The XaaS Effect and what it means for the services business

Phil Wainewright Profile picture for user pwainewright June 26, 2018
Summary:
A quick take on Everything-as-a-Service and how the XaaS effect impacts professional services, service divisions and product companies that want to get into the digital services business

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This is a time of epochal change for anyone in the services business — an expanding category that includes existing professional services companies, the services divisions of product companies, and any product organization seeking to offer new services, often on subscription, as part of its digital transformation plans. Modern connected digital technologies are enabling huge changes not only in the way that businesses deliver services to their customers, but also in how services projects are managed and in the relationship between services and products.

I'm revisiting this theme to frame my thoughts in advance of FinancialForce's annual customer event, which opens in Las Vegas today. The vendor is right in the middle of these changes, as a Software-as-a-Service (SaaS) provider of professional services automation (PSA) and financial management systems. The company argues, with some justification, that its experience in supporting forward-looking services businesses puts it in a prime position to help product companies prepare to add services offerings alongside digitally connected products.

The XaaS Effect

This is especially important in the context of the rise of the as-a-service model, first used to deliver SaaS but now extending to many other industries and product offerings as part of a wider move towards Everything-as-a-Service (XaaS, which we pronounce 'X-ass'), including the rise of connected products and the Internet of Things (IoT). This is a trend we've been watching closely and examined in detail in a diginomica d·book published earlier this year, The XaaS Effect.

One of our most important findings is that adopting the XaaS model isn't simply a matter of going digital or blending products and services in new ways. It also requires a wholesale change of mindset, from the old, disconnected, product delivery attitude to a new, continuously engaged relationship with the customer that's focused on what they want to achieve rather than simply what they're going to buy. What makes these new models so disruptive is the simple fact that they're connected.

That continuous digital connection fundamentally transforms not only how businesses engage with their customers but also their internal operations. It enables a three-stage virtuous cycle at the core of the XaaS effect:

  • Engage. The customer is directly connected to the business every time they use the product or function.
  • Monitor. The business can see how all of its customers are using its products or services, and proactively fix any problems.
  • Improve. The direct connection allows the business to update its offering or add new capabilities.

I'm expecting FinancialForce to talk more about its perspective on Everything-as-a-Service at today's event and I'll be picking that up in our coverage later. But first of all I wanted to highlight three aspects of this model that are of particular interest to services businesses as they grapple with this epochal change.

1. Continuous delivery

Digital connection is enabling more agile project methodologies that are replacing the old waterfall method of delivering professional services projects. Clients expect to be more involved in the design stage and they want projects to be able to evolve to accommodate changing technologies or business opportunities. Service organizations need a platform that supports a more collaborative, real-time relationship with clients.

To maintain control when deliverables are liable to change, project managers need access to real-time data and analysis so that they can stay on top of changing project costs and resource requirements. This has implications for back-office integration to make sure that project teams and finance managers are working with accurate data.

Different billing models, especially with the advent of new ASC 606 rules on revenue recognition, demand more sophistication from financial systems. This in particular is an area where FinancialForce sees a big opportunity to add value.

2. Continuous improvement

Delivering a product or completing a project used to be seen as the end of a customer engagement, but in the XaaS world it's when the relationship really gets under way.

Many products now come with embedded software and the ability to connect or report back to the supplier, enabling an ongoing relationship. This adds a new, proactive dimension to customer service. Often that digital connection also allows for updates to product functionality. All of this means that remedial service is no longer a separate offering but becomes a part of the product and can even be a source of competitive advantage.

Similarly, services projects no longer come to an end once delivery is complete. The ability to continue to deliver frequent updates in digital functionality means that the ongoing relationship is often as important as the implementation phase. This has been very noticeable in the SaaS industry, where customers migrating from traditional on-premise software come to the end of the implementation process and realize that they will now be digesting significant functional upgrades every few months.

3. Continuous engagement

Formerly product-oriented businesses have the biggest mindset transition to make. Adding any form of digitally connected service element to a physical product has a transformative impact on the business that goes far beyond what most enterprises expect as they embark on this journey. It requires a much more joined-up operation throughout the business and an ethos of focusing on customer outcomes rather than simply achieving sales targets— an ethos that at diginomica we call frictionless enterprise.

Helping businesses through this transformation is where FinancialForce sees its biggest opportunity, and I'll be particularly interested over the next two days. to see how the company views its role with these businesses.

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