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The business implications of failing to upgrade equipment

Take a look around your workplace. How much of the equipment do you use on a regular basis – and how much of it is used infrequently or not at all?

That was one of the questions we put to 250 employees with decision-making responsibility over equipment purchasing within their organisation. The findings highlight how many businesses are encumbering their ability to grow, become more efficient and competitive in the market, and retain talent.

The survey, conducted by Atomik Research in August 2018, revealed that on average companies own technology equipment worth £302,700. Of that technology, £93,800 worth of equipment is used infrequently (less than four months of the year) by businesses. Furthermore, companies own almost £90,800 worth of technology equipment that is no longer working!

Worryingly, eight in ten office-based companies in the UK are holding on to obsolete items of technology that have no use to their business, including:

  1. Old computers that don’t work (36%)
  2. Typewriter/word processor (32%)
  3. Fax machine (30%)
  4. Old printers that don’t work (25%)
  5. Old laptops that don’t work (24%)
  6. Floppy disks (22%)
  7. Videos (16%)
  8. Video player/recorder (16%)
  9. Cassettes (13%)
  10. Cassette player/recorder (12%)

Initially, you think about all the wasted space that this unused and obsolete technology is taking up. But, the implications of harbouring old and infrequently used equipment go beyond that. In this article, we look at how keeping hold of old equipment, plus a lack of investment in new equipment, prevents companies from operating at their true potential.

Business growth plans go unrealised

In a 2018 study by the British Business Bank, one in three SMEs said that they wanted to grow their operation, but were unsure how.

In order to grow, businesses need to have the capacity to take on more work, while maintaining relationships with current customers. That’s not possible when staff are using outdated equipment that’s preventing them from working as efficiently as they can.

Business decision makers understand that new equipment would provide a platform for growth. When we asked them how they believe their business would benefit if they were to purchase additional or upgraded equipment, the most common responses were:

  • Increased quality of products/services (38%)
  • Faster delivery of products/services (37%)
  • Enhanced communication with customers/clients (34%)
  • Enhanced communication within the business (30%)
  • Enhanced reputation for innovation (30%)
  • Ability to increase customer base (30%)
  • Increased profit margins (26%)

However, it’s something of a catch-22 for businesses. If they were to upgrade their equipment and technology, it could consume capital and put them in a dangerous financial position as they attempt to grow. Nearly half (49%) of survey respondents said a lack of funds for equipment has prevented their business from scaling up.

By leasing the equipment, however, they could keep hold of that capital and invest in the best-in-class technology that could catapult them to the next level.

Struggle to remain competitive

Just about every industry and business faces the threat of disruption. New companies with new business models are waiting to take customers away from current players – and they will if you let them.

What unites these industry disruptors is that they are technologically nimble. They apply latest technologies to their advantage, enabling them to steal market share from traditional industry leaders.

To remain competitive, existing companies must ensure that their technology and equipment can compete with the industry disruptors.

In our survey, the top challenge cited by respondents was ‘keeping up with new innovations in the market’. In other words, they’re concerned that if they were to invest in new technology, within 12 months it would be considered outdated. But standing still is not an option. If you do, you risk losing crucial business.  

Leasing equipment allows you to have the latest technology when you need it, without having to account for the depreciation of the asset. Rather than spend a large sum of cash in full on an asset that will lose value, with asset finance you pay as you use.

Customer service can suffer

It’s no secret that customer service is now a key brand differentiator. According to Salesforce research, nearly three-quarters of people are likely to take their custom elsewhere if they find the purchasing process too difficult.

Not only does customer service help businesses to seek an advantage over their competitors, it also encourages customers to spend more money. Consumers are willing to spend 17% more to do business with companies that deliver excellent service.

So, it’s vital that businesses are providing the best service they can for their customers, which is in line with their expectations. Our surveys shows that old equipment is preventing firms from doing that.

More than a third (37%) of the decision makers questioned admitted that they would be able to provide a faster delivery of products/services if they were to upgrade their equipment. A similar number (34%) said that it would enhance communication with customers/clients.

