By Kenny Nkosi, Divisional Managing Director: Gauteng Sales at Datacentrix
While money may make the world go round, it is also definitely the biggest driver for the adoption of consumption-based IT models among modern enterprises. The shift to consumption-based services is becoming increasingly pronounced, especially as companies seek to do more with less.
As much as organisations understand that IT is critical for business enablement, many are constantly looking for better ways to manage IT spend through cost reduction, containment and savings. Many find that consumption-based IT is the answer.
In terms of adoption, uptake is so far the strongest in the storage space, and Gartner predicts that in 2024, 50% of newly deployed storage capacity will be consumed as a service. Meanwhile, on the server side, 5.6% of on-premises x86 server spending will be consumed as a service in 2024.
Due to tough economic conditions, many organisations are progressively reducing their IT budgets, with every budgeting cycle. This inevitably puts pressure on an organisation’s IT department, as technologies change frequently and businesses need to keep up to remain relevant and competitive.
Massive risk
On the one hand, the financial constraints that limit access to expensive IT technologies can result in a massive risk for organisations when they lag in terms of acquiring the relevant products and solutions to drive their businesses.
The consumption-based model helps organisations ease the pain of having to lay out significant capital expenditure (capex) upfront when acquiring IT-based technologies. These savings can enable enterprises to use their available cash reserves to grow their core business and become more innovative in their quest to lead in their specific markets.
Conversely, the traditional outright purchase of ICT hardware, software and services absorbed a significant amount of cash, while often realising insignificant return on investment for many organisations.
Grudge expense
Needless to say, the capex model did little to dispel the notion among business executives that IT spend is essentially a grudge expense. It became a painful exercise for IT departments to continuously present business cases for technology upgrades and refreshes.
In simple terms, with the adoption of a consumption-based model, businesses and IT departments can pay less based on usage and such amounts can be remitted through the monthly operating expense (opex), for example. This gives the organisation full control over its monthly IT spend. They can monitor the usage of IT resources and can make business decisions quickly and efficiently in terms of which services are yielding desirable return on investment and which ones are not.
I would argue that a consumption-based IT model is one that every organisation should look at very closely. We live in a world that is riddled with unknowns and untold levels of risk. The Covid-19 pandemic has permanently alerted the world and businesses have not been spared from its devastating impact.
Why you should switch
Therefore, I would encourage organisations to consider adopting a consumption-based IT model for the following reasons:
- Obsolescence: Technology has become pervasive, but changes and evolves constantly. Businesses often find it onerous to keep up with this fast pace of change. Opting for a consumption-based model, anchored on an opex payment structure, allows organisations to manage their cash reserves better, gain agility and lessen the risk of taking full ownership of IT.
- Service excellence and currency: An opex model is beneficial to businesses because annuity contracts with service providers can be structured so that exit clauses are not onerous or too taxing. On the other hand, businesses can demand the highest level of service, in the context of the “as-a-service” model from respective providers. It gives them currency to push service providers to implement the latest, safest and most resilient IT as-a-service in their environments.
- Chargeback and recovery: Adopting a consumption-based model allows IT departments to introduce intra-business chargeback and recovery, which ensure that IT investment is continuously aligned to business value. This is particularly well suited to organisations that use activity-based costing models in their manufacturing operations.
The adoption of hybrid IT solutions, coupled with a consumption-based IT model, resonates well with many modern enterprises, as this approach addresses the fundamental issue of cost efficiency that all organisations are looking for.
Predictions are that over the next five years or so, organisations across the globe will be adopting consumption-based IT model at speed. Given the overwhelming acceptance of this model by businesses, it is also fast becoming a strategic imperative for almost all leading OEMs to drive this agenda.
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