It’s clear now that parts of the world are in the grips of a major economic recession. A general dip in overall confidence has led to a pullback in new investment and the consumption of goods and services. At the enterprise level, this is being played out in the form of anxious discussions in the CFO’s office. Various lines of business executives — from marketing to sales, HR to the CIO’s office — 
converge at the finance director’s door like the March of the Penguins; each office in search of funds to run their operations in a cash-starved environment.

What’s ominous is that they are essentially competing among themselves for the same cash pool to either retain or enlarge their budgets. Just as there will be winners and losers at the end of this recession, there will be winners and losers at the end of this macabre dance. The CFOs that make the right decisions now will be celebrated as the rising stars of the recession of the late double-0 years.

It’s a challenging time to be a CFO. The role itself has grown. It’s not just a pencil-to-the-ledger job anymore. It’s a role that has to ask the difficult questions that drive a company:

A CFO’s inability to find these answers can only throw a company off track. A study of the largest 2,000 companies during the last economic downturn found that approximately a third of the companies that were in the top quartile, by the end of the period of economic volatility, were not there anymore.

Finding the right answers to the above questions and embarking on the right strategy can spell the difference between success and failure. As the general manager for client financing of one of the largest IT financing companies in the world, of course I find the most interesting discussions are the ones that take place between the CFO and the CIO. Their focus: their company’s ongoing technology acquisition strategy.

Today, technology is an important factor in maintaining a company’s competitiveness. It can help to seamlessly connect all of a company’s processes and infrastructure, data, employees and customers into a form that can make it “smarter.” Those smarts can translate into greater efficiencies, more resilience and better capability to withstand the business challenges facing the organization, like the economic recession confronting us today.

For over 25 years, IBM Global Financing, the technology lending and leasing business segment of IBM, has been watching recessions come and go. As one of the largest originators of technology financing and captive to one of the largest technology solution providers in the world, we have become adept at spotting the patterns of technology acquisition activity during good times and bad.

Typically, in a credit crisis customers tend to do one of two things:

Some customers do a little of both. A good financier is adept enough to play in either arena.

Conserving Cash in a Recession
In the first scenario, customers redirect capital to more core investing needs and work fiercely to preserve existing credit lines. We have found that where customers in this camp may have once been prone to purchasing technology outright they have made a 180-degree shift to leasing.

This is especially noticeable with large banks that showed a measurable uptick in leasing and sale-leaseback activity with IBM Global Financing during the preceding 18 months. While banks traditionally do not lease, leasing affords a number of options that could be beneficial in our current economic climate. Leasing allows enterprises the opportunity to acquire technology with low or no money down, followed by regular and flexible, low monthly payments over a 24–60-month period.

Leapfrog the Competition in a Recession
For enterprises that see recessions as an opportunity to get ahead of the game, the current economic situation is a perfect time to get rid of older and less efficient technology. Stepping up to newer equipment that is less costly to run and maintain, energy-efficient, and with additional functionality and storage capability will probably go a long way in positioning a company for leadership and greater market share when the dark economic clouds lift. IBM Global Financing’s asset recovery solutions can help a company inventory, evaluate and dispose of unwanted technology equipment. In some cases, we can put cash into the hand of the CFO, which can be used to acquire new equipment.

In the long run, either scenario can be beneficial. The most successful companies are those with a finance team that can deftly tie together both concepts: managing costs, while simultaneously investing for future competitiveness.

IBM Global Financing approaches lending a lot differently than many. While we still closely examine the credit worthiness of a client and their ability to repay, once comfortable, we work with the customer to identify which leasing arrangement best suits the CFO’s business objectives. Customers can choose from two main offerings:

In this form of leasing, the lessor anticipates what the fair market value of a piece of technology will be at the end of the lease term. For instance, if equipment costs $10,000 new, and the lessor assumes its fair market value 36 months from now will be $2,000, under a FMV lease, the customer only finances $8,000 of the machine. The monthly payment is lower and the lessor can take back the equipment and capture the residual value through a sale on the secondary IT equipment market.

Hence the reason why customers should beware of “zero percent lease” gimmicks being offered by some computer manufacturers. These are rarely FMV leases. Rather, the purchase price of the equipment is simply divided by the number of months in the term. The customer pays full price for the equipment and has to give it back at the end.

An added benefit: FMV lease payments are generally treated like an operating expense, which does not have to be declared as liabilities on the company’s balance sheet. At lease end, the client has several options, including returning the asset, keeping the asset while continuing payments on a month-by-month basis, or buying the asset for the then-current fair market value.

Recessionary Trends
There have been a lot of interesting initiatives launched by governments around the world to help stimulate our collective economies. In the U.S., for example, the new administration’s move to direct billions of dollars towards “smart technologies” like Smart Grid, Health IT and broadband over power lines are geared to save and create new 21st century jobs and give the economy and overall boost via new investment. Acknowledging that some of this money has to work its way through the governmental process before it hits the individual states has prompted our firm to embark on a new program to help qualified companies bridge the gap between the start of these smart projects and the time when the money eventually reaches the company.

We have seen immense interest in this new program because it activates projects in 2009 that would have had to wait until later in the cycle. Additionally, as a response to the U.S. stimulus package, we have been able to offer enhanced and competitive rates on equipment leases to customers. Earlier this year, we expanded our stimulus financing program to well-qualified customers in Europe, Asia-Pacific, parts of Africa and Canada — covering all continents.

Another interesting trend that we see emerging during this latest economic crisis is the desire for companies to fund their entire technology solution with one financier. CFOs I talk to understand the needs of the CIO to leverage technology solutions to meet business objectives for efficiency or process improvements. On the other hand, they also understand the need to simplify the financial process. Instead of having five separate financing agreements with five separate solution providers, they are asking for one financing invoice for their hardware lease, software licenses and services contracts, IBM and non-IBM or other equipment manufacturer (OEM) solutions. This approach allows clients to be focused on their overall return on investment.

Eventually when the textbooks are written about this current recession there will be a lot of chapters that feature the winners and losers. These companies would be easy to spot. There will be the ones led by smart CFOs, who broke the code and advanced smart financing solutions, including leasing options to acquire technology during the recession. These decisions today would be seen as pivotal in managing cash in hard times and positioning their companies for growth during the inevitable rebound in the global marketplace.

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Daniel H. Ransdell, general manager of IGF Client Financing for IBM, is responsible for growing client financing assets, revenue and profit, while improving customers’ satisfaction of their financing experience with IGF across all business segments. Previously, he was general manager of Worldwide Global Asset Recovery Services. Ransdell, who joined IBM in 1981, has held various technical, sales and service positions in S&D, PSG, IGS and IGF. He is a member of the IBM’s Integration and Values Team, IGF Global Leadership Committee and Global Deal Review Board.