The concept of paying monthly for goods and services, like streaming, furniture and cars, is not unusual for consumers. It’s an approach to ownership that’s taken hold in many areas of our personal lives. Why buy furniture when you can spread your costs and replace it at any time? And why buy a new car, which depreciates as soon as you drive the first mile, when economical and environmentally friendly pay-monthly schemes are popping up everywhere?
And now this trend is fast becoming the default choice for many businesses, as 40% of IT managers across the UK, France, Sweden, Germany and Finland now prefer to finance their IT equipment through leasing or as-a-service models.
Many organisations have stopped using on-premise software, which involved hefty capital investments in infrastructure and licenses. Instead, they’ve moved to software-as-a-service (SaaS), delivered on a monthly subscription basis, in the cloud, with no server infrastructure to buy, house, manage or maintain.
It’s easy to understand and explain the popularity of these usage-based models: they reduce costs, ensure budgeting is predictable, make previously unaffordable items accessible, and importantly, play a vital role in reducing electronic waste and pollution, using the principles of the circular economy.
Here are four reasons why traditional, cash ownership of IT no longer makes sense, and an increasing number of European organisations are catching on.
1. OpEx spending gives you greater agility
The pandemic threw sharp light on the inefficiency of buying IT. As lockdowns were imposed, 84% of companies were forced to buy additional hardware to enable employees to work at home, according to our report, The State of Business IT 2020.
Many of these organisations were caught out because they were still running legacy desktop PCs, rather than portable devices that employees can take home. That’s mainly down to a strategy of ‘sweating’ IT assets to achieve a return on investment – resulting in an ageing estate that gets progressively less fit for purpose and more costly to maintain as time goes by.
It’s a strategy that wasn’t flexible enough to cope with the events of 2020. Our survey found that those new devices accounted for 23.6% of all IT spending in 2020, putting IT departments under pressure at a time when most businesses desperately needed to control costs and invest in digital transformation at the same time.
In contrast, businesses with a more flexible approach to software procurement were better at navigating the pandemic, with 89% of companies that finance assets able to make swift IT investment early on to help cope with the effects of lockdown. Meanwhile, only three quarters of businesses that own their IT assets outright were able to do the same. As a result, employees of these companies were able to quickly and successfully move into a remote working environment.
With most businesses retaining remote or hybrid working policies going forward, the need for agile solutions to remedy this will remain the focus of IT purchasing strategies this year – which is why 43% of businesses will make changes to their IT infrastructure to reflect the new business environment.
2. CapEX spending racks up hidden costs
Pandemics aside, sweating IT assets over several years also creates a lot of hidden costs and waste. Management and maintenance costs account for 80% of the total cost of ownership (TCO), which rise as the equipment ages. Maintenance is usually unplanned and unbudgeted, causing unnecessary business disruption.
Then there’s the fact that devices get less reliable and less fit for purpose as they age. That has a knock-on effect on productivity, as workers typically lose a day of work a month to slow-running IT equipment. A survey we conducted in July 2021 revealed that in 27% of businesses, staff had to manage with older or unsuitable devices due to supply issues, and 32% had to increase headcount to cope with the increase in IT service requests; having a knock-on effect on productivity, employee satisfaction, and costs.
When looking at the total cost of ownership (TCO) of IT devices, businesses that refresh devices every 3 years reduce their TCO costs by 24%, compared to those that hang onto devices for twice as long. Those who choose to ‘sweat’ their IT assets for longer, see a 12.9% increase in the cost of maintenance and support YoY between the third and sixth year of use. Despite this huge cost to businesses, only 52% of our survey respondents replace IT assets every 3-4 years, with 30% running devices for more than 5 years.
3. CapEx spending is less sustainable – and comes with the burden of disposal
Another growing issue for businesses that own their IT is what to do with devices that have outlived their usefulness. Despite 74% of European businesses saying they are concerned about the amount of e-waste they produce and 72% feeling under pressure to act more sustainably, 65% do not have an environmentally sustainable process in place when it comes to disposing of unwanted IT equipment. On top of this, our State of Business IT report revealed that surprisingly few companies have a structured disposal plan for IT assets, with 25% telling us they lock old PCs away and 10% admitting they send them to landfill.
These practices aren’t sustainable – both for the business, which must pay for storage space for every unwanted workstation and for the planet. A record 53.6 million metric tonnes of e-waste was generated in 2020, according to the UN. That means $57 billion of raw material went to waste rather than being recycled, while more resources had to be extracted to manufacture new devices.
Locking old devices away also means missing out on a potentially attractive source of revenue. In contrast, companies like 3stepIT and BNP Paribas 3 Step IT buy old devices at market value, safely erasing the data and refurbishing them for a new life elsewhere.
4. OpEx models free up budget for bigger, strategic initiatives
At a time when digital transformation is a business imperative, significant outgoing capital expenditure on IT ties up funds that could be better spent on strategic initiatives. For many, this means a difficult road ahead. We know that over 70% of businesses are rapidly looking at digital transformation initiatives to better future-proof operations. But a quarter (28%) of IT managers already feel that their IT budget is insufficient to meet company objectives and KPIs.
Moving from a yearly CapEx IT budget (which must be spent in the year or lost) to an OpEx model (in which IT is leased on a predictable monthly basis) means IT teams no longer have to hold back budget ‘just in case’ it’s needed later in the year. Instead, by spreading the costs of asset acquisition, management, and disposal over an optimum lifecycle of 3 years, they can free up budget to invest in transformational initiatives, thus meeting both immediate and long term KPIs.
It’s a model that more and more businesses are exploring. Our survey showed that over half (54%) of organisations are likely to use an OpEx-based model to acquire assets over the next two years. In doing so, they won’t just free up funds for strategic initiatives – they’ll also be able to replace devices with newer models whenever they need to. This will bring at least one more benefit: attracting talented millennial and gen Z staff who don’t want to work for employers whose tech isn’t fit for purpose.
Discover a better way to procure IT
More and more businesses are realising that buying IT simply isn’t an effective way of accessing the tech they need in a fast-moving digital age. With 54% of IT decision makers already considering alternative acquisition models based on the principles of usage and access, it looks like owning IT is set to become a thing of the past.
Discover how to keep your business at the cutting edge of technology, while driving down costs and meeting your sustainability commitments with our circular Technology Lifecycle Management model.
Or learn how Sweden’s Enköping Muncipality benefitted from switching from CapEx to OpEx, freeing up time and budgets.