Digitalization: From Product Vendor to Service Provider

2017-12-10T07:17:16+00:00 02-04-2017|

Successful Business Transformation to the Cloud

Companies in virtually every industry can deliver unprecedented value to their customers through new technologies. By embracing the power and ubiquity of digitalization, organizations can transform from product vendors to service providers with strong customer loyalty, sustainable and recurring revenue and ultimately higher valuations. Through analysis of customer behaviour and information, services can be refined immediately to deliver continually improving customer experience.

Through adaptation of business practices, implementation of ‘as a service’ revenue streams and leverage of technology for operational efficiency, companies can now increase customer loyalty, realize predictable revenue streams, and gain competitive advantage.

“Digitalization is a deep and permanent shift in life and business. It’s as inevitable and irreversible as the shift from steam to electric power. As that transition opened new possibilitiesfor society, the digital world has many advantages for those who adapt.” Andrew McAfee, HBR

The ubiquity of mobile technologies, the proliferation of social networks and digital business models have fundamentally changed the way individuals and organizations interact, make decisions, and execute purchases. The rapid evolution of technology, combined with societal changes and the recent economic turbulence has created a “new normal’ globally.

To succeed under these new normal conditions, organizations need to be more flexible, better able to respond quickly to changing conditions and properly positioned to provide superior value to their customers.

The most obvious application of cloud technology to new business models and value growth is in software delivery. Companies such as Salesforce, Adobe, and Oracle now only offer subscription-based Software-as-a-Service (SaaS). However, innovative companies in other industries are utilizing the same technologies to deliver products as a service. Diverse products including engines and automobiles are now available on a pay-as-you-go basis.

The increased flexibility and competitiveness that technology allows vendors to offer and customers to use has been compared to the changes experienced by manufacturers when electricity replaced steam power in factories. As with any disruptive technology, there are tremendous opportunities and challenges for companies that embrace these new methods, and significant risks for those who do not.

Are you and your organization truly ready?

Successfully transforming your company from product vendor to service provider involves much more than technology. It requires that every function in your company be aligned and prepared. To fully leverage digitalization in or to transform your business, there are a number of questions which must be asked and answered by the company’s executive team to maximize the success of the transformation.

Ideally, these will be taken into account before embarking on the journey from product to service.

What are the business processes necessary for a service model?

Deploying and managing subscriptions and renewals requires different business processes than selling a product. Your entire team, including sales, channel partners, accounting, operations, and support all need to be ready to provide customers a positive experience.

Do our field sales team and channels have what they need to succeed?

The process and methodology needed to successfully sell services are fundamentally different than that for selling products. Irrespective of whether you sell through a direct sales force, channel partners, via the Internet, or some combination of these, your sellers will require new tools and methodologies to effectively sell your service.

How do we adapt incentive programs to promote the service offering?

The commission structure for a service has to be very different from one designed for product sales. Creating a program that aligns incentives with employee expectations and corporate goals may be daunting, but it is absolutely critical to a successful transformation.

Setting expectations regarding transformation impact on short-term revenue?

In the long term, providing a subscription-based service will lead to higher and more predictable revenue; however, over the first one to three years after the transition, a negative impact to the current revenue stream can be anticipated. It is therefore important to prepare the board, investors, executives and market for short-term declines to achieve long-term value growth.

How can we ensure our service offerings continue to delight customers?

Providing a service keeps you in closer and more constant communication with your customers. The connection to and analytics regarding customer behaviour will provide your company with deep insight into your customer’s needs. By leveraging this knowledge to add capabilities and services, you can increase adoption, consumption and customer experience.

How will success be measured?

Revenue is one obvious answer, but there are several other metrics that can provide significant insight. Cloud connectivity gives you the opportunity to both measure engagement and quickly test new features and functionality. Many companies conduct A/B split testing for new features, and using the immediate and real feedback that they receive, quickly release the best option.

What features and functions should be included in your as-a-service offering?

There are be many ways to differentiate between service levels and/or traditional versus subscription offerings. Should you offer multiple subscription types? How do you price a monthly or annual subscription for each? How is each of the subscriptions differentiated?

How and when will existing customers be migrated to the new model?

Customers who recently purchased your product will want some time to realize a return on their investment before signing up for a subscription. What will be their transition path? For how long will traditional support and maintenance agreements be honoured, and what will be your transition plan for customers covered by those agreements?

How can we best support employees as they transition to new processes and models?

Transforming to a service-based model requires new roles, new skills, and new approaches. Your entire organization needs to be ready to embrace these changes.

Benefits of Service Delivery Model

  • More predictable revenue stream.
  • Reduced time to market for new offerings.
  • Ability to offer new functionality rapidly to all customers throughout the world.
  • Greater agility and adaptability to respond to new technologies and changes in market demand.
  • Decreased product support costs through efficiencies of centralized deployment and maintenance.
  • Ability to quickly access new markets globally.
  • Ability to gain new insights into customer usage and leverage understanding into new products or increased functionality.

Benefits for Customers

  • Pay as you go pricing reduces cost and commitment to technology/product implementation and maintenance.
  • Improved cash flow due to the reduction in fixed investments. Potential tax benefits with switch from capital expenditures to operating expenditures
  • Increased employee productivity through the ability to work at their own pace anytime, anywhere on preferred devices and platforms.
  • Improved employee retention and engagement through greater resource access, productivity and culture of collaboration.
  • Reduced facility and utility costs through less technology/equipment implemented “in-house.”
  • More predictable revenue stream.
  • Reduced time to market for new offerings.
  • Ability to offer new functionality rapidly to all customers throughout the world.
  • Greater agility and adaptability to respond to new technologies and changes in market demand.
  • Decreased product support costs through efficiencies of centralized deployment and maintenance.
  • Ability to quickly access new markets globally.
  • Ability to gain new insights into customer usage and leverage understanding into new products or increased functionality.

The Essential First Step

The transformation from product vendor to service provider is a significant change that requires adaptation within every aspect of the organization. Next Step has a proven track record of defining and successfully implementing a service-based business model, hence can be a crucial business partner. Our team of 40 seasoned professionals will work with your executive and functional teams through the key stages of transformation, as we have done with Adobe, ShoreTel, Cisco, Precise and others.

Next Step’s proven method includes:

Evaluate

Next Step’s team of experts will benchmark your current situation and assess how each stakeholder will be affected by the transformation, including customers, sales teams, employees, channel partners, IT, operations, marketing, and the CXOs.

Plan

Based on the evaluation and our best practices, Next Step’s team will build a business case and financial model demonstrating the returns to the business from the transformation. After gaining executive agreement to the model, Next Step will collaborate with management to define and implement the Program Plan for change based on our proven Blueprint for Digital Transformation.

Execute

Next Step believes in execution, and our experienced professionals collaborate closely with our clients to maximize success in implementation of the plan. This can be from product advisement, competence development, through go-to-market plans and organizational transformation.

Monitor

Making the transition to a service provider has the added benefit of providing you with a constant flow of data about your market, your customers, and how they are using your product. Next Step can help you to identify key metrics as well as set up systems to collect and analyze the data for enhanced insight into your customers’ needs and behaviours.

Next Step can be your first step to success