7 Big Questions: Why IT financing tops today's biz agenda
The question of whether to buy new IT products and services outright—or acquire them through financing—can be a challenge for midsize businesses because they often cannot tap the vast amounts of capital available to large enterprises. Dan Ransdell, general manager for IBM Global Financing (IGF), says the rebounding economy is spurring an uptick in midsize businesses wanting to invest in growth. Here, Dan discusses some benefits of financing, as well as emerging industry trends he is seeing.
Read excerpts from the interview below and listen to the podcast for the full interview.
ForwardView: Economic conditions seem to be gradually improving. How much investment activity are you now seeing among midsize businesses?
Dan Ransdell: We've clearly seen a pickup in what I call IT infrastructure investment from our customers. We've seen more and more customers starting to make IT investments in various solutions including hardware, software and services. I think most customers are starting to feel like the overall economic environment's improving. A few years back, it was really more about cost containment and trying to weather out the storm. We're seeing more and more customers now saying the economy is improving, and they're starting to see hiring improving in the IT space, and they're starting to make some of the core investments to position their companies to compete in the marketplace.
ForwardView: What should a company look for in a financing plan that will allow it to meet both its financial and operational goals?
Dan Ransdell: One is flexibility. We still have customers coming in and using IGF for leasing of their hardware, but we're also seeing—and this has been going on for the last few years—more financing for total solutions that include software and services. The reason flexibility is so important is that there's really no one-size-fits-all when these requests come in. I think it's important that you make sure that your vendor can provide you with the flexibility that you will need for your total IT financing needs, and then you've got to marry that with competitiveness. When the economic crisis hit and a lot of the banks were really curtailing their lending, it was also important that you had a partner that could provide the funding that you would need so you wouldn't have to use your bank line, which oftentimes customers were trying to save for their core financing needs. I still think that's an important element.
ForwardView: How can financing help midsize companies take advantage of the promise of a smarter planet that is more instrumented, interconnected and intelligent?
Dan Ransdell: When you take customers through the smarter planet or how business analytics can make them more competitive in the marketplace, customers understand it conceptually, but figuring out how we can get from where we are today to that solution design is often a bit daunting. Financing can be a way to accelerate your business transformation and transition to the newer technologies appended to the smarter planet solutions.
ForwardView: And when you're talking about newer technologies, that could include everything from servers and workstations to software and services. Which opportunities for financing are most often overlooked?
Dan Ransdell: It's interesting—they often overlook the financing of services and software. They often are looking at a piece of hardware and they understand the benefits of leasing. But when you come in and propose to a customer a solution—whether that be around smarter planet opportunities or business analytics or clouds—often they don't associate how financing can be leveraged to help them align the cost and benefits of those solutions. They're buying a business solution—not a piece of hardware, software or service—and that's really been the trend we've seen in the financing business over the last couple of years. Our software and services financing have been growing very, very rapidly because customers' buying patterns have changed from box buying to solution buying. It's really a new way of looking at it from a financial analysis perspective.
ForwardView: Let's talk about some of the pros and cons of financing equipment and services versus buying them outright. What are some of the biggest considerations for midsize companies concerned about the high cost of acquiring information technology?
Dan Ransdell: From a hardware perspective, I always encourage customers as they look at the pros and cons of financing and/or leasing versus paying cash, to try to align their economic life with the technology life. As customers, it's important to look at the technology and how frequently the technology is being refreshed with newer technology, and then try to align a financial plan that makes the most sense based upon that buying pattern. The example I always give customers is, if typically every three years you are refreshing your technology, why would you want to pay a dollar for that if you could pay 85 cents? From a total solution perspective, it really comes down to cash flow—how quickly you'd like to see a positive return on investment and whether you really care about the alignment of your cost benefits. Again, you can use financing to structure solutions so that you have less cash outlay up front and can better align your cash outlay to the expected benefits of the solution.
ForwardView: The ideal financing plan often is one that addresses the full technology life cycle. Can you explain how financing needs change at different stages in the life cycle?
Dan Ransdell: If you look at the price/performance improvement in a technology life cycle, it's frequently less expensive to replace the technology every three years versus continuing to ride the technology over a longer life cycle. You have to look at it from a total cost of ownership. The same could be said across the product line. Whether you're talking about storage or PCs, customers are looking at the total cost of ownership over that life cycle. If you look at when we announced the POWER7®, the price-performance improvements you saw in that box versus older models of Power Systems™ were a significant improvement for customers. It was to the point where you could take advantage of consolidation, virtualization and significantly lower your total cost, whether it be on the maintenance side, the power and cooling side or the software side. So it's just taking advantage of improvements that continue to come with products from a price/performance perspective and making sure that you leverage that with your total life cycle management strategy.
ForwardView: What new financing trends do you see for the near future?
Dan Ransdell: Ten years ago, hardware made up a lot of customers' buying patterns. If you look now, customers are much more interested in buying solutions, and those solutions involve the software and the services. When we talk about cloud, smarter planet or business analytics, that's the customer buying a business solution to meet their needs. It's about getting away from the budget constraint for the period and trying to understand the longer term strategy you have, and seeing if we can work with you on developing a financing solution that allows you to implement that strategy. I think most customers eventually have to look at it from an affordability perspective. You don't want the budget or cash flow to be the inhibitor if you agree that this is a strategic, positive investment that your company wants to make.
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