As new technologies flood the market, and competition increases in parallel, the need for innovation heightens.
To create competitive advantage in a changing world, organisations must embark on a path of transformation, leaving behind legacy in pursuit of disruptive technologies and platforms.
Yet despite limitless opportunities entering the market, Australian businesses remain bound by budget constraints and strategies, blocking the pace of change across the industry.
“We encounter the same issues in conversations,” observed IBM Global Financing manager, Craig Punshon, during a recent ARN roundtable discussion.
“That CAPEX is harder to push through than it ever has been, that budgets have been cut and that cloud is changing the game.
“This leads to a common question of why do I even need to buy new technology at all and this represents an extraordinary change in such a short period of time.”
In utilising financing however, Punshon said partners are transforming businesses through greater flexibility and purchasing options, acquiring leading edge solutions to drive larger deals with higher rates of success.
“Our charter is to be an enabler to our customers and partners,” he added. “The conversation has changed and finance is becoming more important because of it.”
Triggered by the rise of the 3rd Platform - and the explosion of cloud, mobility, big data, analytics and social alongside - technology buying centres are shifting as customers seek new requirements from partners.
As the Australian digital economy expands, organisations nationwide are revisiting and realigning strategies and business models to ensure a more creative and agile approach to market.
Yet despite the clear direction of travel, businesses of all flavours seek assistance in alleviating risk and allowing flexibility in the delivery of new projects.
“The notion of financing has been around forever but we are seeing dramatic shifts in the market,” Infront managing director, Allan King, acknowledged.
“Today customers want models that place all the risk with the partner and there is a risk position we need to take within the channel as a result of that.
“The emergence of new technologies has created a gap of knowledge from a financing perspective, even though the desire is definitely there to bridge this.”
Echoing King’s comments, HCL Technologies director of advisory relations, Brett Moorgas, said that as the industry buckles under the duress of new solutions and services, a greater need for flexibility within commercial models is arising, citing finance as a key element of the equation.
“In Australia more lines of business are getting involved not just in purchasing decisions, but they are actually driving them as well,” he said.
With such high stakes, Moorgas said the line of business units are increasingly taking a front seat in technology initiatives by flexing budgetary muscles, as two major types of technology spending patterns play out across Australia - projects funded by IT and projects funded by technology buyers outside of IT.
“When you look at the emerging technologies of cloud, digitalisation and the Internet of Things, the key difference is that today the business is starting to not only initiate, but fund and work in these areas which suggests organisations are not as hung up on the traditional ways of doing business,” he added.
“But because they are doing this with a limited budget, they see IT more as the enabling piece of the puzzle and are becoming more open to alternative commercial models.”
In the pursuit of maintaining a lean balance sheet with optimum cash flows, boards are getting on the right side of the CAPEX vs. OPEX divide, understanding that the rate of innovation requires an open approach to technology acquisition.
But in the digital world of today, CIOs are essentially asked to do more with less, with a heightened need to support and enable the organisation, on less money than the year previous.
Embarking on the legacy-to-digital journey remains fraught with complexity for Australian business decision makers however, with many large organisations accumulating huge tangles of platforms throughout years of IT spending and silo-led projects.
“CIOs have certain financial targets and metrics they need to hit, one might be CAPEX and one might be OPEX, but it’s a conversation partners must have,” ISI Australia senior account manager, Phil Morris, said.
“We deal with businesses across a range of maturity levels and the discussion always comes back to the problems presented by legacy infrastructure and how customers can get this right.”
In short, many technology buyers are challenged with maintaining traditional environments as the case for modernising the legacy estate becomes more complex by the month.
Yet the challenge doesn’t just sit with the end-user, as the channel also adapts to new ways of closing deals and incentivising sales representatives through the cloud.
“The way I’m measured drives a lot of my behaviours,” KPMG First Point Global director, Jan Zeilinga, cautioned. “If customers are deploying multi-million dollar projects and I sign them up and deliver, but they only pay me $5 per month to use it, then all of a sudden I don’t get measured very well.
“There’s a need for partners to leverage financing to change that model so its team can be recognised up front and then have the money flow over a period of time.”
