Will Windows 7 prove to be another IT cost management headache for medium-sized businesses?

Within the next week, Windows 7 will be launched to the world. Microsoft and the major hardware vendors hope that the relatively warm reviews Windows 7 has thus far received will see the upturn in the market they expect. For finance directors and IT managers of medium-sized businesses, however, overdue hardware refresh plans combined with the lack of support for upgrading directly to Windows 7 from XP look set to provoke three cost management headaches that combined will impact their sector more than others:

• a general lack of investment funds;
• more hardware and software upgrades to make than any other sector and;
• a lack of clarity on compatibility

Larry Dignan, Editor in Chief of ZDNet, has regularly questioned and tracked whether the launch of will light the fuse of the PC replacement cycle? Dell and its rivals would certainly like to think so. New PC units as a proportion of the total PC install base has been declining rapidly since 2007 as the figure below shows:

With ageing inventories needing to be replaced and the upgrade to Windows 7 acting as the elephant in the room, 2010 and 2011 especially could represent a significant capital and operational cost management headache for IT managers and finance directors up and down the land. Medium-sized businesses will be especially impacted. They have held off more than most on both upgrades of Windows and in refreshing hardware inventories. Does this sound familiar? I’d love to hear from you if this is the case.

The cost management challenge for these businesses is not purely about the capital investments, but about whether the compatibility concerns that businesses of this size had over Vista can be addressed in Windows 7. Alex Bellinger, editor of SmallBizPod, today reported that medium-sized businesses potentially face a more costly challenge associated with upgrading than most other sectors. Microsoft estimates that just 10% of the medium-sized business market runs Vista, with the majority still running XP as their PC operating system of choice. He quotes an interview with Robert Epstein, head of small business marketing and sales at Microsoft in the UK, who says:

“As you start to look at 20 people companies and above where people are more interested in compatibility with their ERP and accounting packages, then there have been a large number who down-graded from Vista back to XP. So we think the actual install base is only 10% running Vista today.”

More than ever before, finance directors and IT managers are not only faced with a general lack of capital investment funds in the business, but will also be wondering at what stage the ageing inventory that hasn’t been replaced during the recession will need to be replaced before equipment begins to fail. They are also pondering how to time the introduction of that inventory with their existing equipment. When the replacement cycle begins again in earnest, compatibility will be key to success.

IT managers will spend more time than they have done in recent years ensuring that hardware and software platform upgrades happen. This will be in direct conflict to senior management’s desire to see them delivering efficiencies in IT to help their businesses innovate their way out of the recession. Meanwhile, finance directors will be aware of how limited cash reserves are and how restricted the leasing market has become. Never before has such an onus been placed on effective IT financial planning and management, not as the dream ticket away from these issues, but as a critical means to reduce the impact of the challenges faced.