Successful leasing and financing companies continue to evolve their business strategies from being a source of capital to being providers of integrated business solutions comprising capital, financial packaging innovation and a suite of value-added services that enable the best business value for their clients. A case in point is HP Financial Services (HPFS), which recently commissioned research firm IDC to analyze best business practices in IT management strategies. The resulting research report, “Strategies for Managing IT Equipment Renewal & Replacement in Difficult Times,” provides a framework for business leaders to evaluate their IT equipment leasing, financing and services options.

While many IT organizations are accustomed to preparing a thorough analysis of procurement and funding options, including the traditional “lease versus buy analysis,” this report recommends that CIOs and CFOs take a more strategic view of IT procurement and its impact on their organizations.

A key assumption in the research is that a solid IT management plan is essential for all organizations because their success or failure is directly tied to the performance of their business infrastructure. By creating a multiyear capital equipment plan, IT organizations can provide a solid backbone for business operation and directly impact their company’s growth and operational effectiveness.

Traditional methods of executive education have focused on an often-limited lease-versus-buy analysis and the use of financing programs as a means to drive equipment sales. This research from IDC recommends taking a longer-term, more complete view of the IT infrastructure and the strategy for managing it. IDC offers a fresh approach to viewing the role of leasing and financing within the overall IT strategy, suggesting that CIOs and CFOs use a new scorecard and look beyond the typical metrics for value analysis to measure operational success.

HPFS sponsored this research project because it continues to evolve its business to keep in step with end-users’ needs, with the overall goal of increasing market share for its parent company, HP. HPFS continues to find new ways of providing flexible and competitive lease and finance rates that help drive sales of HP’s IT equipment, software and services. This latest research makes it apparent that programs offered today must extend beyond enabling the procurement and sales process to providing strategic advice on total IT solutions management.

The report provides detailed examples of various IT management strategies and measures the financial impact of the various scenarios. IDC calculated the total costs associated with IT management based on its extensive research and knowledge of technological changes and impact on maintenance costs over the equipment lifecycle and the labor costs associated with all aspects of IT deployment, management and decommissioning. The findings of this research were that IT labor costs could be cut by up to 75% by employing a more strategic IT equipment lifecycle strategy.

IDC’s research maintains that the cost of acquiring equipment is only 20%-30% of the total cost of the solution, with IT labor making up the remaining 70%-80%. In addition, older equipment, although paid-for, can increase overhead costs with its higher cost of maintenance and operation. Newer IT equipment provides increased performance with lower support costs, and takes less time to install.

The applications and tools in today’s IT solutions are far more than “bells and whistles;” they save management costs through more advanced software, they save on physical operating costs by providing better performance while consuming less energy and putting out less heat, and they are more simple to install and upgrade, saving on direct IT labor costs. The key for IT organization leaders is to establish a measurement that factors in the total cost of an upgrade balanced with the reduced operational costs.

A common problem is that IT organizations generally use a standard amortization period of three, five or seven years to dictate when equipment is upgraded or replaced. The report found that this inflexible lifecycle strategy is not an economically sound method for managing infrastructure because it tends to artificially extend lifecycles. IT organizations almost invariably want to pay off one solution before buying another, so the company is bound to a finance-driven depreciation and amortization schedule. But with leasing, IT organizations have more flexibility in establishing the optimal lifecycles for their particular business.

IDC cites benchmarking studies it conducted on PC deployment cost models. One such study analyzed the costs associated with four types of management scenario: Basic (an ad-hoc, decentralized strategy), Standard (some standard practices, centralization) Rationalized (standard practices, centralized, integrated, with some automation) and Dynamic (rationalized but highly automated). In this benchmarking study, IDC found that using the Dynamic strategy saved the most on deployment costs — a staggering $400 per PC. Using a strategic partner to facilitate this process — 
perhaps a financing or leasing company — can save IT organizations a significant amount of money.

In addition to these direct cost savings, IDC considered the enterprise impact of technology. If a new solution transforms a process that saves on labor costs, drives innovation at a company, and improves overall productivity, it proves a good choice was made and that there is strong business value to be gained by investing in the latest tools and technologies. This value is not directly quantifiable but has a direct impact on the success of a company.

Key recommendations in the report included:

1. Establish a framework that optimizes the portfolio cost of IT equipment over multiple technology lifecycles.

2. Examine whether extending equipment lifecycles is counterproductive and actually increases overhead while diminishing innovation.

The above are highlights and key points of the study. The main theme of the research is that the IT management process must anticipate, facilitate and enable change. Many financing organizations have succeeded at the anticipation and facilitation phases, but the ability to enable change requires a well-articulated strategy and specialized programs that meet IT organizations’ growing demands. HPFS’ recognition of this third phase is central to its goal of helpings its customers elevate their business practices — 
and will expand the scope, depth and success of the business solutions it provides to customers.

Jennifer Koppy is a research manager for IDC’s Technology Valuation Services and Technology Financing Strategies programs. She focuses on the midrange Unix/RISC server market (specifically IBM’s POWER-based systems), Intel and AMD-based server markets, Cisco’s router and switch market, and the personal systems markets. For each of these technology segments, Koppy follows the trends, technology changes and market forces that impact lifecycles and IT portfolios. She provides insight and guidance to her leasing company clients and helps them manage their IT portfolio risk. In addition, Koppy leads research studies on end-users’ wants and needs related to IT financing and leasing. This information is used to help shape marketing plans and provides strategic advice on how to drive more leasing and financing volume. Koppy is a 15-year veteran of IDC and holds a B.S. in Communications from George Fox College.