Many SMEs will purchase a vast majority of their IT needs, from printers, computers, tablets, and laptops to mobile phones and software. This leads to a situation that is commonly referred to as vendor lock-in. So, what is vendor lock-in?
Vendor lock-in is a well-known problem facing today’s businesses. It’s common for companies to be stuck with vendors or situations where the costs of making a change are simply too high. Instead of being able to adjust to a changing marketplace, they’re stuck in a situation that limits their ability to make proactive business decisions, ones that could help their business grow.
How Does Vendor Lock-In Happen?
Vendor lock-in is often a gradual process. It’s natural for businesses to reward vendors and partners who perform well. Over time, companies will often enter into long-term agreements where that vendor is rewarded for their consistent performance. It’s only later that companies realise that they’re essentially “locked-in” and unable to change.
An argument can easily be made that SMEs are more susceptible to the high costs of vendor lock-in compared to some of their larger competitors. This is because many SMEs develop more personal relationships with their vendors. They then decide to go “all-in” on a relationship without understanding the long-term impacts.
Sometimes it’s a question of manpower. There may be a shortage of available workers, and the company has little choice but to stay the course with their chosen vendor. This often occurs with vendors who have a specialised and highly trained workforce, one that has gone through extensive training. Unfortunately, these highly trained workers are often hard to come by and the vendor retains the business as a result.
Vendor lock-in can also be caused by financial pressures and long-term commitments. Companies are often forced to stick with their current vendors out of concern they would miss important deliverables should they try and make a switch. Missing deliveries and interrupting production by switching could mean incurring substantial late fees and penalties.
How SMEs Can Avoid Vendor Lock-In
SMEs can avoid vendor lock-in by focusing on short-term goals and objectives where contract renewals are based upon the SME’s timeline and schedule. In the case of IT infrastructure, leasing is a more viable means of avoiding lock-in. In fact, there are some inherent benefits to leasing over buying that not only help SMEs avoid lock-in but also allow them to keep up with a constantly changing marketplace.
So, what are some of the inherent benefits of leasing IT infrastructure as opposed to buying it outright?
Simplified Relocation and Tax Benefits
COVID has dramatically changed how businesses operate. Having to set up a work-from-home office can be costly, especially when the IT equipment has already been purchased. Regardless of whether it’s setting up a home office or moving an entire office into a new building, owning the IT equipment is fraught with problems when you suddenly need to relocate.
Leasing allows you to instantly upgrade your IT infrastructure and make payments for that upgrade over time. There are also tax benefits that come from leasing that can help reduce your tax liability.
Improved Cash Position
Proactive cash flow management is an absolute must for SMEs nowadays. Businesses are guaranteed to encounter late-paying customers or come across some unforeseen expenses. As such, maintaining a positive cash position allows SMEs to ride out the ups and downs of their market while helping them better manage the everyday expenses that come from running a business.
Leasing IT infrastructure means the SME has more cash on hand. They are better able to manage their monthly cash flow and don’t have to invest working capital for an upfront purchase.
Easily Upgrade with Lower Maintenance Costs
Technology is constantly changing, and businesses need to be able to adjust accordingly. What seems cutting-edge today can easily become outdated tomorrow. Buying IT infrastructure means you own it outright, which makes upgrading extremely difficult. You’ll need to sell your equipment first and then purchase the upgrade. Leasing helps you avoid all these hassles.
There is also the added benefit of lower maintenance and repair costs. The IT equipment isn’t yours. Problematic equipment is much easier to upgrade and replace when leasing as opposed to purchasing.
If you are looking for a proactive leasing partner that can help you better manage your cash flow while keeping you up-to-date with the latest IT technology, contact us today.