For King, Zeilinga’s issue represents the ‘Holy Grail’ of the entire industry from a financing perspective, as cloud continue to change the rules of engagement across the channel.
“The challenge is that cloud providers are putting credits out there but they can’t be recognised until it’s consumed and that brings a whole range of troubles,” King added.
“The remuneration packages and commission-based structures of the past will have to go because the risk placed on the company is too great to fund that.”
Generally speaking, the industry party line boasts that partners should change sales models to reflect the change of the market, yet problems remain around customer spending habits.
“Customers today don’t want a contract, they don’t want to sign it,” Datacom licensing general manager, Peter Stein, added.
“They want a 14-day clause when they can change but you’ve then got infrastructure sitting there.”
In response, Punshon acknowledged the reality of today in that “nobody wants to sign anything”, creating added financial complexities for the channel.
“The customer wants the full offering but nobody wants to take the risk,” he said. “There’s natural pressure which reflects the immaturity of the market.
“We are seeing discussions were nobody wins on any side and that has to change.”
In seeking reduced upfront payments and a simplified budget, customer demand is creating a new-found relevance in financing, yet despite the need intensifying, complexities remain.
“This isn’t a simple equation,” IGF director, Greg Cassano, added. “If it were easy partners and customers could solve this with their own balance sheets but the reality is that they can’t.
“Given IGF’s scale, credit rating and specialised focus within IT, we have the ability to make a difference in those changing conversations because we’re having a lot of them across the country.”
Speaking as a financing veteran, Cassano said IGF is seeing the “full breadth” of offerings play out locally, from volume-based deals to risk vs. reward and everything in between.
“That’s our role in the channel,” he said.
According to Cassano, organisations are turning to financing providers to help navigate change to more innovation platforms, citing “flexibility, simplicity and protection” from obsolescence as key factors.
“Financing essentially makes technology affordable and lets organisations drive growth and profits in your own business,” he explained.
As outlined by Cassano, financing can help channel partners increase profitability to win by up to 33 percentage points, reducing the pressure to discount by offering affordable payment plans.
The result is the prevention of deal slippage and a differentiated proposal for the channel, as it attempts to carve out opportunities amidst changing market dynamics.
Speaking as COO of UXC Connect, Paul Timmins said the financing option essentially always “reverts back to what the customer wants”, with size and stature also key factors for partners to consider.
“If you have a customer signing up to a contract based around their critical applications, then you can guarantee you’re going to lock them in for five years,” he said. “Yes they might have the convenience of termination but they are not going to leave because the technology is too critical.
“There’s risk and reward in this approach and while it does vary from customer to customer, it would be extremely naive in this age to go into a customer as an account manager without having finance as part of your kit bag.”
While partners may not have the entire mechanics of the deal outlined, Timmins stressed that the option of financing should always be present as a vehicle to drive innovation within an organisation.
“I had a conversation with a CFO six months ago around providing the elasticity to ensure they don’t run out of capacity during the 41 days of the year they deem peak, around the Christmas period,” Tech Mahindra enterprise architect, Patrick Cheetham, added.
“We were able to confidently say up front that this is what it will cost you and you won’t run out and that got us over the line and won us the contract.
“The CFO had confidence in our ability to deliver and they were prepared to pay a premium because running out of capacity at Christmas dwarfed everything else.”
Cheetham said fusing the need to deliver mission critical applications with financing in a flexible model can help partners stand out from the pack.
But as CSC director of digital alliances, Sonia Eland, outlined, there’s no “one size fits all” financing model for the channel to cut and paste to customers, illustrating the need for a case-by-base approach.
“Flexibility is crucial in financing,” Eland added. “There’s no money for digital transformation and C-level executives continually have less money to spend.
“So innovation has to be self-funded and that’s when partners can be creative and figure out what’s in the kit bag of possibilities and use these tools to help take customers to the next level.”
In taking customers to that elusive next level, Eland advised partners to embed financing into the sales framework, in a bid to unlock innovation.
This roundtable was sponsored by IBM Global Financing.
This article originally appeared in the September issue of ARN magazine - to subscribe, please click here