Why the falling pound is cutting your IT budget – and what to do about it

Why the falling pound is cutting your IT budget – and what to do about it

The recent decline in the pound against the dollar has significant implications for all who set and implement IT budgets. What can you do about it?

Much of the hardware and software we deploy comes from American technology companies: Microsoft, Cisco, Dell (including VMware and EMC), HP Inc, Apple, Hewlett Packard Enterprise, NetApp, Symantec, Oracle, IBM and many more. These companies operate in US Dollars and typically each periodically fixes an exchange rate to establish its international prices.

But if you’ve been abroad recently, you’ll be well aware that our British pounds aren’t worth what they were! And we’re seeing this feeding through into IT prices.

This time last year we were getting $1.54 to the pound, and in the months leading up to the EU referendum the pound was typically worth $1.40 to $1.45. Immediately after the result the pound fell to the low one thirties, where it fluctuated until it fell again in late September, and now it is in the low one twenties – that’s a 20% decrease in value during the past year.

Looking at other technology currencies, such as the Japanese yen, Korean won, Taiwanese dollar and euro, you see a similar picture.

So, an American vendor that was selling a $10,000 product for £6,500 a year ago would, if still selling at £6,500, now only be getting $8,000.

No business is going to put up with that for long, and we now find ourselves in the midst of re-pricing from all the main technology vendors. What started as small increases of a few per cent are now growing.

Last week Microsoft announced enterprise price rises of 13% on software and 22% on cloud services, with effect from 1 January 2017. A couple of days after, Apple followed suit with immediate computer price rises of up to 20% (after it had already raised iPhone and iPad prices).

We’ve already seen August price rises of 5-10% from many of the other leading vendors (including HP Inc, Hewlett Packard Enterprise, Dell and Lenovo) and expect to see additional increases from those that have already implemented smaller price rises (with Dell adding up to 15% on 1 November). At some other vendors, most notably Cisco and Citrix, UK prices are dynamically linked to the exchange rate and so have been steadily increasing as sterling has weakened.

At a time of year when many IT leaders are, or will soon, be thinking about budgets and priorities for next year, this has clear implications.

Any historic costs you might be using will underestimate, perhaps significantly, your actual spend.

For all but a lucky few, that are able to justify commensurate increases in their budget, cost increases mean a devaluation of your IT budget and are likely to force a re-prioritisation.

However, there may also be some ways in which you can mitigate the impact of cost increases.

1 Renew or extend software licensing agreements pre-price rise
If you have a Microsoft licensing agreement that’s due for renewal early next year, you’ll probably save by renewing early at current pricing. This may also apply to other software vendors. Review any major areas of licensing spend, find out if there are any planned price rises and see if you can extend an existing contract at current pricing or renew early to save.

2 Review support arrangements
If you have the vendor’s own support you may be able to pull a similar trick to your licensing, and add additional years now at current pricing.

Alternatively, consider switching from the vendor’s own support, which you’re probably paying a premium for, to a specialist UK provider. With the right provider you’ll have direct access to expert support from someone in the UK, with the ability to escalate anything especially awkward to the vendor, while paying much less for it.

3 Consider alternatives
If you’re not already sold on a particular vendor or product, it’s worth considering alternatives. If you’ve got a good IT provider you can probably get them to do a lot of the leg work for you. Often there are solid reasons (such as ease of management) for standardising on a particular vendor’s hardware, but there may still be creative ways of lowering costs. For example, some customers have switched to lower spec laptops, and then bought separate SSD’s and had us install them pre-delivery to obtain high performance at a lowered cost.

4 Engage early with your IT provider
If you know you’ll be buying a lot of new hardware or software in a few months’ time and have some flexibility as to when you commit to purchase, talk to your IT provider as early as possible. Vendors run promotions and, at certain times of the year, will be more pre-disposed to do a deal. Armed with knowledge of your future requirements and some time, a good account manager should be able to drive a harder bargain for you.

5 Consider leasing
Leasing probably won’t save you money. But it may help you to fund projects that may otherwise have been brought into doubt, by moving expenditure from capital expenditure to operating expenditure. Once again, a good account manager will be able to help you.

While a weakening pound isn’t good news for IT leaders, with a little flexibility, some creativity and a willing and supportive IT provider, it needn’t be a disaster.