Originally published in Global Banking & Finance Review
For organisations across the UK, the latest extension to Article 50, which outlines the process the country needs to take to leave the European Union (EU), means ongoing uncertainty and risk. It is all but impossible for companies across the country to plan effectively when the future business landscape remains shrouded in doubt by Brexit confusion. We have already seen many firms put their spending plans on hold. The Office for National Statistics recently estimated that business investment in volume terms fell in the fourth quarter of 2018, representing the fourth consecutive quarter-on-quarter fall in business investment and the first time this has happened since the economic downturn of 2008 to 2009.
While this reduction in spending might be financially judicious, businesses still need to operate as usual and maintain their competitive edge in a global market. Technology has a critical role to play in this – not only is it crucial in supporting staff, operations and customer interactions, it can also improve business agility and responsiveness to market conditions.
Unfortunately, these conditions are not always predictable. One high-profile example from the past year is the drone incident at London’s Gatwick Airport just before Christmas 2018 which resulted in UK airports implementing anti-drone technology costing millions of pounds, just to stay operational.
While drones could potentially be used to target and severely impact major airports, computer viruses are generally much less selective about which industry they attack and can even destroy entire IT estates within organisations. For example, a ransomware attack at Government offices in two municipalities in Alaska took down everything (in the case of one borough, at least) – from email to the electronic door key card network. As a result, the whole system had to be closed down and staff had to resort to using typewriters and manually writing receipts.
What these seemingly disparate cases have in common is that organisations have had to invest in technology with funds outside of their budget. And this is not uncommon – Econocom’s own recent research revealed that 67% of finance directors have had to make an unexpected large technology purchase in the last year, with 60% of these purchases funded by diverting budget from other services.
One way organisations can address this issue is by adopting a subscription or as-a-service model, an approach that helps ease the burden of upfront technology investments, whether they are required for business-critical reasons or not. The approach can balance the investment by relieving the burden on capex while delivering on the organisation’s objectives. This then frees up the business from the burden of diverting funds from other services over technology to remain operational and agile. Additionally, many organisations will be used to this type of model as they use them to provide the funding for large purchases such as cars.
Financing technology in this way streamlines the payment process, thereby both protecting organisations from unpredictable business outlay and also protecting funds already allocated to other projects.
Total cost of ownership (TCO) for any new technology must also be accounted for on the balance sheet and this is not always as simple as it might seem. Managing lifecycle costs such as storage, warranty, running and disposal – in line with GDPR regulations – may be difficult to account for and could have a significant impact on the bottom line if managed incorrectly. Subscription or as-a-service funding models can incorporate these costs into the contract, therefore transferring the burden to opex and protecting the company’s total profits.
Looking to the Future
Most organisations will thankfully not be faced with a situation as dramatic as the Gatwick Airport drone incident, but most will nevertheless, at some point, be faced with an unforeseen scenario that necessitates the urgent installation of business critical technology that is unbudgeted for. In such a scenario, using a subscription or as-a-service model can enable businesses to remain agile and manage any unpredictable technology requirements. In addition to streamlining the payment costs, this model protects capex and has the added benefit of saving costs associated with keeping the technology current and operational.
It’s not possible, of course, to predict the exact nature of the economic climate post Brexit or know what challenges may lay around the corner. But whatever happens, organisations cannot remain agile and responsive with old and outdated technology. Subscription or as-a-service models provide an excellent way to respond to challenges, changes in market conditions and the needs of both employees and customers in a risk-free way.