IT Spending Strategy: Why More CFOs are Shifting IT Investment from CapEx to OpEx

However, there’s a growing argument that OpEx has a distinct advantage over CapEx, making it an increasingly favored IT spending strategy by finance departments and CFOs. 

The Traditional Approach: CapEx Technology Investments 

Plenty of hard costs require large, upfront investments and should be part of the approved CapEx budget. These costs can be planned for in advance, but predicting future needs is risky, as business requirements can change over the life of any investment. With the rapid advancement of technology, IT infrastructure needs are becoming less predictable.  

Today’s communication technology gives IT professionals incredible capabilities and deployment options. What once required dedicated real estate, skilled employees, and many manhours can now be provided and serviced remotely via cloud or hybrid infrastructures. 

This gives organizations more ways to access the latest and greatest technology without predicting future company needs or finding a large bucket of upfront funds to pay for it. This frees up cash for investments and other projects to drive revenue and growth. 

Other inherent difficulties with capital spending on technology can include: 

• Large, upfront expenses 

• Error-prone guesswork to estimate future capacity needs for hardware and software 

• Lengthy and arduous processes to estimate and approve budgets 

• Technology that rapidly becomes obsolete or fails to keep up with company growth 

The Growing Role of OpEx in IT Spending Strategies 

On the other hand, OpEx is generally used for day-to-day business costs and is, therefore, more stable. To keep up with the breakneck pace of developments and maintain predictable costs, many CFOs are migrating their technology investments to the cloud—a shift that allows them to focus on OpEx, rather than CapEx, spending. 

Categorizing technology as an operating expense allows a company to: 

• Pay only for current needs and scale as capacity and capability requirements change 

• Ease and accelerate the budgeting process because short-term spending requirements are lower and predictable 

• Make greater investments across the business since capital isn’t required for large, upfront expenditures 

• Fund expenses faster through operations rather than borrowing or diverting money from other projects to pay for one-time technology costs 

• Establish regular cash flow over time instead of large periodic outlays 

Some might argue that moving technology investments to OpEx might make cash flow less predictable since costs are based on usage, which can fluctuate. Here’s an example of why that argument is flawed. 

Imagine your website traffic spikes because your product gets featured in a viral post. Your costs for that month might go up unexpectedly, but you would also have the capability to increase capacity to meet the surge in demand. 

Alternatively, what if your budget planning process only included a CapEx approach? Your static infrastructure and rigid budget could result in a crashed website and many disappointed customers. 

A Flexible, Future-Proof Approach to Technology Investments 

Moving your IT infrastructure to a cloud or hybrid model brings immediate OpEx benefits. You’ll no longer need to dedicate vast resources, time, or space for hardware and software. Many processes can be automated and standardized, improving organizational efficiency. 

With cloud technology, you can purchase services, features, and capacity on demand, so you never pay for licenses or hardware you don’t need. If you go with a hybrid solution, you’ll get the best of both worlds: cloud services' flexibility and the ability to leverage the on-premises resources you already own. 

Suppose CapEx is generally used to invest in long-term assets, and OpEx is intended for ongoing or fluctuating costs. In that case, it only makes sense that technology expenses should fall under the second category. This turns the traditional thinking of IT procurement on its head. 

In the past, CFOs might have purchased extra hardware and software based on long-term projections for expansion, only for the technology to become obsolete before it reaches capacity (or worse, it cannot keep up with growth and limits the company’s potential). 

With a hybrid cloud approach to technology, your company only pays for the services it needs, when it needs them. It’s easy to seamlessly upscale (or downscale) your capabilities while making the most of your on-premises investments. 

Hybrid Communications: A Cost-Effective Solution for Moving Forward 

If you’re a CFO or IT decisionmaker looking to reduce communications costs in your organization, choosing a hybrid deployment can save you money: 

• No costly, upfront investments in servers, switches, and private branch exchanges (PBX) – but you can continue to use the assets you have 

• No budget “surprises” – consistent, predictable communications costs 

• No expensive, labor-intensive software upgrades – everyone automatically gets the latest updates as they’re released 

• No wasted money on over-provisioned trunks or underutilized hardware 

• No expenses associated with housing, running, and cooling a room full of equipment 

If you like these “no’s,” you should consider saying “yes” to a hybrid communications solution that will grow with your organization. Mitel is the world leader in hybrid cloud unified communications infrastructure with a comprehensive suite of solutions and services for every customer’s unique needs.