—
From CapEx to OpEx:

The global forces and industry pressures shaping spending decisions

—
Global markets are shaped by a multitude of forces, from incremental changes in consumer expectations, to sudden unforeseen events that affect supply and demand for certain commodities or services. In recent years, several key global forces greatly accelerated the existing gradual trend towards prioritizing OpEx over CapEx.

The COVID-19 pandemic disrupted supply chains and created labor shortages worldwide. While the pandemic’s exact impacts differed by country and industry, it resulted in the most severe worldwide economic downturn in recent history.

Dramatically cutting CapEx offered one of the fastest ways for companies to reduce costs and buffer losses. In 2020, McKinsey & Company reported that companies worldwide and across industry sectors announced capital-expenditure cuts ranging from 10 to 80 percent¹. Despite a strong economic rebound in 2021, the effects of the pandemic still linger.

During 2022, continuing lockdowns in China continued to disrupt global supply chains. Reduction in productivity along with the effects, of property value weakness, slowed China’s growth to just 3.3 percent in 2022, with global spillover effects².

Although inflation was already growing due to rapid pandemic rebound and related supply chain constraints, it soared worldwide following Russia’s invasion of Ukraine. The Russia-Ukraine war has also further exacerbated supply chain issues, and sanctions imposed on Russia have led to a steep jump in global commodity prices, particularly for energy, metals and food³.

The resulting energy price shock and economic uncertainty have taken a heavy toll on the world economy, increasing the risk of a global recession. In the near future, high energy prices, inflation and increased interest rates are expected to continue to hamper growth⁴. The Russian invasion has also created energy supply uncertainty, with many countries and companies facing risks to their energy security.

^{1. Resetting capital spending in the wake of COVID-19, Brinded et al., McKinsey & Company, 2020, https://www.mckinsey.com/capabilities/operations/our-insights/
resetting-capital-spending-in-the-wake-of-covid-19
2. Paying the price of war: OECD Economic Outlook Interim Report September 2022, https://www.oecd.org/economic-outlook/september-2022/
3. OECD Economic Outlook, Volume 2022, Issue 2, https://www.oecd-ilibrary.org/sites/f6da2159-en/1/3/1/index.html?itemId=/content/publication/f6da2159-
en&_csp_=761d023775ff288a22ebcaaa183fbd6c&itemIGO=oecd&itemContentType=book
4. Resetting capital spending in the wake of COVID-19, Brinded et al., McKinsey & Company, 2020, https://www.mckinsey.com/capabilities/operations/our-insights/
resetting-capital-spending-in-the-wake-of-covid-19}

—
The energy trilemma

Businesses are seeking energy supply that is secure and reliable, affordable and clean (in that order) – but the impact of recent global events means that securing sources of supply that meet this criteria remains difficult.

Research shows that businesses around the world remain concerned about the effect of energy security and prices, which could be a catalyst for a range of environmental, social and economic ripple effects.

According to ABB Electrification’s Energy Insights survey, 2 of 2,300 leaders from small and large businesses across a range of sectors, 92 percent of respondents feel that the continuing instability of energy is threatening their profitability and competitiveness.

Add to this a rapidly shrinking workforce and the blow to industry is even greater. As the current generation of energy professionals age out of the workforce at a rate faster than they are being replaced, industries around the world are competing to attract expertise from an increasingly smaller talent pool.

Rising energy costs and insecurity are forcing business leaders to rethink how they operate and where they invest in their businesses, to grow and remain competitive. The key impacts on businesses due to rising energy costs in the last year include lower profit margins (34 percent) and cuts to spending in some areas (34 percent), leading to a shift away from investment in R&D and other business growth initiatives.

—
Revitalizing existing infrastructure for greatest impact and returns

The answer to such challenges? Partnering with external service experts to design and deliver OpEx solutions that will help businesses meet those all important energy objectives.

Navigating an inflationary environment puts the onus on operational and facilities management teams to extend the lifecycle and productivity of existing assets. This also helps them address the mandate set by world leaders at the COP 27 climate summit – to decarbonize key industries by investing in new technologies, prolonging the life of existing equipment and changing asset management practices.

These goals are best achieved via strategic programs of product care, including planned maintenance and repair, modernizing equipment through retrofits and upgrades, and digitalization of assets to monitor performance and predict faults – developed and undertaken with skilled service partners.

With so many challenges, it’s more important than ever that industry turns to partners that can share the load and assist companies in getting the most out of their OpEx; secure energy sources that are affordable, reliable and clean; extract optimum performance from a shrinking workforce; and establish systems and processes that provide more efficient operations.