I had a great opportunity to attend Quote-to-Cash conference in Budapest organised by TAC Events, meet up with the leading industry experts, fellow customers and partners and present them SAP CPQ quoting capabilities integrated with S/4HANA and BRIM subscription management process.
TAC Events is independent service provider specializing in events, content and community development predominantly in the SAP ecosystem. This year they hosted two-day conference for the Quote-to-Cash community offering access to main exhibition, breakout sessions and social events where all participants could connect and share their knowledge and experience.
It was great to hear about innovations that my colleagues from SAP Quote-to-Cash team delivered in previous releases and also demonstrated during the pre-conference workshops on day one. We could learn about interesting updates in domain of solution bundles that combine physical goods, services, and subscriptions along with automations in Invoice-to-Cash process for high-volume billing.
But then it was even more interesting to learn how our customers benefit from those SAP deliveries. In the main exhibition we could hear directly from our customers about their digital transformation journeys and how they leverage SAP Quote-to-Cash suite to transit to new business models. As Quote-to-Cash process is relevant for broad spectrum of vertical industries we learned about customer stories from Transportation and Logistic, Postal, Automotive, High-Tech and other industries which unify the perspective and give knowledge on how different businesses benefit from optimizing or disrupting different areas of their business processes using the same SAP technology platform.
It was also great to hear what SAP partners do in Quote-to-Cash domain and how they scale their offerings across SAP standard capabilities. From self-service and low touch scenarios for selling Product-as-as-Service solutions to AI driven quoting capabilities for highly complex manufacturing business we could conclude partners are on top of market trends delivering solutions flexible enough to be adopted by customers through their implementation projects.
But in the end connecting with people and building the community around Quote-to-Cash is what is the true value of such conferences and TAC Events did a great job to facilitate networking events where I could meet experts from different areas of Quote-to-Cash and establish connections to further explore and develop ideas for growth, especially around CPQ (Configure, Price, Quote) process.
In the rest of this blog, which is split into 5 chapters, I will share my insights on Quote-to-Cash process and how SAP addresses it with compelling out of the box solution offering which is integral part of SAP S/4HANA.
Industry trends that drive business transformation and key challenges for adoption
To stay relevant on the market and deliver more value to their ecosystem enterprises are applying different innovation strategies that usually target transformation of their value chains and adoption of new business models.
When it comes to business model transformation, what we can see is that subscription-based B2B business models are on the rise across industry sectors, and companies are rapidly shifting from pay-once, use-forever models toward the subscription economy business models or solution business models which are at the higher end of the spectrum at the image below. Solutions usually combine subscriptions with equipment, services, maintenance contracts to the point where product is not sold anymore but rather just provided and the output of the product is billed to the customer, which is also known as outcome-based business or Everything as a Service (XaaS).
Reimagine your business models following the evolution of companies selling motions
What is Solution business
Solutions are usually comprised of multiple physical products, services, and subscriptions tailored or customized to solve business problem holistically. They are more oriented on how to solve complex business problem rather than focusing on selling functionality as in case of standalone products and services.
Solution business model requires more engagement with a customer to create mutual trust and usually implies longer sales cycle and investments in analysis phase of the process to understand customer needs and objectives. On the other hand, it pays off in terms of customer stickiness, renewal rate and of course comes with higher profitability margins embedded into solution offering (mostly coming from services) which is the main motivation for enterprises to move to new solution business models.
One example can be company car fleet management solution. Fleet management means managing company vehicles and it covers a range of functions, from vehicle financing and insurance, servicing and regular car maintenance, tracking and diagnostics to managing drivers, routes, fuel consumption and safety.
At the beginning of the process solution provider (fleet management company) would perform complete analysis to understand what are customer needs for managing company fleet, work with customer on proper finance method (buy or lease) and provide the solution for the most optimal car management and cost reduction addressing depreciation, interest, repair and maintenance, tyres, insurance, fuel, tax and other fees.
Solution could be outsourced car fleet through operational leasing model with 24/7 road assistance and incident management, along with regular maintenance and repair services included. It can also provide secure fuel management process with fuel cards issued to each driver (including spending limits) accepted in different retail gas station locations. Solution provider would deliver software solution so company can have insights into performance based on fuel usage and driver activity and identify any unauthorized purchases. Beside the fuel management process such software solution would provide holistic management of company car fleet together with regular maintenance schedules and repair services, incidents handling, car location services, transparent view on end-to-end costs and invoicing process etc. Translated into the business model building blocks, solution will consist of physical products (car fleet), multiple services and maintenance contracts wrapped around subscription that company will pay on a monthly basis to solution provider for the duration of the contract.
What are the main challenges to adopt new business models
Typical challenges that customers face on their transformation journey is that their business processes are not well connected into the end-to-end value streams which leads to slow launch of new products, limited bundling capabilities of products and services, slow quoting and contract negotiation process, high order fallout, different overlapping bills, all leading to decreased customer satisfaction and consequently lower renewal rate.
Why Quote-to-Cash matters and how SAP addresses it
To address this emerging industry trend and solve typical challenges customers are facing on their transformation journey SAP provides a tool for companies to fully transform their business models with innovative product setup and bundling capabilities, configurable pricing and quoting process, together with fully automated order to cash process for sales and contract management, pricing, billing and revenue management, all seamlessly combined into an end-to-end integrated Quote-to-Cash process.
This integrated process is designed to support our customers reimagine their business models by helping them transition from selling distinct products and services into selling solutions.
