NEW YORK, Dec. 8, 2015 /PRNewswire/ -- It has been almost six years since the Federal Reserve raised interest rates, but if market indicators are correct, the central bank may vote to do just that when it meets later this month. What do interest rate hikes have to do with technology adoption? According to Logicalis US, an international IT solutions and managed services provider (www.us.logicalis.com), quite a lot.
"Because it hasn't happened for so long, a rise in the interest rate will have a cascading effect on business that organizations may find difficult to anticipate," says Rich Pirrotta, CFO, Logicalis US. "CIOs who have already prepared their budgets for 2016 may want to revisit their plans and talk with their CFOs about sales projections, access to capital and anticipated cap-ex spends to ensure they're ready. They should also investigate the smartest ways to finance their IT purchases if the interest rate increase does indeed occur."
Five Important Questions CIOs Should Ask Their CFOs Now
Logicalis US says CIOs and CFOs should have proactive discussions today about capital purchases planned for 2016 in anticipation of a possible interest rate hike during the first quarter of the new year. To help, Logicalis US finance experts Rich Pirrotta and Todd Yaekle, Vice President of Finance, suggest the following five questions as conversation starters:
- Can we access the capital we need for 2016 IT projects? The risk profile for organizations looking for capital today is already fairly high, and if rates go up, it could go even higher further restricting access to capital.
- Should we be thinking about leasing? In the past, CIOs and CFOs considered leasing only when they were able to negotiate favorable terms. With an interest rate hike pending, however, the decision about turning to leasing will be less about terms and more about the weighted cost of capital. Leasing costs, as a rule of thumb, don't increase proportionately with capital interest rates. Imagine, for example, the fed agrees on a 25-basis-point increase; interest on debt will rise by that same 25 basis points, while the cost of leasing may only increase 10 to 15 basis points. As a result, as interest rates rise, constrained access to capital will make leasing a much more inviting option.
- How can we better negotiate with suppliers to mitigate the impact? Instead of negotiating with technology suppliers on the price of their IT purchases, consider negotiating on terms instead. If you have net 30 terms now, how would a change to net 45 impact your business? CIOs and CFOs should be talking now about the vendor terms and conditions that could help offset the costs incurred due to an interest rate increase.
- What will a stronger U.S. dollar mean to international sales? An increase in interest rates yields benefits in terms of strengthening the U.S. dollar, but for organizations doing business abroad, it also creates questions about the validity of existing sales forecasts. If forecasts change, what impact will there be on the business and its ability to fund proposed capital expenses?
- As the CIO or CTO, what can I do that will help? This may be the perfect time for organizations that have been considering a move to the cloud to consider taking the next step. Are there cost savings that could be gleaned from a move to a hybrid cloud strategy? Would tapping as-a-service IT offerings save costs internally? What savings might be possible by partnering with an experienced managed services provider? These are just a few of the questions top technology pros should be asking themselves now as they look for ways to drive value and innovation in the coming year. If considerations like these have been on the back burner, it might be time to accelerate those plans.
Want to Learn More?
- The real value of a business' IT infrastructure comes from its use, not its ownership. With an interest rate hike pending, leasing can provide a valuable resource for organizations considering a major technology purchase in the coming year. Learn more here: http://ow.ly/VzKGj.
- Is now the time to consider outsourcing internal "lights-on" tasks like 24x7x365 monitoring and management of your IT systems to an experienced partner? Read about the six surprise benefits of managed services, watch a video about managed services, find out how managed services works, then explore the business benefits of managed services here: http://ow.ly/V1WCa.
- Wondering if a move to the cloud could save your business money? Take part in a Cloud Readiness Workshop to find out: http://ow.ly/V1Ytl.
Logicalis is an international IT solutions and managed services provider with a breadth of knowledge and expertise in communications and collaboration; data center and cloud services; and managed services.
Logicalis employs over 4,000 people worldwide, including highly trained service specialists who design, deploy and manage complex IT infrastructures to meet the needs of over 6,500 corporate and public sector customers. To achieve this, Logicalis maintains strong partnerships with technology leaders such as Cisco, HP, IBM, EMC, NetApp, Microsoft, VMware and ServiceNow on an international basis. It has specialized solutions for enterprise and medium-sized companies in vertical markets covering financial services, TMT (telecommunications, media and technology), education, healthcare, retail, government, manufacturing and professional services, helping customers benefit from cutting-edge technologies in a cost-effective way.
The Logicalis Group has annualized revenues of over $1.5 billion from operations in Europe, North America, Latin America and Asia Pacific and is one of the leading IT and communications solution integrators specializing in the areas of advanced technologies and services.
The Logicalis Group is a division of Datatec Limited, listed on the Johannesburg and London AIM Stock Exchanges, with revenues of over $6 billion.
For more information, visit www.us.logicalis.com.
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SOURCE Logicalis US