Unlocking value through a total expenditure approach
The Technology, Media, and Telecommunications (TMT) sector is characterized by rapid technological advancements, intense competition, and evolving consumer demands. In this dynamic environment, companies face significant challenges in managing their investments.
Leaders are evolving the traditional approach to Capital Expenditure (CAPEX) and Operational Expenditure (OPEX) planning to navigate the complexities of the modern TMT landscape.
Total Expenditure, or TOTEX, offers a more integrated and strategic approach to investment management. TOTEX is a strategy that can provide a sustainable competitive advantage by driving efficiency, innovation, and long-term value by addressing the market pressures to grow the top-line, increase profitability and generate free cash flow.
By considering the entire lifecycle cost of an asset, from acquisition to operation and maintenance, TOTEX enables TMT companies to make more informed decisions that drive long-term value. This holistic perspective allows for a more flexible and agile response to market changes and technological disruptions.
The new imperative to strategically manage investments in TMT
The Technology, Media, and Telecommunications (TMT) sector is characterized by rapid technological advancements, intense competition, and evolving consumer demands.
Download now| Traditional CAPEX/OPEX | TOTEX (Total Expenditure) | |
Definition | Separate classification of long-term asset costs (CAPEX) and ongoing operational costs (OPEX) | Unified view of all expenditures (CAPEX + OPEX) over the end to end lifecycle |
Primary goal | Control spending within predefined capital and operational budgets | Maximize value and efficiency from total expenditure in achieving strategic outcomes |
Time horizon | CAPEX: Long-term; OPEX: Short-term (typically annual) | Long-term, focusing on whole-of-life cost and value |
Decision driver | Often driven by budget availability within separate CAPEX/OPEX categories; aligned to specific budget limits | Achievement of desired outcomes at the optimal total lifecycle cost |
Accounting & internal mgmt | Expenditures managed in distinct "buckets"; depreciation for CAPEX, direct expensing for OPEX | Focus on total cost envelope; allows flexible allocation between CAPEX and OPEX to achieve outcomes, though external reporting still follows accounting standard |
Flexibility | Limited flexibility to trade off between CAPEX and OPEX once budgets are set | High flexibility to substitute between CAPEX and OPEX to find the most efficient solution |
Key benefit | Clear accountability for distinct types of expenditure; simpler budgeting for individual categories | Enhanced efficiency, innovation, focus on long term value, and outcome delivery; overcomes CAPEX / OPEX biases |
Key challenge | Potential for siloed decision-making, CAPEX/OPEX bias, and sub-optimal lifecycle costs | Requires significant mindset shift, cultural change, robust data and analytical capabilities, and can be complex to implement and benchmark |
Data intensity | Moderate; focused on tracking specific CAPEX projects and OPEX line items | High; requires comprehensive data on lifecycle costs, performance metrics, and outcome achievement |
Shifting to a TOTEX approach is not without dependencies that need to be considered. For example:
TOTEX requires robust systems to track and forecast lifecycle costs and performance and therefore, a potentially big initial effort to enhance financial/asset data
Finance, operations, and technology teams must collaborate closely. Organizations will likely need to update incentives and KPIs to reward total cost optimization, not siloed budgets
TOTEX will require two reporting methods. While internal management can shift to a TOTEX focus, external reporting must still adhere to standard accounting principles
Market expectations for metrics like CAPEX, FCF, and capital intensity need nuanced explanation under a TOTEX model
Justify higher upfront investments if it drives larger long-term OPEX savings. TOTEX encourages a shift towards innovative solutions that may have a higher initial cost but offer significant long-term savings and can also foster innovation by experimenting with new solutions without being tied to rigid budgets. For example, a media company might invest in a cloud-based content delivery network (CDN) that reduces the need for costly on-premise infrastructure.
Justify higher upfront investments if it drives larger long-term OPEX savings. TOTEX encourages a shift towards innovative solutions that may have a higher initial cost but offer significant long-term savings and can also foster innovation by experimenting with new solutions without being tied to rigid budgets. For example, a media company might invest in a cloud-based content delivery network (CDN) that reduces the need for costly on-premise infrastructure.
