In the past, a crowded balance sheet that listed lots of valuable assets indicated that a company had a solid base on which to grow. It represented a secure investment.
That’s not quite so much the case given today’s globalized “knowledge economy.” Now companies are increasingly considering fixed assets as liabilities—limitations on a company’s ability to respond fast to changing environments. On the other hand, analysts and investors measure profitability of an organization based on its capital employed. Organizations, therefore, still need the benefits of capital-intensive items, even if they hesitate to pay up front for them in big, cash-draining purchases that tie up their finances.
Enter “X-as-a-service” new model for acquiring those benefits.
With X-as-as-service, a company pays for a given service on what’s essentially a subscription basis. The company gets what it needs without the burden of purchasing and owning expensive, fast-depreciating, and perhaps maintenance-intensive assets.
Does a company need the latest in supply chain software?
In the past it would have had to buy it, plus maintain a costly team to keep everybody using it trouble-free. Given the software’s expense and the disruption that upgrading it entails, a company might end up using the software for longer than it should. Instead, with software-as-a-service (Saas), the company can pay a monthly fee to access the software via the cloud, with none of the financial or practical disadvantages that accompany ownership. The provider updates the software as necessary, making bug fixes and new features available to end users automatically and with minimal disruption.
Does a company need fleet services?
In the past it would have had to invest in trucks that immediately started losing their value—not to mention in the maintenance people, the space in which to store those trucks, and so on. Now the company can pay for fleet as a service, getting full access to vehicles without their cluttering its balance sheet.
Does a company need lighting?
(It does.) In the past, the company would have purchased a building-wide lighting system with hundreds if not thousands of lighting fixtures, switches, and other hardware, requiring regular upkeep. Now the company can sign a deal with a lighting-as-a-service (LaaS) provider and receive state-of-the-art, energy-efficient LED light without assuming management and maintenance burdens. The LaaS provider owns the physical lighting infrastructure, leaving the end-user free to enjoy the system’s energy and maintenance savings. LaaS implementations like these are often cash positive—that is, the energy costs plus the LaaS fees often cost less than the energy and maintenance costs of the conventional systems they replace.
Supply chain, fleet services, lighting: these are only some of the many X-as-a-service offerings available today. Software, platform, hardware, and data storage are others, and there are many more. In every case, CFOs enjoy the benefit of freeing up cash that they can then use for revenue-generating activities, for growing the business, or for whatever additional initiatives the company may not have been able to afford before.
Meeting the new benchmarks
Success with debt instruments like these can do wonders for a company, even beyond the benefits associated with the particular debt instrument itself.
For example, it can translate into higher company sustainability ratings from ratings firms. That high rating will in turn attract investment, whether from big institutions or from private investors who are increasingly interested in “investing their values.”
