By Insight UK / 9 Jan 2023 / Topics: Devices
Insight’s Financial Solutions team is dedicated to helping clients understand how to use their budgets most effectively to ensure maximum ROI while protecting against inflationary pressures. Device lifecycle services is a key strategy that helps finance teams deliver on their objectives while ensuring that employees have access to the latest, supported and maintained devices.
In part one of this blog series, we looked at four key benefits of taking the Device lifecycle services route, and how it helps businesses:
✓ Lower their corporation tax liabilities
✓ Preserve their access to capital
✓ Leverage external cost of funds
✓ Enjoy increased ROI delivered faster
In part two we explore five additional benefits, starting with:
With any financial professional, you’re never far away from a conversation about cost control and cash flow management. It’s a big priority at the moment and Device lifecycle services can have a major impact. Essentially with Device lifecycle services we’re removing procurement spikes and rolling out fixed periodic costs over a defined time period. They’re not linked to inflation or interest rates, so the business categorically knows what is payable every month over the length of the service contract.
Traditional upfront technology costs are replaced with periodic fixed payments that align with operational revenue, so it’s easy to see the complete TCO per user and get a better view of ROI as mentioned previously.
As well as providing a clearer view of fixed monthly costs for better cost management, Device lifecycle services makes budget setting easier when the contract for the device estate comes up for renewal. Incremental contract charges for additional services are a much simpler cost justification than securing funds to procure a complete upgrade of the estate in one hit. That would need to be found from a Capex budget and bid for in competition with other strategic demands on the organisation’s purse.
Both Capex and Opex budgets are well defined and are not unlimited. Businesses need to balance how best to fund all their business needs and expenses. Procuring through Capex delivers business owned assets which can be taken onto a balance sheet to provide asset value, initially strengthening a business worth before any negative value through writing down is seen. These are usually high-cost assets that hold equitable value and where the delivered efficiencies can be seen over long periods of time.
With end-user technologies, the technology becomes redundant really quite quickly as suppliers continually improve their offerings. It raises questions of whether ownership of the end-user technology nowadays is really best practice. Moving end-user technology and the associated wrap-around services to OPEX through Device lifecycle services, frees up CAPEX for greater investment benefits being taken into the business. It also allows for the overall TCV benefits associated with the technology’s Residual Value offsetting the cost of including these services.
It does, however, make perfect sense to fund devices and services to maintain and support them from Opex and upgrade them as and when the contract allows. Moving from Capex to Opex drives out costs and boosts productivity among employees who have up-to-date, consistent technology to keep them connected and working collaboratively.
Using an established, responsible Device lifecycle services provider means that when devices have served their purpose and been replaced, you get peace of mind that they are recycled and disposed of in compliance with WEEE directions. Valuable critical minerals can be recovered and reused in new devices, which reduces the need for mining from original sources. This is all good for ESG and CSR reporting, which is increasingly becoming a factor for investors and in bidding for contracts.
The final – for now – financial benefit of adopting Device lifecycle services is very timely. Inflation has rocketed around the world due to recent economic and geopolitical turmoil. The Device lifecycle services contract is negotiated at a fixed point in time and remains stable throughout the term, so there are no unpleasant shocks along the way. Insight works with you to structure long-term costs that are not linked to the banks’ interest rates or inflation once the Device lifecycle services term has started. We help create that fixed-cost certainty to secure the devices and services you need at a cost that won’t change as long as the terms of the contract remain the same. Device lifecycle services contracts are scalable, both in terms of growth requirements and also when estates may need to be downsized. Most Device lifecycle services contracts allow for proportionate mid-contract returns. Through user TCO understanding, the balance of term costs can be adjusted accordingly without the need for renewed contract negotiation.
As we continue our conversations with more finance leaders, there may be an initial tendency to focus on the level and speed of ROI. However, it quickly becomes apparent that there is a great deal of interest in many of the other financial factors as well. And no doubt other considerations will come into play as we engage in more discussions with organisations of all sizes.
That said, while it has been interesting to set out all the financial benefits in this two-part blog series, I believe that these discussions are only going to happen as we transition from seeing the tech devices we use as something we ‘own’ to something we ‘use’. Our perception of devices will become more aligned to the way we see mobile phones or entertainment packages – services that we subscribe to and are updated by the provider. The cost justification conversations will be replaced by TCO and TCV considerations, together with the technical and financial strength of the Device lifecycle services provider. Ultimately, Device lifecycle services will be how everyone provisions their devices, on a subscription rather than ownership basis.
