IT Infrastructure and CostOpEx and CapEx

Transforming your IT Infrastructure into an OpEx Model

By March 17, 2021 No Comments

Transforming your IT Infrastructure into an OpEx Model




Considering transforming your IT Infrastructure into an OpEx Model?

Businesses traditionally rely on owning IT infrastructure as part of their IT transformation. Such infrastructure requires significant capital expenses to operate, maintain, and upgrade. With technological advancements, the service model is quickly replacing the ownership model where companies are investing in cloud architecture.

Cloud computing offers the same security and oversight as traditional models in addition to providing businesses with flexible and cost-effective solutions. You can choose OpEx, CapEx, or a combination of both models for the cloud based on your business needs. Let’s dig in and explore:

Comparing CapEx and OpEx

When looking to transform the IT infrastructure in your business, you can choose between capital expenses (CapEx) and operating expenses (OpEx). CapEx refers to business expenses that provide long-term benefits, for example, fixed assets like systems, equipment, servers, network routers and switches or server data storage and backup media. CapEx also includes the costs of upgrading this equipment to extend its usefulness and longevity.

OpEx is the daily business expenses paid for as they are used like rent, electricity, maintenance and payroll. Unlike CapEx, these are not considered long-term investments.

Your financial goals for the business will determine whether you purchase IT infrastructure based on the CapEx or OpEx model. You can consult with the CFO to determine the financial position of your company, and with the CIO to determine the best IT infrastructure you should implement in the organization.

OpEx and CapEx are treated differently in accounting and taxation; CapEx is considered as investments that bring profit to the business throughout their lifetime. The amount to invest in capital expenditures can be a crucial and major decision for many businesses. The investment has real financial ramifications on the long-term strategic goals of the company, a decision that should not be taken lightly if a business is to remain agile and competitive in today’s dynamic economic and technological landscape.

Since IT is a rapidly evolving industry, there is a higher likelihood that CapEx infrastructure will become obsolete before delivering any returns on the initial investment. Upgrading to another CapEx framework will require an additional investment, which further impacts cashflow and financing activities of a business. The solution for many businesses remains to switch IT infrastructure into an OpEx model.

Transforming into OpEx IT Infrastructure

Any transition in a business takes effort and sometimes causes disruptions to processes, automation, culture and rules in the business. Transitioning successfully into OpEx infrastructure requires the right planning and involvement of key stakeholders within the company to handle the planning and execution process for the transformation.

While the digital transformation journey for every business varies, there exists common drivers that fuel the need for moving to cloud. Some of these drivers include innovation, efficiency, customer satisfaction, security, compliance, and modernization.

Based on these driving factors, the following questions that will guide the approach to OpEx transformation arise:

  • How important is innovation to the business and does the current infrastructure support innovation that will keep the business competitive and modernized?
  • Does the current infrastructure improve the performance of your business?
  • Is customer satisfaction important for the business? How is the current infrastructure supporting customer satisfaction?
  • Is the business financially prepared to move to OpEx? What plans do you have for controlling and optimising costs while on OpEx IT infrastructure?
  • Does the current infrastructure support security and regulatory compliance? How will the business handle network connectivity, authentication, security and compliance?

Having answered these questions, businesses can go into selecting managed cloud computing solutions that meet their needs and allow the business to innovate and grow. Transitioning to a managed cloud computing service will switch business IT expenses to OpEx and offer benefits including:

  • Predictable monthly costs for IT infrastructure since OpEx relies on a pay-as-you-use model
  • More room for productivity and innovation as internal IT departments can focus on creating new products and services to meet business goals and improve efficiency
  • Flexibility and scalability of IT resources based on the demands of the business; businesses can scale resources up or down based on the current demands of the business for instance, a business pays for more infrastructure during a Christmas sale season but scales down during the off-peak season.

Final Word

Digital transformation is growing from the need to have physical ownership of IT data centre infrastructure and equipment to the need for more flexible, scalable and affordable cloud services. Whether you are an SME or an established enterprise, you can find managed cloud computing services that take your business to the next level. Begin your digital transformation journey with iWV business cloud services.