Digitalization isn’t coming — it’s already here. Yet many businesses are still lagging behind. As Raj Batra, president of Siemens Digital Factory Division in the U.S., noted at the Siemens Automation Summit 2015: “Forty percent of manufacturers have little to no visibility into real time status. Thirty percent spend as much as four hours a day searching for equipment and products on the plant floor. And 50 percent only become aware of a problem after a breakdown occurs.”
Digitalized systems are extremely useful for a broad range of applications. Such systems can help predict and pre-empt manufacturing plant failure, reduce energy consumption in industry and the public sector, and reduce carbon emissions in our cities by optimizing traffic flow. However, accessing the benefits of digitalization requires an investment in up-to-date and often costly technology such as product lifecycle management software, manufacturing simulation systems and digitized healthcare record management systems. The question is, how can business and public sector organizations access sufficient, flexible and appropriate funding to utilize this technology?
Access to finance, especially for smaller organizations, has become restricted in many countries as a result of new banking regulations that encourage banks to tightly control risk in their loan portfolios. Organizations are therefore looking to diversify sources of funding, with a strong interest in packages from tech-financiers who are able to finance the acquisition of technology — whether their own or that of third-party vendors.
Technology finance usually takes the form of a particular kind of asset finance, most frequently a variation of leasing or renting. This type of financing is now becoming popular globally as more financial managers focus on the outcomes that technology will produce as well as the return on investment.
Today, finance managers start with a set of desired business outcomes — improved performance, cost savings, return-on-investment — and then work back to the best financing method to achieve those ends. The development of tailored financing packages to fund specific technology applications and upgrades is an approach used at some financial service companies. These packages utilize the financier’s knowledge of the technologies involved, how they are applied, and the outcomes they will deliver.
Here are some of the financing approaches financial service companies have adopted in the U.S. to help organizations reach their desired outcomes:
1. Total Cost of Ownership (TCO) Financing: TCO is a model which not only integrates the acquisition price of technology, but also any service, software, maintenance, and consumables-related costs. This arrangement provides a financially reliable package that is very clear and transparent. If an organization seeks to acquire a whole facility, a package can be created to include the site audit, installation setup period, management and maintenance, and even technicians, all bundled into a set monthly fee for the financing period.
2. Performance-Based Financing: Performance-based financing allows an organization to pay for technology based on a defined set of business outcomes. Tech-savvy specialist financiers can assess the level of benefit that an organization will gain from more up-to-date technology and payments are predicated on the level of business benefit delivered. This model transfers some of the risk to the technology provider and financier ensuring they deliver on the contract.
3. Energy-Efficient Technology Financing: Innovative financing schemes that match the financing period and level of monthly payments to the projected energy savings are now becoming available. This effectively ensures a zero-cost investment for the organization. Financiers with specialist knowledge of tech, government incentives and practical equipment capabilities can also develop competitive and appropriate financing packages for electricity generation.
For many businesses in industries such as manufacturing, infrastructure and healthcare, the time is ripe to take advantage of new financing models and seize the digitalization opportunity. Specialist financiers, with a combination of technological expertise and industry know-how, are helping organizations worldwide develop innovative financing approaches to harness the benefits of innovations in automation and digitalization.
Gary Amos is Senior Vice President and Head of Americas, Commercial Finance at Siemens Financial Services, Inc. Andrew Carman is Senior Vice President and Head of Americas, Project & Structured Finance -Energy Management, Mobility & Industries also at Siemens Financial Services, Inc.