Unless you are in the software business, your company’s IT, while absolutely necessary, is not the main focus of the organisation. It’s needed to keep things running on a daily basis, but can often be seen as a growing expense that is more reactive than proactive. Servers, hardware and software, storage facilities, and the maintenance that goes with it, all add up to a considerable portion of the IT budget, leaving little for innovation or growth.
Under the traditional Capital Expenditure (CapEx) model, this IT equipment is bought in by the company at great expense, and those costs just continue to rise as systems and machines all too quickly become outdated and in need of an upgrade, when the whole expenditure scenario starts again. It’s natural for a business owner to see this as a painful cycle of spend, spend, spend, without attaching any real value to the IT itself, simply because it doesn’t offer anything further than everyday operational functions.
Large organisations with huge coffers can afford to pay up front for their IT, but that is not always something SMEs on a budget can say, and they are faced with the problem of having to buy in instalments, prioritising on one area of their necessary tech at the expense of another.
Switching to an Operational Expense (OpEx) approach, can therefore be very beneficial for any organisation that not only wants to have all of the equipment, hardware and software they need to run the business, but also leave some budget for growth and innovation so they can compete at a higher level.
But how do you convince your boss that OpEx is the way to go?
Outlining the Cons of the CapEx Approach
First, outline that as well as the large up-front investment required, as mentioned above, there are also many hidden costs to CapEx. Having bought your server, hardware and software, you also need to consider storage space, power, cooling systems, upkeep and maintenance, training for staff, as well as insurance. It all adds up.
Remind your boss that, within a few years, many software systems and machines need to be upgraded, meaning its back to the coffers to try to find more resources to meet this need.
Explain to the boss that CapEx also means having to buy with a view towards maximum current output, and expected future output, and if your business sees peaks and troughs throughout the year, it can mean that much of your IT infrastructure is sitting idle for much of that year, but still has to be paid for.
In fact, according to this article, many companies hold five times as much hardware, networking and data centre space as they usually require, spending much more money than they need to – when that money could be better used investing in future-proofing the business through innovation and breaking into new markets.
Moving Towards an OpEx Model
With the company owner mulling over the unnecessary costs of buying in the necessary IT infrastructure wholesale, it’s time to suggest the alternative.
The OpEx approach to your IT investment means you can break your expenses down into more manageable amounts, still get the same level of IT support you need, and direct the savings you make towards exploring new technologies, upgrading software and finding innovative new solutions for business growth.
It’s worth pointing out that savvy IT managers and business owners are beginning to see the benefits of an OpEx model and of outsourcing their IT support to a third-party. This approach means that the company has to invest less in hardware and software, as the third-party can provide the IT infrastructure a business needs, and with the emergence of cloud computing, can get rid of the costs of having a server on-site and needing to install and use new software to manage new challenges.
Cloud computing also has the major advantage of enabling your business to only pay for the storage and systems it uses, giving not just cost-savings but also the agility to scale up or down when required.
Using the OpEx model to outsource your IT support means your business has an always-available Virtual CTO to oversee and run the tech requirements of the business on a day-to-day basis. An SLA can be set up so that the company only pays for the level of IT support it needs, and can scale up or down accordingly, eliminating those unnecessary costs and distractions of needing their own IT team and tech support on-site.
Those organisations financially crippling themselves by spending large sums on hardware, software and maintenance can only sit still, keeping the business running, but with no room to manoeuvre when it comes to getting ahead of the competition. With an OpEx model, however, resources are freed up, so you can invest it elsewhere in the company to ensure you get ahead of the competition.
Outsourcing to a reputable IT service provider also means that the business doesn’t have to worry about unforeseen tech problems that will grind operations to a halt due to a lack of expertise. While an in-house IT team may be able to handle most break-fix scenarios, an external IT support team will have the expertise on hand, ensuring business continuity, and will have a finger on the pulse of new trends and technologies, so they can offer advice and suggestions on the best ways to utilise the IT at your disposal.
In short, OpEx is a winning combination of pay-as-you-go, the reduction of expenditure on equipment, and shorter-term commitments. If you are large enough to handle those huge up-front expenses of buying in all of your IT infrastructure, maintaining it, and replacing it every few years, that’s great. But if not, OpEx is definitely something your business should be considering, and outlining the points above should help you convince your boss of the direction your organisation should be going.
Find out how you can increase your business efficiency with the right OpEx IT support, and what pebble.it can do to help, by booking an audit with us: