Companies typically invest in IT services with the desired goals of driving innovation, gaining competitive advantage and growing with strong infrastructure in place. While IT departments and the big infrastructure investments they’re responsible for are essential to deliver on these goals, they’ve also garnered a reputation for being costly line items which can often drain a business’s budget.
Enterprises can often incur thousands of dollars on upfront capital expenditure, more commonly referenced by its abbreviation of CapEx.
What is CapEx and what issues does it present?
CapEx used to be the only way a company could pay for its IT infrastructure. A company’s IT leaders had to procure storage space, cooling systems, servers, racks, pipes, hardware and more. Prior to utilizing these systems, the company would have spent thousands. IT leaders would be given the lofty goal of maintaining these operations while managing budgets. With up to 80% of these budgets being allocated to operations, companies could lose sight of its initial goals.
This problem is not unique. Numerous companies carry 5x the amount of necessary hardware and data center space during their standard business cycles, while the majority of companies see hardware usage rates well below 20%, resulting in significant IT spend wastage.
As more companies lean on and invest in cloud-powered services, a shift is occurring. Businesses want systems that resemble public cloud services, allowing them to partner with providers who offer full solutions at a monthly rate. Enterprises are increasingly moving their data and applications away from data centers and into the cloud.
The shift to OpEx
This strategy is referred to as operational expenditure, or OpEx. It presents businesses with two changes and efficiencies. First, they no longer have to purchase technology and infrastructure that lives on premises; instead they are presented with the ability to rent what is required. Second, they can offload risks and remove some of the burden from their IT staff.
OpEx models give companies valuable resources back. With an understanding of a set fee, companies have stronger insights on their monthly spends and significant savings on hardware and software. Businesses which employ OpEx solutions, then only need to pay for what is truly needed.
Differing spending models explained
CapEx and OpEx present companies with diverse spending models – up-front longer-term investment versus ongoing, smaller sum as-needed investment, respectively. CapEx generally involves a greater need for approval processes with high-level decision makers. It involves making more long-term bets.
OpEx is instead based on costs required for day-to-day functioning. The amount spent tends to be much lower and on an as-needed basis, with solutions based on flexibility, such as increased or decreased customer demand. Less approval is typically needed.
Items to take into account when considering the switch
When considering a move to cloud-based OpEx offerings, company leaders should take their financial constraints into account. To do so correctly, time, skills and technology must be invested for a viable solution. There are important costs to consider for updating and maintaining architecture that works parallel to business demands, but the benefits presented by OpEx translate to significant cost savings in the long-run.
Benefits of OpEx solutions include:
- Reduced risk with redundancy: OpEx solution providers are prepared to handle events which can jeopardize your operations, as well as to troubleshoot potential issues or losses of data.
- The opportunity to scale: A businesses’ needs are subject to change and evolve, and leaning on a provider for on-demand resources allows more flexibility and reduces risks.
- Cost savings: You can employ a leaner IT team and allocate its time to innovation and growth opportunities, with more manual and managerial tasks removed.
- Improved security: Is your IT team familiar with terms like FISMA, Tier III and FedRAMP? Providers can keep up with compliance changes and ensure that all of your assets are fully secure.
It’s difficult to downplay the positives
Cloud-based OpEx models present businesses with overwhelming positives, from savings opportunities to flexibility that’s often required as the business’s needs change. OpEx cloud providers offer faster time to value and competitive advantages which allow IT departments to save.
With options, there is no need for businesses to spend unnecessarily on running onsite data centers. It also provides peace of mind when tasks are handled by an expert trained to focus solely on these tasks, rather than having to manage additional areas of the business.
Selecting a cloud partner
Finalizing how to allocate workloads to the cloud is complex. Uncovering how to effectively reap the benefits of an OpEx solution can be trickier at first. It’s important to select a partner such as Hystax with significant experience in helping companies make the transition. It’s also critical for companies to ensure they’re not sacrificing financial control or accountability. Hystax works hand-in-hand with clients to identify their unique needs and budget constraints to keep cloud budgets transparent and under control.
Rather than settle, make sure you ask all of the points above to your potential partner, so there aren’t any surprises and your company can make your switch run as smoothly as possible.
For a deeper dive into the industry benchmarks, trends of migration from private to public clouds, and best practices of switching from CapEx to OpEx, aforementioned, plus many more trends and insights, feel free to download our whitepaper.