It’s clear that an investment in new equipment can mean an investment in better customer service and, even, customer retention. According to Bain & Company research, increasing customer retention rates by 5% increases profits anywhere from 25% to 95% which, if accurate, means you’ll have paid for the new equipment in no time at all – especially if you lease the equipment, where your rentals can be tailored specifically to your business model.

Staff left feeling dissatisfied

The majority of employees just want to do their job to the best of their ability, but old equipment can act as a barrier to fulfilling potential. In our survey, 85% of employees said that outdated equipment, or a lack of equipment, within their company has hindered their working ability. This happens every week for 41% of employees, while 13% said they’re unable to work properly because of this every/most days.

Workers in larger companies with over 500 employees are most likely to say their working ability is hindered by outdated or a lack of equipment at least once a week (55%). This compares to 34% of those in companies with less than 250 employees. This may be driven by the fact that 85% of larger companies with over 500 employees are hanging on to obsolete forms of technology, such as old computers that don’t work and floppy disks.

Naturally, when things get in the way of staff doing their jobs properly, there’s a risk of frustration and dissatisfaction setting in, which could make it difficult to retain talent.

In a 2018 survey by Dell and Intel, nearly half (42%) of millennials said they are prepared to quit their job if office technologies are not up to their standard. Over half (57%) of the 4,000 full-time employees surveyed said they expect to be working in a smart office in the next five years, while that percentage rises to 69% among younger respondents.

In our survey, decision makers suggested they shy away from purchasing new equipment because it means training staff to use it. But that in itself can turn heads towards the exit door – two out of three UK workers have changed jobs because of a lack of training and development opportunities, a survey by totaljobs found.

Costs may start to spiral

In addition to the inefficiency of staff using old equipment to do their work, businesses could be missing out on thousands of pounds of savings simply because they are using equipment that is energy-inefficient.

Energy company E.ON estimates that 20% of a typical business’s annual energy costs could be wasted on energy-inefficient equipment, and that switching to more energy-efficient alternatives could halve the £300m of energy used by equipment in UK offices.

Often, energy costs are overlooked by businesses looking to make savings – a Telegraph/YouGov survey revealed that about half of senior business leaders don’t know how much they’re spending on energy.

As E.ON’s research suggests, upgrading equipment can make a big difference, with the latest technology often fitted with power-saving functionality. As well as investing in new, energy-efficient office equipment, you could lease renewable power systems, such as a solar PV system, which would allow you to double your energy savings.

Conclusion

Ultimately, what’s preventing businesses from upgrading their equipment is a lack of funds – but capital doesn’t have to be the be-all and end-all.

Mark Picken, Shire Leasing’s Chief Executive Officer, highlighted how leasing equipment could enable businesses to upgrade old machines and set them on a path for growth.

“SMEs often overlook the alternative finance options that are available. Through leasing, businesses can affordably pay for equipment as they use it, and in some cases, the single direct debit payment can also include the maintenance and service offered by the supplier,” he said.

This oversight means businesses risk rooting themselves to the spot, leaving themselves vulnerable to agile industry disruptors who are turning customers’ heads with their lightning-fast service. Winning your customers may be the initial problem, but the the threat deepens as industry disruptors may also lure away your staff who are being left dissatisfied by an inability to work to their full potential.  

We’re not saying that leasing can cure all ills, but it can certainly solve the problem of outdated equipment which has wider-ranging implications than you might have first assumed.

Shire Leasing has an appetite to fund almost anything business-related, whether it be hard assets such as plant machinery, or soft assets such as IT software. With an Own Book value exceeding £110m, and relationships with many funders, we have the ability to fund even the most unique business assets.

In addition to Customer Finance, we offer Supplier Finance solutions to allow B2B suppliers/vendors to sell their equipment through affordable finance options.

For more information, quotes or general enquiries fill out our form here or please feel free to give us a call on 01827 302 066.



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