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Consistently attracting and retaining customers is critical for almost any company to succeed. Satisfaction and loyalty can be fragile as expectations, preferences and behaviors evolve. At the same time, digital business models can change what and how companies deliver.
To help achieve successful outcomes and create lasting value, many companies are shifting to solutions and services delivered through subscriptions, on demand or through a usage- or consumption-based model. While this can be a path to revenue growth, delivering a customer-first experience requires connecting with customers in context — engaging with them seamlessly across preferred channels while blurring the boundaries between front and back offices. This includes empowering and enabling your organization with the capabilities, knowledge, talent, and business and solution architecture to deliver on your brand promise.
Creating a consistent competitive advantage
Across industries, many leading businesses are evolving to anything-as-a-service (XaaS) business models:
- A global software company conceptualized and introduced a new business model with subscription and usage-based pricing with a goal of going live at scale over six months. The initiative also included an overall project management office across key participating functions, guided by a new XaaS operating model playbook that helped the company navigate a series of key design decisions.
- A home security company is pursuing an inorganic growth strategy fueled by multiple acquisitions in core and adjacent markets. The company wanted to overhaul its end-to-end lead-to-quote-to-cash process to provide a more consistent, streamlined customer experience, which was critical for achieving scale.
- In response to feedback on being difficult to do business across enterprise and small and medium-sized business customers, a global gaming company retooled its customer experience design in the quote-to-order process, reducing order lead time from 14 weeks to three weeks while driving more standard orders.
- A telecom and communications services provider that wanted to expand from its core business is now targeting B2B customers. This includes introducing a host of new capabilities, with bundled propositions combining cloud infrastructure with software offerings that address specific needs across enterprise and small and medium-sized business customer segments.
Our experience over the last decade and related analysis have found that the revenues of companies with XaaS offerings often outpace those with traditional industry models. This is also typically accompanied by higher valuation multiples for the companies, with XaaS fueling 50% or more of their revenues, our analysis found.
Given the potential gains — increased customer satisfaction, revenue growth and ultimately valuation — it’s critical to explore how an XaaS strategy can help drive business model reinvention and quickly move your company from business vision to measurable outcomes.
What customers want |
How XaaS can help your company |
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The emergence of ‘everything’ in an as-a-service world
While software-as-a-service (SaaS) is well known, massive shifts in many functions and industries — business processes, security and data protection, platforms, AI — have helped spur the rise of XaaS. As routes to market continue to diversify, companies are changing their sales approach and pivoting from a transaction business model focused on products and discrete sales of offerings and solutions to an XaaS model focused on customer outcomes.
Industry trends that are encouraging greater adoption and scaling of XaaS business models — and accelerating transformation — include:
- In the technology sector, omnichannel revenue streams and last-mile infrastructure
- In telecom, connectivity infrastructure as a service and enhanced service experience with augmented and virtual reality-enabled user interactions
- In finance, microfinance and algorithmic or parametric insurance
- In the automotive sector, mobility solutions on demand versus one-time vehicle purchases, as well as the evolution of the vehicle as a platform accompanied by new innovations such smart tires and the battery and charging service economy
- In healthcare, wearables, remote patient monitoring and digital therapeutics
While the above industries include different types of businesses, they all seek a more balanced approach to generating recurring topline revenue growth.
Turning a business vision into a distinctive customer experience and a differentiated business model
The customer journey comprises a series of interactions reflecting progressive engagement from identifying a need and discovering a product to the ideal outcome of renewal and advocacy. These interactions are enabled by the company’s internal capabilities and operating model, especially within “lead to cash.”
The stages of business model incubation through evolution
Accelerating the transition to recurring revenue streams
The early stages of an XaaS transition may see lower revenues and higher costs. But over time new services and growth engines can help increase revenues while economies of scale can help reduce costs.
Your call to action: Defining and executing a successful XaaS journey
For XaaS to help increase revenue and create sustainable business value, you should simultaneously focus on three dimensions within your organization.
- Customer impact: Enable the end-to-end customer journey from discovery and initial interactions to renewals. Seamless transitions from sales through delivery can help achieve typical “land and expand” goals. Clearly align your efforts to customer expectations and outcomes — including speed, simplicity and trust — and leverage insights and analytics on customer interactions and product usage. Track and enhance active customer engagement with metrics like monthly and daily active users.
- Financial impact: New customer acquisition and recurring revenue streams should keep pace with and align to investments and organization ramp-up. Revenue mix shift planning based on scenarios can help you avoid “the revenue cliff” – the drop in reporting during the transition from one-and-done sales results by quarter to revenue streams over multiple quarters. This also can highlight the need for reporting on total contract value (TCV) and annual contract value (ACV) along with annual recurring revenue (ARR) and monthly recurring revenue (MRR). Being able to deliver on these in terms of transparency, traceability and outcomes is critical for success at delivering on profitable growth and eventually increasing market valuation — from five times to 12 times, in line with typical XaaS leaders’ valuation multiples.
- Organizational readiness and culture shift: Executive sponsorship along with a dedicated transformation management office and experienced resources are essential for XaaS success. Secure a visible commitment from top leadership to cloud transition and operating at “cloud speed.” Set new overall goals with realignment of key metrics such as customer acquisition cost, customer lifetime value, TCV, ACV and ARR. These should be reinforced by functional heads, including their buy-in for new skills, capabilities and behaviors.
Solutions to help power sustained outcomes
Create a flexible and agile future with XaaS
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