High tech company executives face a fundamental change that is upsetting the traditional industry go-to-customer models. In simple terms, more customers are buying technology as a service. The maturation of Cloud and the pervasive use of technology, both for internal productivity as well as an enabler of customer solutions, have created a no-going-back environment. Customers of technology do not want to tether themselves to capital intense solutions, nor do they wish to pay for technology that goes unutilized. Today’s new technology startups have followed suit and now rarely offer traditional technology products without the “as a service” label. Wall Street and private equity firms are creating more momentum toward XaaS by basing valuations on the company’s recurring revenue potential. Thus, technology executives in traditional high tech companies have to adapt their go-to-customer models or risk becoming obsolete.
For traditional technology companies that are trying to sell XaaS (hybrid companies), this fast moving trend is creating a large and complex problem. Unfortunately, the sales, marketing and service motions that worked in the past are ill-equipped to deal with the new expectations and practices of today’s technology buyers.
This process is moving slowly because hybrid companies realize that adapting their current go-to-customer models to XaaS is a difficult task fraught with financial risk. In contrast with a traditional model in XaaS, the upfront investment is high, however the revenue is made over the life of the solution, not at the time of the sale. In a XaaS world, a technology company’s ability to thrive and grow is dependent on their ability to convert their offerings into value for end-customers. Technology adoption, usage and value realization become the working paradigms for success. These paradigms create a need for different coverage, job roles and skill sets across marketing, sales and services. Technology executives must balance the need to invest and overhaul their go-to-customer organizations, while maintaining their traditional revenue streams.
Faced with the momentum of the XaaS trend, hybrid company executives have to move forward with a cohesive strategy and readiness plan to ensure a successful evolution to XaaS. To help hybrid companies through their journey, the Alexander Group has created a framework and structure for developing this readiness plan across the four areas in Figure 1.
Strategic Priority: Hybrid companies have multiple revenue streams based upon their offerings and customers. Importantly, not all revenue streams have the same priority in terms of moving to XaaS. Some revenue streams should move faster than others based upon the ability to affect market share (either through first move advantage or not being left behind). Companies need to do a thorough assessment, develop a XaaS roadmap and ensure that all internal stakeholders are on board.
Sales Capability: Selling and marketing in a XaaS environment has some fundamental differences from traditional high tech sales models. The value messages and the manner in which buyers consume these messages and make decisions are different. All of which creates a different set of marketing and sales motions which might not exist within the existing go-to-customer organizations. Hybrid companies need to evaluate their ability to sell and market Cloud, identify key gaps to this capability and put in place a plan to address these gaps. Often gaps center on sales force talent. Sales leaders should address these gaps through specialized roles, enablement programs and/or updated sales compensation schemes.
Delivery Capability: Only through continued and deeper use of the technology can XaaS companies grow revenue within their install base. Fundamental to a XaaS go-to-customer model is the need to ensure that customers are utilizing the technology solutions and deriving value from them. This is more than simply providing a successful implementation of the technology in the customer environment. Ensuring customer value from a solution requires a hands-on approach that involves understanding of customer and industry use cases surrounding business processes, work-flow and analytics. Successful XaaS companies build these value realization competencies early on to ensure a growing revenue stream within their install base. Hybrid companies are often missing the appropriate delivery plays and/or resources that know how to deliver these plays.
Operational Capability: Managing a XaaS business requires a new set of management metrics and processes associated with customer usage and value realization. To ensure the highest level of customer lifetime value, hybrid companies need a much more thorough understanding of both current and potential usage of their service offerings. This information is a key requisite to appropriately segment customers and apply coverage, drive accurate sales targets and align and pay on XaaS-oriented sales compensation plans. Within hybrid companies, updating operational capability is a significant task that requires a thorough review of metrics, processes and systems to ensure readiness.
Companies need to create an evolution plan based upon assessing their offerings and their internal capability. AGI’s readiness framework provides a holistic way of developing a XaaS evolution plan for hybrid companies. To ensure end-to-end continuity, different functions must work in concert in a coordinated fashion. Therefore, successful evolution to XaaS requires a coordinated cross-functional approach where the action plan receives input and agreement from multiple stakeholders including:
- Company leadership (CEO,CFO)
- Sales and Marketing Leadership
- Business Unit Leadership
- Services and Operations Leadership
The Alexander Group is currently working with a number of hybrid companies on their evolution toward XaaS. It is both an exciting and complex challenge, but one in which AGI believes their expertise and experience can significantly speed the journey and avoid many of the pitfalls which may exist. If you are looking for an experienced partner to help, AGI has services to design and build out your company’s new XaaS operational model. Learn more about the Alexander Group’s Technology practice or contact an AGI Technology sales expert to discuss your company’s XaaS needs.