Understanding ROI & Technology Solutions
If you believe in using return on investment (ROI) to justify your next technology solution I challenge you to take a closer look at the meaning behind ROI and what’s involved in a that new solution acquisition.
First, the definition of an investment is the process of exchanging income for an asset that is expected to produce earnings at a later time.
Now, look at the ingredients behind the typical solution for AV, security, data, voice, access control, IoT or any other type of related technology solution. Which ingredient is an asset that produces a return and which is not?
- Manufacturer cost/margin. (Not)
- Distributor cost/margin. (Not)
- Value-added reseller (VAR) cost/margin. (Not)
- (VAR) Installation (labor), possible infrastructure, training, licenses (Not)
- The solution’s software and hardware. (Can be considered an asset, but there is no return)
You don’t need a finance degree to see that using ROI to justify procuring technology will NOT end with a W, but more likely on the receiving end of a TKO!
Without the right strategy on how to buy today’s technology solutions, lies the beginning of the great contradiction between ROI and technology solutions (i.e. AV, unified communications, security, data networking, etc.). There is a common adage that says to invest or buy things that appreciate and rent/use things that rapidly depreciate. This could not be more meaningful than with technology solutions and ROI.
Invest or buy things that appreciate and rent/lease things that rapidly depreciate.
Technology Will Never Stop Progressing, Just Look At R&D
This is all compounded by the rapid advancement within technology. Two of the most prominent technology leaders in the space, Cisco and Microsoft were predicted to spend $6.3 and $14.7 billion in research and development (R&D) in 2018.
These technology leaders are very good with the embodiment of capitalism and devouring their own solutions to gain a return for their shareholders. While these new technologies must solve and create demand in the marketplace, Wall Street has good money that there is an arsenal of new products and services in the pipeline for a positive return.
Calling Out This Great Contradiction
The practice of a ROI analysis is very prudent. However, what the ROI acronym implies in the absence of the right procurement strategy, does not equal an investment, by definition. Your analysis should always seek to reduce costs and increase productivity to ultimately increase profits. The challenge with ROI is its inconsistency in the analysis and the subjectivity in the evaluation.
…the analysis should always seek to reduce costs and increase productivity to ultimately increase profits.
Acquisition justification is still important. However, companies need to add one more key piece to the process. A meaningful way to pay for today’s technology solutions.
What’s The Right Way To Pay
First, ask your self this question, "Am I looking for outcomes, access, and usage from my technology hardware or am I looking for ownership?” More often than not the answer is usage, but you probably never thought of in that way.
Options That Address USE vs. OWNERSHIP
X as a Service models and technology equipment as a service agreements from your solution provider can provide you with more flexibility and control over your organization's technology. This way to pay provides you with a competitive edge during the life of the agreement and at end of term. You can control and dictate change on your terms.
The traditional procurement choices most people are familiar with do not address challenges like what happens if the technology advances and becomes obsolete? How will you address any unforeseen changes? Will your technology bottleneck your growth if you can't upgrade when needed? Recall how much is being spent in R&D? Change, growth and obsolescence is not a matter of if, but when. Choose procurement options that have obsolescence protection provisions to navigate through the current economic unknowns and rapid changing technology.
Manufacturers and integrators, typically, do not address things like their number of end of life products or R&D spend over the past five years. Those conversations are often avoided for fear of discrediting their sale. But, rightfully so, no sales professional wants to focus attention on the negative side of their industry. We just want to help you make a smart informed decision.
What To Look For When Choosing a Way To Pay
When you're paying for something in a rapidly changing industry lean into these newer X as a Service options that give you financial flexibility. Understand that today’s technology solutions are non-revenue generating assets that will rapidly depreciate. Anything off balance sheet, or an operating expense (OPEX), can help preserve a company’s ratios and allow you to use cash flow for revenue generating investment opportunities.
Look for a financial product that protects your technology from obsolescence and can keep you at the forefront of technology whether your business needs change or the manufacturer changes.
Finally, find an X as a Service payment option that provides multiple and flexible end of term options so you are empowered on your terms, not the terms of a leasing company.
Final Decision By The Judges
ROI when used with procuring today’s technology equipment solutions, has received a unanimous decision of defeat by all three judges!