As we have entered a new year, it seems a good time to look at factors which might have an impact on clients’ IT costs this year. We have identified 5 trends or events which should all have some impact on organisational IT costs, whether positive or negative, and examine the potential effect on client IT investment costs:
1. Cheap Money
Interest rates have been low for some time now and because of the economic uncertainty producing headwinds in the USA and Europe, it is generally thought that rates will continue at a low level for the foreseeable future. In IT terms, this means a continuing positive picture for those organisations needing or wanting to borrow money to fund their IT investment. Expense Reduction Analysts are able to reduce initial hardware costs by up to 25%, depending on the client and circumstances.
2. Continued Cloud Adoption – 1
The move from purchasing equipment and software outright for use in the buyers’ office premises (known as ‘on-premise’) to renting software, and keeping both the software and data on large, shared hardware platforms (known as ‘cloud’) shows no sign of abating, and is, in fact speeding up.
One effect is that this continued change in spend pattern means that money is increasingly diverted from client hardware and software spend to hosting solutions provider hardware and software spend. This is then passed on to clients in the form of hosting and support charges. These can be considerable, threatening to debunk the myth that cloud computing is much less expensive. Clients should think carefully and take independent advice from Expense Reduction Analysts on this, before committing to a new strategy and its potentially punitive expenditure.
3. Continued Cloud Adoption – 2
The shift from on premise to cloud-based solutions also suggests a change in the costs borne by the cloud providers themselves. More money will be invested in materials (hardware server farms and high speed communications equipment, for example) and less in people, as more clients shift from a people-centric support model to a servicecentric one. As people are likely to be a more expensive resource than materials in this case, if the change to the costs is passed on, it should ideally result in lower costs to clients, provided the negotiation is managed and negotiated correctly. Expense Reduction Analysts are specialists in identifying and securing cost reductions in these areas for our clients.
4. Economic Uncertainty
In relatively stable times, companies are able to plan better, as there are fewer external forces to generate uncertainty. However, as political and economic forces become more turbulent, decision makers tend to become more cautious, leading to a slowdown in investment, as they wait to see if the conditions will improve or worsen. Decisions are taken to hold cash, rather than invest. The effect of this on vendors, is to reduce the supply of business and create a more competitive environment, as they find they have to compete harder for business. This creates opportunity for clients to reduce costs, both at point of purchase and renewal.
5. Turbulence in Emergent Markets
Emergent markets matter for IT companies for two reasons. Firstly, they often supply low cost components, whether electronics for hardware, or outsourced skilled labour for software and services. Secondly, they are a source of sales income for global suppliers. Because of this, problems in emergent markets also create problems in the IT supply chain. Economic slowdown in Brazil, sanctions against Russia, wage inflation in India and economic issues in China have the individual and collective propensity to push up supply costs to IT suppliers, whilst depriving them of revenue. The net effect is that prices to clients are likely to rise in 2016.
In summary, whist it is clear there are some factors that favour clients enjoying low costs, for example the continuing level of interest rates, there are more factors likely to work against clients maintaining low IT costs in 2016. Specific macro-level issues, in particular economic and political events will offer certain global suppliers the opportunity to raise prices in a way that has not been seen for some years. We strongly recommend our suppliers engage with us on their IT spending this year, to protect themselves against unwanted higher prices, both at point of purchase and renewal.