At the best of times, financing technology innovation can be a challenging prospect, but in light of the global effects of the current pandemic, many organisations are looking to undertake new and radical transformations that will set them on the path to a successful future. Indeed, for many enterprises, transformation has become an absolute necessity – with the evolution of business processes and millions of people around the world learning how to work from home.
Outside of the current challenges, however, there are also opportunities for businesses to use this period as a time to unlock better ways to address future needs, without missing a step along the way.
HPE Financial Services has traditionally helped businesses negotiate the finance of technological transformation and it is continuing to do so, but with some new measures in place to mitigate the effects of the fundamental disruption being experienced across the world.
One such strategy is the recent announcement of a US$2 billion fund created specifically to help it customers ensure continuity and address the challenges of needing to convert their IT infrastructure into new sources of capital.
Disruption as business as usual
But before the pandemic changed everything, disruption was already no longer just a buzzword relating to one or two industries such as transportation and holiday accommodation (the Uber and Airbnb effects respectively).
More and more organisations were looking to radically transform their business model. This is one of the most complicated endeavours a company can undertake. But for many of these companies, IT was not just what they are transforming, but had actually become the way that they execute this transformation, leading to a conjunction of business model transformation and IT transformation.
This situation has only been compounded by the effects of COVID-19. All transformation requires capital outlay, and this can be a significant consideration for any organisation looking to transform their existing IT infrastructure. Michele Madonini, vice president and managing director at HPE Financial Services APJ, says, ”That’s at the core of the biggest challenge for businesses – needing to bring IT in front of the business when you don’t have an unlimited budget and the budget you do have is very much taken by maintaining your legacy infrastructure.”
On top of this there is the issue of procurement cycles, which are longer than what business now demands in terms of innovation and speed.
Consume or own?
The growing desire for enterprises to no longer own their IT is related to the over- and under provisioning of their capacity. Many companies today have idle capacity, and are therefore overprovisioned. What they’re looking for is a perfect match where they can access financial models that give them the flexibility to scale up and down as business operations demand, and preserve cash where needed.
Consumption based financing models allow organisations to pay for what they use, while also having the ability to quickly scale up on pilot projects and activate them swiftly when desired.
The result is business innovation, IT innovation and financially flexibility all becoming part of the same conversation. This ability to bring the economic side of any digital transformation is really key for CFOs when they are looking to get their investments funded.
‘Help me with what I have’
Where a provider like HPE can help in this is by looking to extract value from the legacy infrastructure already in place. This is the first part of the economics, says Madonini. “The second thing that customers ask is, ‘I’ve got a number of investments that I want to make but they don’t all fit in my budget. How can you expand my budget capacity, giving flexibility and agility to do everything required quickly?’
“Business speed is only increasing, so the ability to go to market with new services and new offerings faster is very important,” he adds.
Risky business
The final part of the economic consideration of IT investment revolves around risk. “Whenever you go to your bank regarding investment, there is always some disclosure on the risk side, so customers are asking us, ‘how can you help me reduce my risk?’,” says Madonini. They need reassurance that if they make an investment decision that turns out to be the wrong one, there will be a way to get out of the investment, scale it down or adjust it along the way.
“I’m going to switch back the clock 10 years,” explains Madonini. “Then it was OK to buy on a CapEx model. You could put it on your balance sheet and your CFO would decide if we were going to monetise that for five or six years.”
But with the pace of change and increased demand making it appear as if tech cycles are shorter, this is no longer wise. The technology companies have will continue to operate well beyond the years needed, but expectations of that technology will change, and this is what makes upgrades and improvements necessary. What was once a sound and practical decision three or four years ago will no longer meet the organisation’s current needs.
With an agile consumption solution, this fear is mitigated. “We give customers options when they do pilots or they enter a line of business that is adjacent to or new to their business.”
This means if the business case sounds solid, there is still an option to withdraw at 12 or 18 months if it hasn’t worked out as planned. And the assets will be taken back.
Extracting or relaying value
There are also ways of maximising the value of legacy infrastructure. One is by utilising asset upcycling services, a particularly helpful strategy in times of global uncertainty. This is when the service provider buys back the IT assets.
It’s important to remember that just because one organisation has altered requirements, the technology they no longer need can be extremely useful to another organisation with different needs. “Everything in a business has a value,” says Madonini. “It is also very important to understand that it is not just about extracting the last 10 percent of value from IT assets, but it’s also the security side, the compliance side. IT assets have data and some people say that data is the new gold.
“As companies move to digital transformation, more and more realise that they have a lot of data, but they don’t know how to use it, how to monetise it. So they need investments in application, in artificial intelligence, which brings IT infrastructure into play to extract that value.”
Plan wisely
For companies looking beyond 2020’s crisis, now is the time to ensure that their IT transformation is well executed and carefully financed, so that once the dangers of the pandemic have passed, they can resume their operations with built-in resilience and preparation for whatever lies ahead. Prudent and forward-thinking actions today can put companies well ahead of curve once the challenges of the current situation are but a distant memory.
