Delivering services is going to be an important part of that transformation, even for companies in traditionally product-centric industries such as manufacturing and consumer packaged goods. Several converging trends, propelled by technology advances, are driving this change:
- Always-on connectivity and smart automation is making it possible to deliver services alongside products, instead of operating each as completely separate lines of business. For example, industrial equipment can have built-in sensors and upgradeable software, so that the manufacturer can remotely manage performance optimization and maintenance throughout the product lifecycle.
- Greater sophistication and flexibility in business systems makes it easier to deliver contract-based services with pay-as-you-go and subscription billing. This can be either in combination with, or instead of, traditional product sales. We're all used to buying cellphones on a monthly subscription that also includes our calls and data, and maybe add-on services too. Now the same model is being applied to all kinds of products in the business-to-business (B2B) world.
- New digital-native enterprises have shown how it's possible to deliver solutions to customers over the Internet, on demand, as a service. This originally got started with software-as-a-service (SaaS), but it's now possible to deliver pretty much anything and everything as a service (XaaS), from pop songs to accounting, and from dog-walking to lawyers.
As these trends accelerate and mix with each other, established businesses find themselves challenged by disruptive new competitors. It's important for the C-suite to make the right choices as they guide their business into the future. But when the world is changing so fast, it's easy to misjudge the direction and pace of that change. Often, one part of the picture can look like the whole story, but still miss crucial elements.
Whether you're a CIO or CTO trying to figure out what technology to invest in, a COO or CMO wanting to align service delivery, or a CEO or CFO trying to set a direction for the business, you all need the full picture. So here's a CxO's guide to surviving disruption as the world goes XaaS — the acronym for everything and anything as a service. There are four steps to enlightenment.
1. It's more than a switch from products to services
Manufacturers first started embracing services in the 1990s, when the rather ungainly word 'servitization' was first coined. But back then it usually meant transitioning from a mainly product-based business to one that led with consulting services — for example the huge shift that IBM made from hardware to software and services — or GE's move at the time into financial services.
We still see large enterprises today following this pattern. Cisco's recent acquisitions of software businesses and last year's restructurings of HPE and Dell are attempts to lean more towards software and services. But the danger here is that the objective is seen as merely to add some higher-margin lines of business to counterbalance declining product margins. There needs to be a more fundamental shift from product thinking to a service design mindset, joined up across the enterprise. As servitization expert Professor Tim Baines from Aston Business School explains:
[T]he organizational structures have to be sympathetic to it. You can’t have manufacturing here, and design services over here. They have to have this internal connectivity happening.
2. It's more than transitioning to a subscription model
The other fallacy is to imagine that repackaging a product or a service contract into a monthly or quarterly subscription is simply a financial restructuring. This apparently simple change in fact has a far-reaching impact on how the business engages with its customers, as Tien Tzuo, CEO of subscription business management platform Zuora explains:
[Our customers] are not talking about plumbing, or automation — they are talking about re-inventing their businesses and driving business model innovations.
If you think of the subscription model as simply a different way of paying for the same thing, you really haven't figured it out at all. Once you shift from a one-off sale to a renewable contract, you enter into a continuous relationship with the customer, where instead of shipping an item you are engaged in achieving an outcome. As Professor Baines puts it:
With the services, you’re buying an outcome. You’re buying a process, rather than simply buying a thing which you then want to figure out what to do with.
3. It's more than putting in some new technology
When tech is the enabler, it's tempting to imagine that once the technology is in place, the job is done. But that's just the starting point. The technology fuels new engagement models, delivery models and business models, but these won't crystallize unless the people and the organization are ready to deliver them.
There's a much bigger transformation of business models, operations and cultural mindsets that has to take place if the exercise is to be a success. When videoconferencing vendor Lifesize introduced a cloud-based subscription service, the new management had to transform the company's mindset from product-centric to customer-centric, explains Chief Customer Success Officer Amy Downs:
We had to redesign the entire company. Customer support was like a complaints department. [A customer-centric approach] was not in anyone’s DNA at the company in any way. We had to shift the attitude and culture of the company to think with the end user in mind first.
4. It's about delivering outcomes
When you put all of these different elements together — the technology, the subscription management systems, and the blend of products and services — what you get is an engagement with the customer that's all about what they're trying to achieve, rather than what you succeeded in selling to them.
This is a continuous relationship where you have to keep delivering value to earn a renewal, and where you're constantly getting feedback and metrics that you can use to enhance and improve the service you're providing. Rob Bernshteyn, CEO of procure-to-pay SaaS vendor Coupa, put all this into a book last year, called Value as a Service. He believes this is the inevitable outcome of the as-a-service model:
We’re competing in a whole different world here. It’s not just functionality, it’s not just that it’s delivered via the cloud, it’s that it’s clearly delivering business value.
Join the discussion
This guide wouldn't be complete without some real-world examples and further exploration of the themes raised here. So over the coming week we'll be reflecting on the experiences of some of the enterprises we've written about here on diginomica and picking up on some more viewpoints from vendors, academics and industry analysts [updated to add links to this content]:
- How manufacturers blend products, services on the path to XaaS
- Building subscription relationships that work in a XaaS world
Please join us in the discussion by posting your observations and reactions in the comments below or on social media — we'll be watching the #XaaS hashtag on Twitter and also monitoring diginomica and philwainewright mentions on LinkedIn that link to this post.