Attention CFOs: Here’s One Way to Significantly Reduce IT Capital Expenditures That You’ve Probably Overlooked
By Jeremy Louise | August 23rd, 2018
The other day, I was having a conversation with a friend of mine who also just so happens to be a Chief Financial Officer (CFO). As is the case more often than either of us would like, our friendly chat quickly turned to business. He asked me how some of our clients budget their capital expenditures for IT, since they’re oftentimes large, up-front investments that are meant to be used over a number of years. Traditionally this would include server, software or hardware upgrades, and the money that goes into the procurement and implementation process.
Although it certainly wasn’t my intention, my response completely floored him: “they don’t.”
After some additional back-and-forth, I quickly realized that my friend – like so many CFOs – had a point-of-view on IT budgeting that, in my opinion, is largely rooted in myth. Far too many CFOs still see IT as a capital expenditure, meaning money that is spent by a business on acquiring or maintaining fixed assets. That may have been true at one point, but I don’t think it is anymore.
Instead, there are an overwhelming number of reasons to view IT as more of an operating expense – meaning money that is spent via the normal operations of a business. Not too dissimilar to employee salaries, inventory control or even just keeping your lights on.
A Modern Approach to Modern Information Technology
As we continued our discussion, I quickly realized that part of the reason why my friend had the POV that he did is because he was still thinking about the “old school” approach to IT. His perspective was still rooted in the 1990s and early 2000s, essentially, when IT was all about spending large sums of money on procurement, setup and maintenance, when in-house IT teams were all the rage, and when you would pay big money now for assets that quickly fell out of date six months later.
For a lot of reasons, that was always “just the way things were.” But as anybody who has been paying attention can tell you, that’s simply no longer true. Indeed, it hasn’t been for quite awhile.
CFOs like my friend have failed to embrace the predictable fee, managed services model. In that way, it makes perfect sense that they still see IT as a capital expenditure – they’re still dealing with situations where they’re spending massive amounts of money every few years and are dealing with totally uncontrollable and unpredictable break/fix costs in between.
What they’ve yet to realize is that the predictable managed services model, alongside a strong collaborative client/vendor partnership, can be applied to almost everything in IT, completely shifting the landscape along the way.
Does your IT infrastructure depend heavily on hardware but you are looking for a way to reduce ongoing maintenance costs? Hardware-as-a-service or HaaS is the managed services model for you. Are you a software-heavy organization that is tired of dealing with constant paid updates and renewed licensing agreements? Software-as-a-service or SaaS has you covered.
Backups? Disaster recovery? Help desk support? These days, all of this follows the MSP model.
A Solution Presents Itself
All of this ties directly back to the premise of this piece: a way to significantly reduce IT capital expenditures that a lot of CFOs have probably overlooked, by adopting a different cultural perspective to the technology strategy
By now, you’ve probably figured out the answer: reject the premise that IT is a capital expenditure in the first place.
Think about everything that an organization does with technology. It’s how you communicate and collaborate among employees. It’s how you build valuable and long-lasting relationships with clients. It’s how you work. It’s how you protect yourself against cyber threats. The list goes on and on.
Remove IT and what happens to your business? At this point, it probably falls apart. That is precisely why IT is no longer a capital expenditure, but an operating expense.
At the end of our discussion, I was able to convince my CFO friend to embrace that MSP model wholeheartedly. He’s making moves as we speak to bundle everything, lowering his overall costs and is trading unpredictability for a fixed, predictable monthly fee and engaging in a true partnership with his technology provider.
But by doing that, he’s accomplishing a lot more than just “technically” reducing his capital expenditures by calling them an operating expense, instead. His organization will also save an incredible amount of money by having the latest that modern technology has to offer for a fraction of the time, money and effort required to hang onto that “old school” point of view for as long as he did. That’s time, money and effort that he can funnel elsewhere in the business to places where it will generate better outcomes than ever.
A Matter of Perspective
If nothing else, conversations like this one prove that we could all stand to examine why we think about things the way we do every once in a while. Yes, it’s easy to fall into patterns and some truths are set in stone for long periods of time. But if we don’t constantly make an effort to stay on the cutting edge, we’ll only find ourselves left behind.
Once CFOs are willing to make that basic mindset shift and view technology as a vehicle – a true innovation and performance engine – instead of a cost, then they can get the predictability in their forecasting that they need, when they need it the most. Their company’s financial health will be stronger and they’ll have leveraged technology to create the true competitive advantage they need to not only survive but to exceed their expectations.
It really doesn’t have to be any more complicated than that.
If you’d like to find out more information about why IT is an operating expense instead of a capital expenditure, or if you have any other questions you’d like to discuss in more detail, please feel free to get in contact with one of our friendly technology experts at TSI today.