on technology. SMEs will benefit even more, as huge cash out lays prove to be a more daunting prospect. 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.
Opex models can be rolled out in more than 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 at both technological and commercial levels and once migrated the flexibility and diminished risk become tangible benefits.
For many businesses the expense of, or indeed the actual need for in-house IT expertise, far outweigh the benefits and this is yet another example of how adopting an Opex model can save the company money by eliminating the need for in-house IT.
The simple reality is that businesses cannot afford to ignore their IT requirements, even in such uncertainty, or they will risk falling behind. Using outdated technology leads to a competitive disadvantage and a real risk of failing to operate at the full business potential. Furthermore, when, and if confidence is restored after Brexit, businesses that have stood still will very likely have to undertake a large financial expenditure in order to get up to speed. With Opex, it’s a ‘win win’ situation.