5 reasons why NZ enterprises are choosing consumption-based models
- 17 October, 2014 02:51
Across the New Zealand industry there is a growing demand in the market for a pay-per-use model when it comes to communications in the enterprise.
These consumption-based models can be adapted to a particular business or aligned to the financial demands of any industry including larger enterprises, universities, government organisations and health care providers.
“We are seeing a trend towards flexible and rapidly scalable solutions that reduce capital outlay, mitigate large-scale deployment risks and let customers pay per user per feature per month," says Steve Saunders, Cloud Communications Business Manager, UXC Connect.
“Ordinarily, customers will over-subscribe the system capacity required in order to avoid the need to request additional capital for incremental expansions, whether this be due to seasonal fluctuations (trading peaks/toughs) or as a result of continual business growth over the medium-term.
"This means that communications environments are typically 5-15 per cent over capacity at any moment in time, which results in poor utilisation of capital and increased maintenance charges."
Additionally, and as a result of the high volume of mergers, acquisitions, relocations and offshoring, Saunders claims business capacity is rarely constant.
"The consumption model lets organisations directly align capacity, functionality and cost to the demands of the business."
Saunders offers five reasons why enterprises are looking to consumption-based models over capital-based models
1. Payment on benefits realisation
Traditional communications solutions require a significant upfront investment in on-premise technology and project services.
As part of this traditional model customers are hit with large upfront costs before any capability or benefit is delivered.
With the advent of consumption-based models organisations now expect to pay when they use the service and realise the benefits of the capability.
This in turns drives vendors to offer more capability within the consumption-based model because the greater the benefits, the greater the opportunity for both the business and provider.
2. Financial flexibility
More businesses have capital expenditure (capex) constraints including those who have traditionally embarked on large projects such as government and commercial organisations.
For all organisations capex investment needs to be justified in terms of direct business outcomes. While technology is a key supporter and enabler of business initiatives, on its own it very seldom provides a clear benefit.
Even from an internal ICT standpoint the pressures on capex budgets are increasing.
With so many communications services becoming commoditised there is an expectation that capex be saved for unique or leading-edge capabilities, which cannot be easily procured on the open market.
3. Acceleration of business capability development
Consumption-based services are typically much quicker to deploy, change, expand and contract due to:
• shortened commercial and approval cycles through the application of a simple consumption-based model
• a catalogue-based approach to services reducing the time to understand capability and align people, process and technology
• the ability to leverage tried and true solutions that have already been developed, reducing or removing early proof of concept and testing phases associated with unique one-off solutions.
4. Direct chargeback to the business
For many businesses itemised mobile phone bills are a fact of life with usage charges associated directly with individual phone numbers. This allows the costs to be managed within the budget of the department, team and individual.
IT costs can be itemised and allocated in a similar way. Costs associated with the large upfront investment in communications equipment and one-off project services need to be recovered from somewhere, which requires back-office staff to break up and assign costs across the organisation.
Most importantly, recovery of excess charges through arbitrary allocation of costs can damage the relationship between IT and the business.
Taking a consumption-based approach reduces the work involved in allocating expenses and, because it is more precise in terms of who is responsible for what costs, it can eliminate the risk of damaged relationships.
5. Reduced technology lock-in
Many consumption-based models provide the ability to scale up and down but also the capability to exit or wind down significant capability.
Many risks associated with technology lock-in and future capability development are moved away from customers and back to the communications providers who need to continually develop innovative products and services while managing the demand across multiple customers for the benefit of each client.
“The move to consumption-based services is welcomed by many businesses," Saunders adds.
"As existing solutions reach end-of-life more business will be looking towards a consumption-based model.
"Those that don’t will potentially find themselves with a competitive disadvantage.”