CapEx vs OpEx
Business spending typically falls into one of two categories: Capital Expenditure (CapEx) or Operating Expenses (OpEx). CapEx is thought of as spending on longer-term investments, often purchasing assets. OpEx, on the other hand, is often recurring expenses that keeps the business running. OpEx is an area where it is most beneficial to keep costs low, whereas CapEx is slightly more exciting and a place to invest and innovate and see a return on those investments.
Software and IT departments are often thought of as OpEx – paying employee wages, subscriptions to cloud services, the hardware you may use. Shifting the way we view IT from a department that keeps things running behind the scenes to something worth investing in and getting creative with could be a game-changer for your business.
One of the most fundamental shifts that need to happen is the way work teams are structured. Rather than a horizontal organization (ie. API team, securities team, general frontend team; also think management on one level and then the people below them), we believe a vertical structure (ie. shopping cart team, search bar team, delivery team, or in smaller companies maybe it’s an e-commerce team and a team for one of your vendors) that is shaped around products will deliver more of the decision-making information your business needs.
First and foremost, when the organization is shaped around products (loosely defined to include services and interfaces as well as actual goods), we are able to get a better understanding of the cost-benefit of each product. A horizontal organization muddies some of the details, where this alternative lends itself to a convenient breakdown of how much a product or service is costing you, how much it is benefiting you, and how closely aligned that is to your initial estimates.
Secondarily, it keeps the customer a higher priority and provides a more direct line of feedback when necessary. Each product has an intended customer at the end of it and a vertical structure keeps the team reminded of them and how they will be engaging with the product when it gets to them. From beginning to end, all people on the team should know how they would get direct feedback from an end-user and be able to adopt that feedback into their work.
Finally, a vertical slice of a company owns the whole solution or product from beginning to end, therefore, is more agile, autonomous, and loosely coupled than a horizontal structure. This means they have all of the necessary data and resources to function independently of other teams and aren’t tethered to the slow arduous ticket-raising process. More importantly, if something goes wrong in one area, it can be dealt with more easily and won’t take all other products and interfaces down with it. When we restructure IT departments in this way, we are taking the necessary steps to see IT as CapEx by acknowledging the ways in which it drives revenue through customer interfaces and the most efficient work happening behind the scenes. Getting here can be done by focusing the work in three ways:
Domain Driven Design
This concept, originally coined by Eric Evans in his 2003 book, hinges on solving organizational problems through code by separating out the complex systems into a structure that matches the business domain. This modular approach is flexible, more open to intervention, and open to simple communication. Essentially, DDD breaks apart systems from a data perspective into more logical buckets.
Microservices architecture is an approach in which a single application is composed of many loosely coupled and independently deployable smaller services. This helps ensure independence because only your team owns the code needed to deliver a service.
Micro frontends can be understood to be the microservice approach tailored to frontend work. All the various components appearing on a user’s browser are broken down into independent pieces that can be worked on separately from one another and then stitched together to form a cohesive landing page for users. It scales frontend development into a more manageable and agile task.
Own your stuff
A large part of determining expenses to be CapEx or OpEx is determined by whether or not you own the thing you are paying for. Custom software and data ownership are two areas where you can invest in making IT solutions work better for your business, an inherent part of positioning your software ecosystem as a beneficial asset. A custom software solution, be it integration work or a specific application, is tailored to meet your needs without locking you into unnecessary bells and whistles. Owning your own data also allows you to use it in various ways throughout the business to build a better experience internally and for your customers as well as giving an extra level of control around the security of said data. These are both significant factors in differentiating your business from competitors and can be leveraged to work more efficiently.
OpEx decisions may lead to noticeable changes such as increased productivity somewhere in the company or generally lower costs, but it does not have the same customer focus or specific look into the ROI that CapEx does. CapEx have specific formulas that show exactly what the return on investment is of each purchase down to the detail. It breaks down various details to show exactly what the cost was and what the return was in both time and money, so you can understand your business better and continue making more informed decisions as you grow.
Ultimately, if CapEx is understood to be an investment that will turn around to bring you a greater benefit and will be something that lasts, then the people building and maintaining your platform are certainly a huge part of that, as is the evolutionary technology they provide. When it comes to your software ecosystem and the IT department, an OpEx-mindset is simply too limited. It stays focused on maintaining the status quo and viewing the work as a utility, not an independent product. In other words, it stays thinking about what the service does, instead of all the things it could do. By bringing developers closer to the customer, reforming the organization to vertically stacked rather than horizontally, and prioritizing ownership, you can know you are spending smarter on your IT expenditures and see the results that brings.
If you are looking for IT worth investing in and a team who knows strategic architechutre, send us a message in the box below!
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