High-Tech’s X(aaS) Factor Can’t Be Ignored

Article By : Patrick Maroney, SAP

There are few options as potentially fruitful as outcome-focused services, or "everything/anything as a service" (XaaS), where a product is packaged with complementary services, software, parts and/or consumables.

As initially surprised as I was to learn that Apple watches had outsold the entire Swiss watch industry, the more I contemplated those numbers, the more sense they made to me.

There are plenty of people like me who still appreciate a beautifully crafted timepiece. But as the sales figures suggest, a growing segment of consumers today want a watch that does more than tell them the time and date with unquestioned elegance, durability and precision. They want a wearable portal to experiences, outcomes and integration that leads to simplicity. Even as prominent Swiss manufacturers like TAG Heuer have entered the smart watch market (without significantly denting Apple’s market supremacy), a recent Deloitte survey of Swiss watch manufacturers found that almost two-thirds — 62% — believe their industry “missed the boat” with smartwatches.

Missing the boat on an opportunity is never an option, particularly when it’s as potentially fruitful as the emerging market for outcome-focused services — what’s broadly known as XaaS, or “everything/anything as a service,” where a product is packaged with complementary services, software, parts and/or consumables to create a solution or outcome that adds value for the customer. This shift away from a pure product play, toward servitization and customer-friendly, usage- or subscription-based XaaS solutions built around a connected digital solution, is occurring across the business landscape.

Some of the world’s most recognizable and tradition-bound companies are evolving right before our eyes from pure manufacturers to XaaSers, and in doing so, creating consistent, reliable and relationship-focused new revenue streams, while at the same time giving customers more of what they want: cost-certainty, risk-sharing with their suppliers, and turnkey outcomes. Lighting, compressed air, PCs, printers, even water, now come as usage- or subscription-based services. Even venerable old Rolls-Royce now offers performance-based services around its jet engines.

“Adopting pay-per-use business models has become a business imperative for many organizations,” posits Deloitte. “Newer companies that launched with these models at the outset are at a considerable advantage. Large, complex, and more entrenched companies face a bigger challenge—both in effecting a successful transformation and in determining the optimal pacing and sequencing of the transition.”

Here are some of the digital and strategic building blocks that are proving instrumental to successfully engineering such a transition:

  1. A wholehearted XaaS embrace. Any move from a traditional product-centric, SKU-focused, quote-to-cash-driven enterprise to pay-as-you-go and/or pay-per-use XaaS business models requires a major mindset, cultural and process shift across the enterprise. From engineering and design to manufacturing to sales and HR, the entire organization will need to fundamentally evolve to support relationship-forward, customer-focused and outcome-based business models. The day is coming when the Street will judge companies largely on their annual recurring revenues.
  2. The wherewithal to build and derive valuable insight from intelligent, connected products. Digital, networkable, sensor-equipped products are the foundation on which XaaS solutions are built. With analytics tools that are connected to customers’ smart products in the field, manufacturers can extract insight from the data supplied by those products, then supply that insight to customers as a value-added service, and to their own engineers to help them refine and improve products.
  3. An integrated digital platform. Swiss watches are engineered to perform a specific, relatively narrow set of functions with precision and elegance. Succeeding with XaaS offerings, however, demands a more flexible, Apple Watch type of digital platform designed for a subscription-based world — one from which every element of the outcome or experience the service provides can be readily designed, modeled, rolled out, monitored, managed, analyzed and refined as needed. Hardcoded, highly engineered and/or customized systems leave companies inflexible to business model changes and slow to adopt new capabilities, while a platform from which new functionality can easily be extended or “plugged-in” provides companies with the means to scale with speed and agility, supporting continuous change and evolving design principles along the way.

Offering a usage- or subscription-based solution entails a fundamental change in your business model, whereby there is synchronization and native integration between commerce, configuration, engineering, pricing, quotation, finance, supply chain, billing/invoicing and entitlement management. A smart-watch type of platform enables this level of integration, providing a platform to quickly optimize configuration, monetize data and optimize staff support for these services to maximize recurring revenue. With flexibility paramount in the XaaS world, seamless integration is critical to ensuring that XaaS solutions are sustainably profitable and meet your business growth targets.  As heavily as XaaS solutions rely on software, connectivity, data security and the like, it also will need to facilitate smooth integration and collaboration between IT and OT. And it must be able to link customer experience (X) data with operations (O) data to uncover important insight to improve and adjust XaaS offerings.

What we are really talking about here is establishing an unbroken digital thread throughout the entire enterprise. From an engineering perspective, the products at the heart of every XaaS offering must be designed for serviceability. And because many of these offerings will be customized, companies also need to capture the impact of an engineering change on overall system cost, supply chain, time-to-market, supportability, and other factors, then convey that information to the entire value chain.

  1. A connected business network. Instead of individual companies and their products competing for customers on an island, the XaaS movement is bringing companies together to compete as networks or ecosystems, where they differentiate themselves in the eyes of consumers with the added value they create via bundled, outcome-based services. So a company that provides engineering software could, in conjunction with its network partners, make that software part of an “engineering control room as a service,” for example. The success of an XaaS service, whatever it is, depends on the digitally connected ecosystem that underpins it. With the manufacturer, its partners, suppliers and customers all connected digitally within that ecosystem, they could collaborate around engineering designs across the extended enterprise, leveraging the expertise from different engineering and manufacturing domains.
  2. An unwavering focus on the customer. One of the most appealing facets of XaaS is its ability to build long-term customer relationships that yield reliable, consistent and lasting revenue streams. As customer- and relationship-focused as XaaS business models are, having visibility into how customers experience these servitized offerings is critical. Thus companies and their business network partners must have the ability to gather customer feedback at key moments, synthesize that experience data with information from other parts of the business (finance, sales, etc.), then use advanced analytics tools to derive insight they can use to refine and improve their XaaS offerings.

On the sales side, for example, you are selling a relationship and an outcome, not just a product. So you need tools to (re)orient and (re)train the sales force so they’re geared toward selling services and building relationships. What’s more, having a direct communications line between customers, sales and engineering/design leads to the kinds of customer-centric innovations that will enable companies to distinguish their XaaS products from the crowd.

Succeeding with XaaS business models does indeed demand a profound shift in how companies think and operate. With a strong handle on their data to inform the decisions they make across the business and across the extended network — enabled by digital capabilities — even those who come late to the XaaS party won’t miss this golden opportunity to access new customers, diversify their revenue sources and scale beyond their products.

For a deeper dive into the world of XaaS, check out this webcast from May 2021 about how companies can use technology to transform business processes for the subscription-based economy.

 

This article was originally published on EE Times.

Patrick Maroney is a principal within SAP’s High Tech Industry Executive Advisory.  He works closely with customers to help architect digital solutions to meet evolving organizational goals, address strategic challenges and create value. He has a background in industrial and systems engineering as well as business strategy and transformation consulting.

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