SAP Quote-to-Cash integrated suite
As a sales-side interface of the Quote-to-Cash process CPQ (Configure, Price and Quote) automates quoting workflows and improves precision of product combinations bundled into solution offerings. It also ensures accurate pricing and efficient quoting process which results in error free quotes, but the true value is unleashed by integrating CPQ quoting process with S/4HANA order management and fulfilment processes that provide our customers end-to-end visibility of all quotes that automatically flow into the S/4HANA downstream processes.
This integrated suite around S/4HANA brings together different business processes and respective products, like physical products, services, subscriptions and allows combining them together into solution bundles that are automatically available for sales representatives to configure and quote in CPQ. Once CPQ quote is completed sales representative can place an order and create S/4HANA Solution quote that contains corresponding physical, service, and subscription items previously quoted in CPQ.
S/4HANA ensures that further execution of ordering processes and creation and fulfilment of sales orders, service contracts and subscription contracts are conducted correctly, and also ensures customers can generate invoices and collect revenue related to sold products. SAP Quote-to-Cash suite leverages S/4HANA BRIM modules (Billing and Revenue Innovation Management) to manage subscription contracts, monetize and consolidate all billing and revenue management for our customers.
Key benefits of SAP Quote-to-Cash suite
Combining the best of suite capabilities in our CPQ solution with a market leading BRIM solution to provide a fully integrated experience leads to multiple benefits for our customers.
In CPQ, for example, we've proven that we can help to increase the number of sales professionals achieving their sales quota by up to 26%, which can also lead to 5% increase in total revenue generated by sales.
CPQ also helps to accelerate lead conversion rate into actual closed deals, supports quotes with large number of line items and wide variety of processes (e.g. automated approvals, proposal document creation, AI price/upsell/cross sell recommendations) that helps shortening the overall sales cycle and increasing sales cycle velocity.
Combining this with benefits in BRIM such as fully integrated billing experience that helps reducing revenue leakage to almost zero, reducing the time to market for launching new products and services through fully configurable approach and together with integrated process for invoicing and finance leads to significant benefits that we want our customers to enjoy.
How integrated Quote to Cash process works
From integration process perspective, S/4HANA is origin of master data, which means physical products, service contract and subscription products are created in S/4HANA and pushed into the CPQ. If customer maintains AVC (Advanced Variant Configuration) models in S/4HANA those will also be replicated into CPQ through standard integration leveraging Variant Configuration and Pricing (VCP) service. In CPQ, customers can create different solution bundles comprised of replicated physical, service contract and subscription products. Business Partners (Customer object) are also created in S/4HANA and pushed into CPQ.
Process flow focusing on CPQ integration with S/4HANA Solution Quote
From sales process perspective sales representatives will use CPQ as a quoting tool to go through selling motion and long negotiation cycles until their customers finally accept the quote. In typical scenario sales representative will pick a product in CPQ, select proper configuration, do the pricing and discounting, go through approval process, generate proposal document and when quote is finally accepted by end customer, it will be pushed as an order into S/4HANA Solution quote which will then orchestrate execution of ordering processes and create follow up sales, service and subscription documents. In Quote to Cash context CPQ can be perceived as a tool that adds sales quoting capabilities for solution bundles on top of S/4HANA ordering processes.
Flexible choice of pricing and configuration scenarios
CPQ together with S/4HANA offers 2 different options how customers can maintain and run their pricing and product configuration rules.
1. Maintain your pricing and configuration rules in SAP S/4HANA
In scenarios when customers already use S/4HANA and BRIM with AVC, our integration provides capability for customers to leverage their investments in pricing models and AVC product configuration models prepared in the past years. CPQ as a quoting tool will consume configuration and pricing rules from backend during the sales transaction. That means that all the pricing and product configuration rules remain in S/4HANA and AVC, and CPQ will adopt product configuration models and consume Variant Configuration and Pricing (VCP) services to run those configuration rules and get the prices while sales representative is configuring product in CPQ.
2. Maintain your pricing and configuration rules in SAP CPQ
In scenarios when our customers want to position CPQ as a central sales hub for all their company products we offer capability for advanced business users to easily manage configuration and pricing rules in CPQ. This is especially convenient for services industries where customers are not necessarily using AVC as it gives them easy to consume tool to bundle products in CPQ and define configuration and pricing rules in CPQ. In this case master material will still be replicated from S/4HANA but all configuration models and pricing will be defined in CPQ. Integration ensures that only relevant S/4HANA data is sent back from CPQ during order creation process and that prices are properly mapped to adequate pricing procedure conditions.
Subscription change management processes
When it comes to managing subscription contract lifecycle it can’t go without process that ensures proper subscription change management. Whether it is renewal, upsell/cross sell, swap or merge scenario CPQ-S/4HANA BRIM integration ensures that sales representative can create change quote in CPQ, select end customer subscription contract and send changed subscription contract item from CPQ back into the S/4HANA BRIM.
CPQ-S/4HANA BRIM change management process flow
Summary and outlook
To summarize, Quote-to-Cash is integrated business process for negotiating, selling and monetizing solutions primarily targeted towards B2B customers. It starts with product configuration and quoting process covered by CPQ, continues with contracting, order management and fulfilment, and ends with invoicing, payment, and collection processes that are part of S/4HANA and BRIM.
SAP Quote-to-Cash suite, that integrates CPQ with S/4HANA and BRIM, provides end-to-end capabilities for combining and selling subscriptions with equipment, services and maintenance contracts that allows our customers to transform their traditional transactional business models and transit to solution business models.
Today, by adopting our end-to-end Quote-to-Cash solution, along with physical goods and services business, customers can run their recurring subscription business models and leverage standard support for subscription change processes. Where SAP product teams plan more investments coming in mid-term future period is enabling quoting of consumption-based subscription scenarios, so our customers can even evolve towards outcome-based business models.