Tim Banting, Sr. Principal Analyst at Omdia
The immediate and near-term impact of the global COVID-19 pandemic has hit many organizations hard, forcing them to adapt to survive in unknown and unfamiliar circumstances. After the initial period of safeguarding their businesses, staff, partners, and customers, companies now face new challenges as they restart during their recovery phases.
Despite governmental fiscal support, longer term damage is likely to affect the prospects for growth, as recession (or at best a contraction in GDP), looms for many countries. Despite a potentially bleak outlook, organizations will look for ways to minimize disruption to their business and many will seek to improve liquidity. However, maximizing cash flow during a crisis is a balancing act between reducing costs and maximizing revenue.
Now is the time for organizations to explore how to minimize spending, review operational plans, and minimize financial risk by moving from fixed physical assets to operational expenditure for technology investments.
Capex vs. Opex: Mitigating risk in times of uncertainty
As we slowly see the early stages of a tentative recovery offset by a potential recession, organizations are looking for ways to reduce financial risk to compete more effectively in these uncertain times. During the Covid crisis, many companies have quickly adopted cloud-based unified communications and collaboration (UCC) solutions to address their business continuity needs as they are quick to implement and carry little upfront risk or cost. However, as organizations start to review their new requirements, many are questioning the long-term effectiveness of existing technology, particularly premises-based UCC infrastructure investments.
Several years ago, IT spending was focused on purchasing, maintaining, and upgrading physical servers and UCC software which was counted as capital expenditure (capex). While many organizations favored the flexibility of dynamically scaling their UCC investments with demand and offloading the risks associated with investing in their own infrastructure, COVID-19 has acted as an accelerator for cloud migration. During times of uncertainty, the move to this opex (operational expenditure) model is favored as subscription services form part of a business’s day-to-day running costs and provide more financial predictability.
Finally, as much of the global workforce continues to work from home, the sunk costs of premises-based UCC equipment (e.g. PBXes), are glaringly obvious. The decision to retain a phone system as a result of the significant amounts of money and time already invested in it (at a time when staff have been unable to enter the office to use it), is a questionable commitment. As features get added to cloud-based UCC suites, and flexible plans offer new capabilities for organizations, the opportunity to stay current on the latest release of software (rather than having to pay for an upgrade to premises-based equipment) is another significant business consideration.
Last year, Omdia (formerly Ovum), in partnership with LogMeIn, interviewed over 2,000 managers from medium and large companies around the world to understand the business needs behind critical initiatives and the challenges they face with UCC solutions. We identified that senior executives must take the opportunity to take a close look at what they are paying for and providing to the enterprise, ensuring that purchases are based on business needs. Omdia also identified that to enable seamless connectivity, transparency, and agility, enterprises must integrate their software suites or platforms.
Not surprisingly, the high cost of managing the complexity of multivendor relationships topped the list of negative outcomes; 16% ranked it first. Of the respondents, 13% put “low integration between technology systems” first, making it the second-highest scorer, and 11% cited “the complexity in handling multiple vendors and contracts” as their primary negative outcome.
When companies have disparate and siloed applications, there are many organizational challenges that arise. Wasted employee productivity, lack of visibility, and process inefficiencies to name a few. When IT no longer needs to buy, install, maintain, and upgrade multiple systems and integrate between them, significant reductions in operational costs can be made, while IT time can be spent improving business operations during this challenging time. As more organizations are tasked with finding new ways to maintain their effectiveness and decrease operational costs, consolidating UCC capabilities makes sound business sense for all industries
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