We are living in an “as-a-service” world. Everything from the music we listen to, to the shows and movies we watch, and the books we read comes from a streaming service. And let’s not forget about the endless subscription options that deliver everything from shaving products to fresh foods right to your doorstep.
Not surprisingly, this as-a-service model is knocking on business doors, where many companies, to get closer to their customers, or identify new revenue models, are moving from selling products to offering services and outcomes.
Think about the high-tech industry with smart products with embedded software, the automotive industry with connected vehicles or the utilities industry with smart meters and electric vehicle charging stations. The list is ever-increasing.
But don’t just take my word for it. IDC’s October 2021 Future of Digital Innovation study surveyed companies that were founded after 2005 and describe themselves as digital natives. Guess what? 89% of these companies said digital technologies are a key enabler for their shift from a traditional business model to selling an outcome.
How can I improve customer satisfaction and service?
It starts by thinking about what customers actually want (a novel idea, right?!).
Do they want shiny new HVAC machines sitting on the roofs of their factories? Or do they want temperature-controlled plants and facilities that enable equipment and people to work at the best of their ability?
If it is the former, you (the manufacturer) design, build, and sell the HVAC machine — but the sale is a one-time deal. If it is the latter, you still design and build the HVAC machine — but now you deliver it as-a-service.
But this can change the dynamics of how we design these products. For the “temperature-as-a-service” example we now must ensure uptime and availability. The ability to continuously control the temperature of plants is now the manufacturer’s responsibility. To get paid, the machine needs to work.
This business model also requires improved collaboration and visibility across all operational and finance departments, and with key partners who may, for example, be providing logistics or maintenance services.
And all these options need to be considered while designing the business model or customer offering. Which products and which services are included? Is it a usage flat rate or do we need to bill along a usage model or along any other measurement? Do we offer different options with different entitlements which need to be considered during use?
How can I ensure a new business model will be profitable?
Business innovation requires both the upfront analysis to ensure it will be financially viable as well as back-end financial processes to seamlessly support the new business model change. Even the best and most innovative new customer experience will likely fail if a company doesn’t have the ability to analyze and optimize its working capital to ensure it can afford the services to deliver this business innovation.
For example, being able to predict and analyze the lifetime profitability of a new business model or balancing competitive pricing with the cost to effectively serve the customer are essential considerations of business innovation that cannot be overlooked.
How can I keep the revenue stream flowing?
If your revenues depend on uptime, you may want to optimize maintenance as much as possible. And to do this we need to design intelligent products that have IoT sensors that can capture key information about how the particular product is performing. Is it trending towards breaking down? Is a key component (for example the ink in my printer) running low? This is where predictive analytics comes into play.
With the ability to analyze incoming sensor data in the context of historical performance data, you can predict that a machine needs maintenance, or needs replacement parts, and take the appropriate action (send a maintenance person out with the appropriate instructions, tools and parts.
How do I ensure smooth billing and cash flow?
Monetizing these new business models requires a new billing/quote-to-cash process that can be adjusted to subscription and usage-based payments. It is important to know if the billing and accounting environment is capable of consolidating and changing billing models and resolving disputes and returns on the fly.
For the as-a-service model to work it is essential that the front office and back office are seamlessly integrated. If the contract calls for monthly billing based on usage, this data needs to be available (again through designing the product to capture and communicate the usage back to the business process) to ensure accurate and timely invoicing, revenue recognition and analysis.
This model often means that partners are often involved to provide the services their customers demand. This requires a partner settlement with a range of contract agreements (e.g., revenue share).
How can I build an ongoing relationship?
In an as-a-service model, there are far more chances for collaboration with the customer which itself can yield opportunities.
Perhaps the asset intelligence that you’ve gathered as the manufacturer provides insights into how to improve the design of a future asset — or how the asset can better interact with the customer’s business processes to create more value.
During the customer lifecycle, as the relationship and available services evolve, contracts are likely to change, with additional services being added and removed or specific entitlements granted, which calls for flexible contracts to replace fixed orders.
The future is as-a-service
New startups disrupt all kinds of industries – so existing enterprises need to think about developing their traditional models to defend and survive. Subscription and service-based offerings – either B2C or B2B – are not just a trend, they are the future for many industries.
And having the business systems that have the agility to enable you to innovate and evolve to disrupt the market or keep up with competition is key.
Learn more about why top performing manufacturers are choosing cloud ERP to drive innovation and agility here, and leverage a value calculator to estimate the value of business innovation with cloud ERP.