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Strategy

The Decision to Rent vs. Buy Technology


by Patricia Coleman

It is important that financial executives understand how the rent vs. buy option not only addresses obsolescence and profitability goals, but also helps to free them up by simplifying the procurement process.

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Given the rapid pace that technology of all types is evolving, one might wonder why businesses would choose to purchase computers and other office equipment rather than rent it. Financial executives have to weigh not only the obsolescence factor emphasized by their IT team, but also the economics in a buy vs. rent decision. Increasingly, across diverse industries and companies of all sizes, IT is reporting directly to the CFO. This is occurring at the same time that many organizations are increasing their technology budgets. According to findings shared by McKinsey & Company in its McKinsey Special Collection, The Role of the CFO, 38 percent of CFOs are responsible for IT, and in related areas, 35 percent are responsible for procurement, 18 percent for cyber security, and 14 percent for digital. McKinsey also found that the average CFO has responsibility for 4.53 activities/areas, all consuming their time. It is important, therefore, that financial executives understand how the rent vs. buy option not only addresses obsolescence and profitability goals, but also helps to free them up by simplifying the procurement process.

Pay-As-You-Go Technology Model

Today’s market demands that businesses are agile and able to scale up and scale down to capture opportunities. One way they can do this is by using a pay-as-you-go rental model instead of buying the additional equipment needed to meet contingent and/or short-term needs. This is especially true for organizations that have: project- or demand-based operations requiring elastic scalability, peak seasonal demands, and/or multiple locations. Start-ups too benefit from this model as does any organization that is projecting significant but uncertain growth.

The pay-as-you-go model reduces risk and eliminates the hidden costs, capital expenditures, and concern about ROI associated with equipment purchases. Overall, there’s a positive effect on profitability. The total cost of renting is typically less than the total cost of ownership. Further, because rental expenditures are incurred on a week-to-week or month-to-month basis, scaling up and down can be accomplished cost-effectively with minimal impact on cash flow.

Delivering Enterprise-Grade Reliability and Security

In case you’re wondering about the overall enterprise reliability and security, the rental option does not fail here. Starting with the integration of the technology/equipment, the rental company backs its products with technical services including system configurations, maintenance, and user support. Additionally, these computer and office equipment rentals can be backed by 24x7 help desk support, 24-hour replacement guarantees, and on-site spares provided at no additional cost. Where specific regulations demand that an organization meet certain corporate and/or government IT security requirements (e.g., a Department of Defense-certified data wipe when the equipment is returned), the rental company can tailor an order accordingly to meet compliance standards.

Renting Accommodates Fluid Business Situations

Not everything goes as planned, and renting is the perfect option to address last-minute changes or unexpected developments. Whether there is a need to deliver equipment on a later date because the out-of-town client group had an internal scheduling conflict arise and had to change its original plans, or equipment is needed sooner to meet a customer’s requirement for a quicker project turnaround, rentals offer this flexibility. If the rental provider is a national organization with an extensive network of local branch offices, they can easily accommodate location changes without unnecessary freight/shipping costs being incurred.

Streamlining the Procurement Process and Staffing Component

For financial executives already bogged down with procurement responsibilities, the rental option is far less burdensome than purchasing equipment. Specifically, renting eliminates the formal bidding exercise and capital expenditure procedure. When a single rental partner can assume full responsibility for the rental assignment, including providing qualified IT staff to manage everything from imaging and replication (if required), testing, set-up and help desk support, to breakdown, return and rental insurance (if needed), the procurement process is simplified and convenient.

Eliminating Hidden Costs

When renting equipment versus purchasing it, there are a number of hidden costs that are eliminated. These include costs associated with: IT staff to manage the equipment’s set-up, testing, help desk support, and consumables management; back office staff for the purchasing process and insurance procurement; and distribution logistics if multiple locations are involved. In fact, the pay-as-you-go rental model has proven to be almost twice as cost-efficient as purchasing, delivering a 48 percent cost savings over purchasing when analyzed for a six-month period. This cost comparison takes into account expenses associated with: hardware, software, average state sales tax, cost of process, shipping, set-up (configure hardware, install software), testing, shipping/delivery/install, help desk, onsite tech support, and software upgrades.

In addition to the cost savings associated with the aforementioned expenses, rentals provide soft cost savings associated with downtime waiting for equipment repairs or replacements, purchasing a replacement or an on-site spare, and idle purchased equipment waiting for the next project or seasonal peak. There’s also the added value renting provides in improving end user service turnaround time by 20 percent or more, along with freeing up IT resources to address other needs.

In short, financial executives should take a long, hard look at the rental option and recognize its key attributes: scalability and flexibility to meet short-term, seasonal, and unexpected equipment needs; efficient procurement process; improved profitability by eliminating hidden and unnecessary costs; and added value in delivering leading-edge technologies for “best-in-class” applications.

 

Patricia Coleman is Director of Sales, New Business Development, for SmartSource Computer & Audio Visual Rentals.