Tech lifecycle refresh: A tale of two philosophies

August 31, 2023

Learn why it may be beneficial to lease new equipment instead of buying outright in this comparison story. 

 

When talking about tech refreshes with clients, we often notice that the decision is both philosophical and practical. Companies pair questions of cost and implementation with a desire for control that can dictate how they eventually proceed.

Think about your current tech infrastructure. How many machines are older than three years? That’s the average length for manufacturer warranties. This means anything older will incur additional costs every time it needs maintenance.

When it’s time to upgrade, organizations must decide whether to finance the new equipment themselves or sign a leasing agreement. It’s understandable for a company to want complete control over its tech infrastructure. In that case, they alone would make the decisions on when, how and why to upgrade. It feels liberating to have that power.

However, this can also limit operational potential — especially if the tech sticks around past its ideal lifespan. Either way, it’s worth talking about it. Once you determine which path to follow, contact your equipment financing partner to get the conversation started.

 

Leasing versus buying: a tale of two companies

Let’s look at this debate from a practical point of view. Company X and Company Y have similar situations, yet they choose different tech refresh paths. These stories are based on actual interactions we have with our clients.

 

The path of control: buying and owning

Company X has been using quickly outdated technology for five years, long past the typical three-year cycle for most tech lifespans. As a result, the company has experienced major maintenance costs and now operates outside warranty for many of its systems.

They now reached the time when a refresh is completely necessary. It’s needed just to stay current with new security threats that the old systems can’t handle.

However, since they originally purchased the equipment outright, all management of the refresh falls to the company itself. Moreover, the company doesn’t want to relinquish that control, they want to buy another round of equipment with cash.

The equipment purchasing process becomes a transactional effort. In another five years, or sooner, they’ll be back in the same place —with another batch of outdated tech they need to offload and replace.

 

The path of partnership: leasing and managing

Now let’s look at Company Y, which is also battling with outdated technology. However, instead of buying new equipment, they instead pursue leasing.

Again, there’s an element of control here. But contrary to what you might think, leasing doesn’t mean relinquishing control over the equipment. It’s about smarter control.

Company Y enters into an agreement that provides a refresh every three years, to align with standard manufacturer warranties. Through the agreement, Company Y works with their leasing partner to offload their old tech before the warranties expire. This can provide a much higher residual than simply recycling out-of-warranty scrap tech.

Within the agreement, the tech leasing partner helps Company Y establish an efficient refresh process every three years, learning and optimizing each time. Company Y is also better protected from data hacks and security threats, because they can stay within the tech’s natural lifespan.

The technology process, rather than a transactional, one-time event, becomes more of an ongoing strategy. Control doesn’t change much — the company can still remove tech as needed, or change their machines if they adopt new IT and/or regulatory standards.

 

The future for each perspective

Fast forward five years later. Company X and Y both now have refreshed systems, but there are key differences in the process.

 

Expectation of maintenance

  • Company X stuck with their now out-of-warranty equipment. Now they must offload all old tech at a fraction of its original value. Since they don’t have a leasing agreement, they must dispose of the old tech themselves – often at high cost and low return. 
  • Company Y recycled their old tech through the leasing partner at a higher residual two years prior, and created a standard for new tech that would play well across the company.

 

Expectation of costs 

  • Company X must undergo the refresh process on their own, using whatever lessons are still relevant from their previous refresh five years ago. 
  • Company Y has already undergone two refreshes, becoming more disciplined about the process.

 

Expectation of productivity

  • Company X has already dealt with two years’ worth of productivity restrictions, due to the increased maintenance needs and resources with out-of-warranty tech. 
  • Company Y experiences increased productivity and employee engagement, as employees report fewer infrastructure concerns and faster in-warranty) maintenance.

 

Tech refreshes as a strategy

There are many hurdles — both practical and philosophical — in a tech lifecycle process. From a philosophical mindset, this can become a debate about control. However, you might be surprised that the differences aren’t that drastic. When it comes to tech refreshes, ask yourself: do you see it more as a transaction, or a strategy?

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Loan approval is subject to credit approval and program guidelines. Not all loan programs are available in all states for all loan amounts. Interest rates and program terms are subject to change without notice. Mortgage, home equity and credit products are offered by U.S. Bank National Association. Deposit products are offered by U.S. Bank National Association. Member FDIC.