Shift to OpEx: Boosting Profits Amidst Chaos
By Stuart Thompson
Companies across industries are facing a daunting challenge: how to maximize profits and competitiveness while navigating a complex web of global forces. From the lingering impacts of the Covid-19 pandemic to energy price shocks and economic uncertainty stemming from the geopolitical uncertainty, organizations are being forced to adapt their strategies to mitigate risk and boost operational resilience.
Amid the volatility, companies are undergoing a significant shift from capital expenditure (CapEx) to operational expenditure (OpEx) as they seek to squeeze maximum value from their existing assets and investments. Rather than sinking capital into new equipment and facilities, businesses are increasingly turning to smart servicing, modernization programs, and digital transformation initiatives to optimize their processes in a flexible way and minimize operating costs for bottom-line benefit.
Forces driving the shift towards OpEx strategies
This strategic pivot towards OpEx is being driven by a confluence of factors. One of the long-term operational implications of the pandemic was widespread CapEx cuts as organizations scrambled to reduce costs and preserve liquidity.
At the same time, companies continue to be at the mercy of the energy trilemma – the challenge of balancing the competing objectives of energy security, affordability, and sustainability – which places an enormous strain their bottom line especially given the increased demand from consumers, clients and regulators to mitigate climate risk. Increasingly, the net zero agenda is now at the forefront of their operations as more companies seek out ways to optimize their energy use and lower their carbon footprint, all while meeting evolving client expectations.
Now, rapid technological advancements are enabling new ‘as-a-service’ business models that make it easier than ever to access the benefits of the latest equipment and capabilities without the upfront capital investment. Taken together, these forces are pushing businesses to rethink their approach to asset management and seek out more flexible and outcome-oriented solutions.
The key to unlocking the full potential of an OpEx-centric strategy lies in adopting a holistic, lifecycle-based approach to servicing and modernizing existing assets. By investing in high-quality maintenance, repair, and retrofit programs, companies can substantially extend the lifespan of their equipment, improve performance, and reduce operating costs. Furthermore, integrating digital capabilities into aging infrastructure can enable data-driven optimization and enhance overall operational efficiency.
Leveraging on retrofits to optimize operational performance and sustainability
Consider the way in which two of Finland’s biggest hydropower plants operated by Kemijoki Oy partnered with ABB to retrofit its SF6-based switchgear infrastructure installed in 1995 and 2001. Despite being prized for its cost-effectiveness, the presence of SF6 – an incredibly potent greenhouse gas – meant that the continued use of these dated circuit breakers could not be in line with Kemijoki’s rigorous environmental diversification program. By using a customized 12kV version of the ABB medium-voltage VD4G vacuum circuit breaker which clears potentially harmful short-circuit faults in tens of milliseconds, the retrofit solution reduced the downtime to hours rather than weeks. Through the modernization of critical switchgear infrastructure, Kemijoki was able to not only improve the reliability and energy efficiency of its operations but also accelerate its decarbonization efforts – a true win-win.
Similarly, North American steel giant Finkl Steel recently engaged ABB to shore up its operations by upgrading its switchgear system to a specialized VD4-AF1 arc furnace breaker to replace two of its outdated circuit breakers, thereby slashing maintenance costs and waste footprint. In so doing, the retrofit halved the number of circuit breakers required and not only enhanced the plant’s operational resilience and reliability but now enabled 24/7 predictive health indication and accurate synchronization with network voltage, further optimizing the plant’s performance.
These case studies highlight the transformative power of an OpEx-centric approach underpinned by strategic service partnerships. By collaborating with experienced solution providers, companies can develop customized maintenance, modernization, and digitalization strategies tailored to their unique business objectives, needs, and risks.
Embracing a collaborative OpEx strategy as a strategic lever for growth
As organizations seek to future-proof their operations, what’s clear is that those which see the most success are ones that seek out collaborative, strategic relationships with their vendor partners in the name of operational excellence.
By tapping into the expertise and innovative capabilities of these partners, businesses can uncover new ways to squeeze value from their existing assets, be it through enhanced predictive maintenance, augmented reality – powered performance optimization, or the seamless integration of digital technologies. As the pace of change continues to accelerate, this adaptive, service-led approach to asset management will become increasingly essential for maintaining a competitive edge.
The shift from CapEx to OpEx is a profound transformation that requires a fundamental rethinking of how organizations approach asset management and value creation. Companies that embrace OpEx as a strategic lever for growth, rather than a mere cost-cutting measure, will be undoubtedly better positioned to navigate the uncertainties of the future and emerge as industry leaders.
Stuart Thompson
Stuart Thompson is the President of ABB’s Electrification Service Division, leading a $1.1b revenue business of more than 3,000 global service professionals across 50 countries.
Established as a standalone business area in 2022, Stuart was promoted to manage the new division having held previous roles as Global Product Group Service Leader for both ABB Electrification and Electrification Distribution Solutions.