Maximize the long-term value of every dollar spent across the entire asset/service lifecycle. By optimizing the trade-offs between CAPEX and OPEX, TMT companies can achieve greater operational efficiency. A telecommunications provider, for instance, might choose to lease network equipment instead of purchasing it outright, freeing up capital for other strategic investments.
Maximize the long-term value of every dollar spent across the entire asset/service lifecycle. By optimizing the trade-offs between CAPEX and OPEX, TMT companies can achieve greater operational efficiency. A telecommunications provider, for instance, might choose to lease network equipment instead of purchasing it outright, freeing up capital for other strategic investments.
Respond faster to rapidly evolving technology environment and competitive threats. The TOTEX model allows for greater flexibility in responding to market dynamics. A technology company, for example, can quickly scale its operations up or down by leveraging cloud services, avoiding the long-term commitment of traditional CAPEX investments.
Respond faster to rapidly evolving technology environment and competitive threats. The TOTEX model allows for greater flexibility in responding to market dynamics. A technology company, for example, can quickly scale its operations up or down by leveraging cloud services, avoiding the long-term commitment of traditional CAPEX investments.
Provide a more compelling narrative to investors shifting emphasis on total value, efficiency and effectiveness of spend across lifecycle. By moving beyond CAPEX/OPEX distinctions to portfolio-based investment governance, CFOs can consider the role of AI by aligning funding models with AI-enabled productivity rather than historical cost structures and even look to embed digital agents in planning, execution, and measurement frameworks.
Provide a more compelling narrative to investors shifting emphasis on total value, efficiency and effectiveness of spend across lifecycle. By moving beyond CAPEX/OPEX distinctions to portfolio-based investment governance, CFOs can consider the role of AI by aligning funding models with AI-enabled productivity rather than historical cost structures and even look to embed digital agents in planning, execution, and measurement frameworks.
Regulated utilities, such as those in the water and energy sectors, have successfully implemented TOTEX frameworks. For example, water companies have used TOTEX to implement initiatives aimed at reducing the need for future capital projects by investing in network analytics and proactive maintenance. This has resulted in an average saving of 35% across projects.
Technology hyperscalers like Amazon Web Services (AWS), Microsoft Azure, and Google Cloud Platform (GCP) take a similar approach by focusing on Total Cost of Ownership (TCO) to optimize their massive data center infrastructures. Their relentless pursuit of TCO reduction drives significant efficiencies and competitive advantages.
While explicit TOTEX adoption has been less common in telecommunications, the underlying principles are becoming increasingly relevant. Major providers are exploring ways to optimize their expenditure management, including investments in network automation and as-a-service models such as:
Launch pilot TOTEX programs within specific business units or for particular types of investments to gain practical experience and identify data gaps.
Enhance data collection systems, governance practices, and analytical tools to support whole-life costing and scenario analysis.
Establish dedicated teams comprising representatives from finance, engineering, operations, and strategy to develop and champion TOTEX principles.
Create new KPIs that reflect TOTEX principles, such as total lifecycle cost per unit of output or outcome achievement per total dollar spent.
Understand impacts of TOTEX on reported financials and key metrics (e.g., FCF, Capital Intensity) Clearly articulate the rationale behind the shift, the mechanics of the TOTEX approach being adopted, its expected long-term benefits, and how investors should interpret any changes in financial presentation.
Actively monitor and learn how others are evolving their expenditure management strategies and adapting to similar challenges and opportunities. Establish peer connects with global Telcos, Hyperscalers and leading firms in other capital-intensive sectors. TOTEX represents a significant shift in how TMT organizations manage their expenditures, driving efficiency, innovation, and long-term value creation. By understanding the challenges, embracing the TOTEX approach, and learning from other industries, TMT companies can unlock new levels of efficiency and competitiveness. Discover how TOTEX can transform your organization's expenditure management. Let’s talk about creating tailored solutions to start your journey towards optimized total expenditure.
Client Story
Verizon's finance group makes the right call
KPMG helped the company's CFO create an efficient organization capable of providing timely, accurate and meaningful business insights.
Insight
What does it take to be a finance futurist?
Optimizing core finance processes to drive greater value creation.
Insight
How leading PE sponsors leverage working capital to fund strategic initiatives
Optimizing cash flows can enhance business performance, create operational value, and unlock substantial returns.
