Innovative Asset Management: How As-a-Service Models Support the Circular Economy
by Rita E. Garwood Vol. 48 No. 1 2021
The equipment finance industry is moving from a transactional approach to an as-a-service model. This shift provides an opportunity both to deepen relationships with customers and support the circular economy.
Rita E. Garwood, Editor in Chief, Monitor
Participating in the circular economy is clearly a good move for the planet. Plus, according to research from Accenture, it could create $4.5 trillion in economic growth by 2030 and up to $25 trillion by 2050. Equipment finance companies are uniquely positioned to capitalize on this trend.
Hewlett Packard Enterprise (HPE) has a circular economy approach that benefits customers by helping them use energy and materials more effectively while enabling them to manage their IT assets in a secure, compliant and environmentally responsible manner.
Making the shift from “take, make and waste” to “reduce, upcycle, re-market and recycle,” changes the entire value chain and creates many new markets, according to Gerri Gold, SVP and chief operating officer of HPE Financial Services (HPEFS).
To illustrate this concept, Gold mentions that her local farm stand recently began to offer home delivery of milk in glass bottles. While this move hearkens back to the milkmen of a bygone era, it also revamps the distribution packaging element of glass bottles, which creates a new marketplace that involves reusing the bottles and handling logistics.
“Now convert that into the world of digital,” Gold says. According to an IDC report, 65% of global GDP will be digitized by 2022, which will drive companies to invest more than $6.8 trillion in digital transformation by 2023.
Gold says finding opportunities across the value chain is important to HPE. The process begins with manufacturing products that can be repaired and recycled easily. The company also is committed to transitioning its entire portfolio of products and services to an as-a-service model.
HPE Greenlake Cloud Services represents the company’s commitment to transitioning to the as-a-service model. Using a pay-per-use approach, customers pay only for what they use, giving them the ability to scale their capacity up or down according to their needs. This model also makes it easier to participate in the circular economy.
“We’re moving from the customer owns the equipment to we own the equipment,” Gold says. “So, what that enables us to do is not worry about a customer having capital and again depreciating it. We own it, and when the customer no longer needs it, we’re able to take it right back in and put it right back through the circular economy.”
Innovative Asset Management
Gold says the circular economy has created a “rebirth” of asset management that involves extending the useful life of equipment. One way that HPE accomplishes this is by partnering with customers that want to tap into the value of their legacy infrastructure so they can fund innovation.
Gold notes that many customers buy equipment or software and capitalize it. Once they own it, it’s virtually a sunk cost. HPE takes two primary approaches to monetizing these assets — accelerated migration and upcycling services.
“When you combine those two together, we have funded over $1.6 billion back to our customers over the past five years,” Gold says.
With accelerated migration, HPE buys legacy equipment back from a customer and infuses the customer’s business with cash, which is paid back over time while the customer is still using the equipment.
HPE’s asset upcycling service takes equipment a customer no longer needs. HPE refurbishes and re-markets the equipment to give it a second life and shares the revenue margin with the customer. Since 2018, HPE can provide customers with their own circular economy report, detailing environmental impact savings such as energy saved, CO2 avoided and waste kept from landfills. In 2020, 97% of desktops and notebooks returned to HPE were given a new life as refurbished material.
To maximize the life of an asset, it’s vital that customers do not allow unused assets to collect dust. Returning assets to partners that can ensure a second life for the equipment is important. Between its as-as-service, leasing and asset upcycling businesses, HPE manages more than 3 million assets on the secondary market on an annual basis, according to Gold. Customers can obtain a revenue share by returning equipment they no longer need to HPEFS Technology Renewal Centers, where it is refurbished and reused.
“To give you a perspective, that’s about the equivalent of 35 million pounds, but it’s also the equivalent of 373 Airbus A320s,” Gold says.
Leveraging Asset Management Expertise
The asset management expertise of equipment finance companies can be beneficial to customers as they make the shift to a pay-per-use model. Gold says this approach can shift the relationship from a transaction between lender and borrower to a real partnership between the equipment finance company and its customers.
At HPE, this partnership approach includes taking stock of each piece of technology equipment to see where it fits into a company’s goals. HPE also ensures customers have access to the latest technology as well as maximized value.
To illustrate this, Gold tells the story of an HPE customer that wanted to shift to HPE Greenlake but couldn’t afford it. HPE completed an accelerated migration, purchased legacy equipment from the customer and infused the company with enough cash to make the shift to Greenlake and facilitate other transformation projects at the same time. To fill the company’s need for additional storage, HPE also provided 200 TB of certified pre-owned storage capacity.
We’re All Responsible
Captives like HPE clearly have an advantage in participating in the circular economy, given their close relationship with manufacturers, but that doesn’t give banks and independents permission to opt out. Many equipment finance companies handle asset disposition in-house while others work with partners.
“If you’re doing it yourself, the key theme is education,” Gold says. “You really have to understand the different ways that you can leverage and maximize in sustainability versus just moving it into recycling. And if you’re partnering, you really have to ask the right questions of your partners.”
If your disposition company says they recycle everything, that’s good, but it’s not good enough. Gold encourages other lenders to ask for upcycling first.
David Packard, co-founder of HP, said, “The betterment of society is not a job to be left to a few. It’s a responsibility to be shared by all.”
“If we don’t step up and do something, then who’s going to?” Gold asks. “This is not about where we compete. This is where everybody should be focused because it’s the right thing for business, and it’s the right thing for the planet.”
“Waste to Wealth,” Accenture. Palgrave Macmillan. 2015.
“IDC Reveals 2021 Worldwide Digital Transformation Predictions; 65% of Global GDP Digitalized by 2022, Driving Over $6.8 Trillion of Direct DX Investments from 2020 to 2023,” IDC. Oct. 29, 2020.
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