Wednesday, October 28, 2015

Don't Let Tax Decisions (CAPEX Vs. OPEX) Drive Your IT To The Cloud

The latest thinking among CIOs and CFOs is to drive IT to managed cloud services in order to convert capital expenditures (CAPEX) into operational expenditures (OPEX).

OPEX spending has the advantage of being immediately deductible, while CAPEX has to be carried on the books and depreciated over time.

However, when it comes to business and investing, making decisions based on tax consequences is the equivalent of "playing not to lose" in sports.

For every tax dollar you save, you could be giving up a potential 5-10 dollars, simply by not considering a long term competitive IT strategy.

It might make sense, for example, to migrate routine, lower level IT functions to the cloud but, if all your systems are in the cloud, what differentiates you from any start-up who plunks down $100 at Amazon Services?

With so many competitors accessing cloud services, with the same performance, it might make sense for your company to retain your existing infrastructure to deliver critical functionality faster and more reliably.  This creates a competitive advantage, "a moat", that competitors can't easily offer.

As a strategy consultant, I always advise my clients to focus on the key question: "How can we increase the value we provide to our customers?"  If you continually increase your relevance and value to them, you won't be considered a commodity - you will be a trusted business partner.

Your internal tax treatment (CAPX vs. OPEX) has no value for them, but proprietary IT infrastructure  / operations that enable them to meet their objectives better and faster than cloud - only has a lot of value.