Boxing clever
For hardware manufacturers, the recession has threatened to be a particularly rocky ride. Organisations are holding on to their old kit a little longer, sweating their assets for every last drop of their investment.
Worse still, the one new technology that is encouraging people to spend – virtualisation – is predicated on buying fewer servers for the data centre. When they do go to market, organisations also expect discounts that reflect the tougher times. The public sector has formally gone back to suppliers and asked for contracts to be reduced by 8 to 15 per cent, depending on the contract. The private sector expects at least the same.
Compounding the problem is what Mark McKeon, country general manager at HP, calls the “desperate behaviour” of some suppliers, who are prepared to “buy a piece of business’‘ by selling hardware at little or no margin. But it is not all bad news.
“You are depending on the customer to recognise the value in having a track record and a relationship with their supplier,” he said. “People are still willing to invest and we’re seeing activity.
Even the indigenous banks are spending.” McKeon puts this down to a pent-up level of demand for new infrastructure, brought on by years of no capital expenditure.
“There is an in-built service risk that people are carrying because the level of investment that had been there has not happened in the last couple of years. It is now recognised that technology investment is core.”
He thinks this change is significant, brought on by the elevated roles of chief information officers, who sit on boards and make the case for technology more effectively than chief financial officers. Businesses are starting to listen.
Dell’s director of solutions, Kevin Swan, reported a similar trend. “We saw the IT spend flatten but now it’s slightly up.”
He charts a changing dynamic in the market that began with a reduction in people and then moved on to capital spend. “That was the first phase. Then people started taking out extended warranties, moving from three to five years. And they were looking for 12months rather than three years on software support.”
Time to reinvest
According to Swan, the cuts and cost control served a purpose for a couple of financial quarters, but it soon became evident that they had to get on with running their businesses.
“With staff reductions, people were doing more with less and they couldn’t do it,” he said. “They had sweated their asset but realised they had to reinvest.”
The challenge for hardware manufacturers is that their products are increasingly commoditised, so they need to add value. Both HP and Dell sell boxes that are aligned with enterprise services.
“There is no doubt that certain types of product are commoditised,” said McKeon, “so we have to differentiate by the service offerings you wrap around them and a business case built on the total cost of ownership business case.”
Printing is a good example, he said. “You can get into a slug match with Lexmark or Canon to have the cheapest printer, but we’re expanding the brief and looking at total cost of print and wrapping managed print services around it. It’s about taking out costs whether it’s people, consumables, paper or toner.”
Strategically there’s a bigger price for more ambitious customers because a better controlled print environment is a stepping stone into more efficient processes. “If you replace 500 desktop printers with 60 multifunction devices, it lays the foundation for a workflow infrastructure,” said McKeon.
To counteract the commoditisation of hardware, the wider HP proposition is around converged infrastructure, selling the virtues of an end-to-end environment delivered by a single supplier.
Dell adopts a similar approach, promising its customers an efficient enterprise strategy.
Swan said that the Dell approach was based on talking to customers at the concept stage and building an environment with open standards for optimised performance. The endgame is giving its customers the time and space to innovate.
“In a typical ITspend,80 per cent of the budget is about keeping the lights on,” he said. “We want to bring that down to 50 per cent then the rest of the budget can be spent on innovation.”
