During an economic downturn, it’s very difficult to convince a CEO or a board of directors to implement new technologies. But given proper justification, good executives will realize that the companies that build through a recession will emerge in a better competitive position than those that simply attempt to hoard cash and survive. The key for IT leaders is to take the right approach with common technology and cash flow problems by viewing the issues through the eyes of those upper-level executives.
Playing the numbers game
I recently spoke with the VP of sales at a Fortune 500 company who’s eager to roll out laptops to his 500 salespeople over the next six months. To minimize his upfront cash payout, he’d like to lease the equipment over three years. But he’s running into two problems.
First, he wants lease payments that match his rollout schedule. In other words, he doesn’t want to make lease payments on all of the 500 systems after the first month when only 100 of them have actually been deployed. Ideally, he’d prefer a system where the first 100 are 36-month leases, the second 100 are 35-month leases, etc., so that he’s only paying for the time they’re in use, and all of the leases terminate at the same time. Yet it’s not a scenario endorsed by either vendors or finance companies, and this needs to change. Both vendors and lenders need to find ways to work together to accommodate companies willing to spend money on new technology during hard economic times. The ones that do will come out of the recession with more booked business than the ones that try to hold the line.
The sales leader’s second problem is one that IT managers have dealt with for years—how do you roll out technology with a long-term lifespan and keep equipment consistent over its lifetime? While Intel and AMD continue turning out chips that break new gigahertz barriers (now over 3 GHz), the average business consumer can work comfortably on machines with significantly less processing power. In fact, the majority of companies have desktop and laptop computers with less than 1 GHz of processing speed and don’t suffer for lack of processor power.
So what’s the extra 2 GHz for, and is it needed? The chip companies have decided that consumers need high-speed, hyperthreaded (Intel) machines in order to process pictures and videos. That’s quite a change from a few years ago, when business-computing requirements for “feeds and speeds” drove the needs of the consumer. Now the perceived consumer requirement for faster processors gives the chip companies the opportunity to drive excess computing power down the throats of their business customers.
How much technology is enough?
During the likely rollout of this VP’s sales force automation project, Intel will release at least two more processors (or processor speeds) and at least one more chip set. If the project rolls out over six months, how does he make sure that all of the technology stays consistent in the field?
One option is to standardize on a single laptop with a predefined configuration. But if he buys up front to guarantee availability, then he’s overpaying for the laptops. System prices drop—sometimes dramatically—over the six-month rollout period. And keeping the processor, disk storage, and installed memory consistent are the least of his concerns. System manufacturers routinely update system bios and video bios in laptops as part of an ongoing effort to improve performance and reduce cost. These changes will most likely create configuration inconsistencies that a company’s IT staff will burn time trying to chase down and rectify.
During the “technology heyday” of the late 90s, the cost issues were less significant. But for companies trying to implement new technology initiatives during a recession, the need for saving cash far outweighs the need for having the fastest computer on everyone’s desk or the “next new thing” implemented for the company.
Innovative hardware manufacturers (such as Dell) recognize that they need to make it easier for companies to justify new purchases by minimizing the pricing and cash flow implications for these initiatives. Dell is implementing sliding term leases that allow for extended rollouts with consistent lease terminations. This lets companies add hardware to the lease at the current price rather than buying all of the equipment in advance. In order to accommodate the technology consistency issues, you can work with a manufacturer's sales representatives to guarantee availability of machines based on common components over a reasonable length of time (normally less than a year).
Minimizing cash flow impact of software licensing
It’s not only the hardware companies that are recognizing the need to be more focused on the concerns of the business consumer. Businesses are constantly struggling with the need to be in compliance with software licensing without spending cash required to fund ongoing operations.
That’s the real allure of Linux and other open source products. Even though companies are beginning to understand that the long-term costs of open source are equal to or greater than the purchased alternatives, they recognize that in many cases those are sunk costs (that is, they already employ the people whose time it will take to support the open source alternatives).
Open source alternatives allow enterprises to spread the implementation and support costs over the life of the project. Microsoft recently figured this out. Although Microsoft had special licensing deals that allowed large corporations to spread their costs over a two- or three-year contract, it hadn't extended this option to smaller companies (fewer than 500 employees) until now. Microsoft recently implemented monthly payment plans (including finance charges) that let all companies spread the cost of the software over the life of the license but still receive the support and upgrade benefits associated with the license cost.
Saving money on new initiatives
When I discussed these options with the VP of sales, he told me that he wasn’t aware that these kinds of leases and software finance plans were even available. After talking with his purchasing manager and IT director, he found out that they hadn’t even asked the vendors about these options. When the VP then approached the vendors, and threatened to pull the project unless he got more help, all the options I outlined above were presented!
I don’t blame the vendors for taking these actions—we would all like to get cash up front for our products, especially during a recession. Tech leaders and business leaders should enter negotiations knowing that vendors are expecting them to ask for help to preserve cash. And companies should assume that their customers are going to ask the same.