Cisco estimates that by 2018 there will be more than 10 billion mobile-connected devices on Earth — half of which will be smart devices that account for an estimated 96% of mobile data traffic. It is estimated that currently only 1% of physical objects are connected. With only 10 billion of the 1.5 trillion things globally that would be connected, the Internet of Everything (IoE) is valued by Cisco as a $14.4 trillion global opportunity for the private sector over the next decade.
While there is little doubt that IoE will transform businesses, it will require a sizeable investment for most organizations to ensure that their IT infrastructure is prepared to take advantage of this huge opportunity. With key trends such as cloud and mobile computing, big data and more driving IoE, many companies will be tasked with acquiring the sophisticated technologies and infrastructure needed to ensure a smooth transition while at the same time optimizing their capital allocation strategy and increasing stakeholder value.
While there are a number of strategies businesses can employ when planning for such a large-scale technology investment, captive finance companies have emerged as uniquely positioned to help businesses prepare for IoE. As subsidiaries of technology vendors, captive finance companies have a unique understanding of the products, services and overall solutions being offered. This allows them to create specially tailored financing solutions that can address evolving business needs and help customers stay competitive.
Since the first commercially available browser was introduced almost 20 years ago, the Internet has dramatically transformed our lives. Defined as the networked connection of people, data, process and things, IoE will allow organizations to create and expand into new markets and services. It will enable them to improve workforce productivity and operational efficiency, create better experiences for and build better relationships with customers, and ultimately gain deeper insights that improve decision making.
In many vertical industries, including manufacturing, healthcare, utilities and telecommunications, IoE is a natural progression in the industry’s evolution — for example smart factories or buildings, a fleet of connected commercial vehicles, or a large scale smart grid. For each individual enterprise, the type of products and solutions needed, and how they are deployed in order to harness the full potential of IoE, will depend on the overall goals of the business.
In order to take advantage of the opportunity presented by IoE, many organizations will be tasked with rethinking almost every facet of the company. A 2013 study conducted by Cisco found that there are five main drivers of the business opportunity in IoE that will help business leaders determine how they will benefit from IoE. Broken down, businesses stand to benefit through the following:
In other words, by 2022, this $14.4 trillion opportunity will be up for grabs by enterprises all around the world. IoE will not only create new value, it will redistribute existing value among competitors in the market, based on how well companies take advantage of the opportunities available. Those that best harness IoE will either capture new value created from innovation or gain a competitive advantage and grab market share against other companies less equipped to transform and capitalize on this market transition.
Businesses today already face the unique pressure to do more with less, while also being tasked to change, adapt and create at a faster pace to keep up with the speed of innovation in today’s market. And both of these pressures are competing for budget. While planning for the large-scale transition into IoE, many companies risk falling victim to focusing on only one piece of the puzzle rather than the big picture of how to effectively address these competing pressures. In order to remain competitive and simultaneously achieve business transformation, organizations need to optimize the budget available and streamline spending in order to maximize their investments.
One way to ensure that a company is maximizing its investment is to leverage financing offered through the vendor that is also providing the technology solution being acquired. Known as captive finance companies, or “captives,” these subsidiaries have emerged as one of the best-kept secrets in the business world. Captives are uniquely positioned to assist organizations with proactively defining their technology acquisition, usage and disposal models. Through a captive’s financing offerings, organizations can acquire the technologies they need while preserving cash that can later be invested in other areas of the business, build a cost-effective lifecycle management strategy and return older-generation products that the captive may refurbish and certify for resale to the secondary market.
Today, organizations are expected to adapt to new technologies, demands and trends faster than ever. As a result, it’s vital that companies have the necessary funds on hand to restructure and remain agile.
By leveraging financing, organizations can mitigate the underlying cost of acquiring the technologies they need to build a future-ready IT infrastructure, while allowing them to optimize their investment. By financing a technology solution, an organization can:
As the financing arms of these technology vendors, captives specialize in and have a unique understanding of the solutions being offered. As such, they can more easily tailor financing based on how each technology is typically deployed and consumed by customers.
Deciding how to invest in technology is just as important as choosing the right solution during this crucial transition. Financing makes it easier for organizations to acquire the technology they need, meet ongoing technology refresh requirements, reduce total customer cost of ownership and have the flexibility of payment schedules that match cash-flow and budget.
For example, smart factories represent one of the two largest use cases in IoE. By adding connectivity to manufacturing processes and applications, a factory can increase productivity, reduce inventory with real-time inventory supplies and cut average production and supply chain costs. This value comes from the addition of better sensors, improved connectivity to other machines and more intuitive interfaces with people that make for more intelligent machines. By adding a back-end connection to the cloud, the data collected by these intelligent machines becomes useful analytics that enable more effective integration of labor, capital and technology.
While sounding simple, the various technologies being deployed in a smart factory often require a large-scale investment from the organization. Because a captive is tied to the technology vendor, it has a deep understanding of the solutions being acquired and how they are deployed. It also knows how long it takes for a solution to become fully utilized and start providing a return on the investment. Armed with this insider knowledge, a captive can tailor a financing solution based on these factors, even allowing organizations to defer payments until the technology is fully operational and providing value to the business, ensuring that customers are realizing the maximum benefit of their solution and the greatest return on their investment.
Another key benefit of a captive organization is the ability for a company to design a lifecycle management strategy. The technology industry today moves at a rapid pace, continually innovating and creating new products or updating the ones already on the market. In order for a company to remain nimble and competitive, the ability to create a lifecycle management strategy is crucial. A lifecycle management strategy allows a customer to upgrade or refresh their technology on a regular cycle, all within a consistent payment structure decided at the outset of the acquisition. This ensures that the products and solutions being used remain current and continue to meet or exceed business requirements.
A captive also provides an environmentally conscious way for companies to dispose of older or underutilized products during a technology refresh or at the end-of-term of the financing structure. These products are often then refurbished and certified by the captive to be resold on the secondary market.
Although this transition can seem daunting, business leaders can’t afford to ignore a $14.4 trillion-at-stake opportunity — winners and losers will be determined quickly as the pace of change continues to increase. By leveraging the many capabilities of a captive finance organization, businesses will be best positioned to take full advantage of IoE and realize all the benefits it has to offer.
Kristine A. Snow is president of Cisco Capital.
No tags available
