How CIOs are looking to transact in today’s market

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DONNADonna Simpson – Financial Controller

Technological transformation and demand for faster IT at all levels of organisations has meant CIOs across industries have an increasingly important role. CIOs are expected to manage the introduction of new technologies, whilst ensuring budgets are met and business aims fully supported by IT.

A recent survey by Forrester put the CIO as the most important senior executive, ahead of the CEO. The hype has produced high expectations for IT leaders to deliver the most with minimal budget. Consequently, growing numbers are moving to a pay-as-you-go approach to procuring IT services.

Traditionally organisations have taken a capital (capex) approach to purchasing IT products and services, but demand for greater flexibility and always-on IT has resulted in a new approach. CIOs have looked to operational expenditure (opex) IT services as a means to achieve agility, quick wins and save money.

Traditionally, if a company wanted to purchase a new IT tool, they had to make a big financial outlay, often without trying it in practice, and ending up tied to the product for a number of years due to budget constraints and lengthy contracts.

As a result products and services that can be paid for via subscription contracts, from operational budgets, are enabling CIOs to transact in a way that is more efficient for their organisations.

The cost of IT has become an increasingly important element, with CIOs looking to do more with less. Organisations want to use the best leading-edge technology, but growing demand and reliance has forced many to examine means for cost reductions.

According to research, nearly 30% of resellers and service providers estimate capex of over £50,000 a year on spare parts inventory to support customers contract base, with the figure rising to over £1 million in 20% of cases.

The cost of managing every single spare part an organisation might or might not need on site is simply unsustainable for most, so vendors have looked at providing scalable and flexible subscription-style models.

This approach also significantly reduces depreciation. Under the out-dated model of purchasing IT on four to five year cycles, technology would end up completely worthless after three years.

Rather than follow long cycles, most subscription-style IT services now include regular upgrades, which are especially useful at the moment with technology advancing faster than ever before.

For a business that invested in the latest IT system today and made no changes in the first three years, the investment would depreciate enormously and it would likely end up spending more on repairs and begin the process of evaluating your infrastructure sooner than necessary.

Taking an opex-based approach enables CIOs to keep IT agile and reactive. In any financial year, business priorities and demands will inevitably change, and technology will be expected to move with it.

CIOs are realising that change will come, and investing in more flexible tools that enable them to swap or edit different aspects of the enterprise. Significant uptake of this style of IT model is already being seen in cloud services, the majority of which are subscription-based with organisations paying service providers per user instead of for the physical hardware.

Partnering with providers where additional services can be added or subtracted is enabling CIOs to retain critical agility in evolving market conditions.

In this environment, it is therefore essential that CIOs are given the financial power to invest in agile services. Budgets need to be more flexible and set over a lengthy period of time, rather than CIOs being given a lump sum at the beginning of the financial year and a vague aim to ‘improve IT’.

This approach sits in line with customer demand as well, with the majority “fundamentally more concerned” about operational costs than capex, according to Chuck Robbins, CEO of Cisco.

In short, CIOs are looking to help make their organisations become agile, strategic business units, and the key to achieving this is by investing in more flexible models with less capital investment.

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