Business Model Transformation reaps huge benefits...

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This blog is part of the series on evolving new business model in the high tech industry and beyond. You can find the introductory blog here detailing out some of the trends and the responses by the companies.

These are exciting times and being a first mover has both advantages and risks involved.  High Tech companies not only innovate but are also early adopter of technologies.  It is no longer enough to be product or process innovator. Companies have to be nimble and innovate through business models to grow the market share.   This interesting business model innovation paper from Boston Consulting Group shows superior total shareholders returns of 60X over 5 year period for business model innovators as compared to companies focusing only on product & process innovations.

High Tech Manufacturers and Software companies have taken advantage of the technologies and are reinventing their new business models.  Here are some examples that we can see in the market today

• Cloud Computing services – monthly subscription + service based consumption models from IBM Cloud, SAP HANA Cloud Platform
• Software as a Service offerings from SAP Cloud applications, Adobe Creative Cloud
• Manage Printer Services from Lexmark MPS
• Combination of Hardware, Software and Services - IBM Power Systems
• Financing option for orders greater than $299 by Bose
• Sensor driven business models (Internet of Things) to automate process, manage risks and decision making. E.g. Smart Factory, Smart Grid

Are you prepared for this business model transformation?

Below are some of the challenges that we hear from our customers as they

• Shift from product to solution based models
• Bundle services (financial, technical, support etc.) with the solution
• Provide flexible payment options (subscription, pay-as-you-go model, lease etc.).

How do I get the 360 degree insights of a customer across my channel to make that informed solution sales offer to my customers? How do I bundle the hardware, software and services (note services could be technical installation, support, financial services) together? How do I offer flexible billing payment options? How do I offer the consumption based models such as pay as you go models combined with subscriptions? How do I prepare for volume of micro-transactions to deal for consumption based models? How do I handle the shift from product to service based models? How do I work with my partners and channels in a consistent approach? How do I develop and work with partners on flexible revenue share models and offer their services as part of the solution? How do I define sales compensation plans? How do I measure costs and profitability of the solution? How do I develop pricing models, address specific market needs quickly and scale? How do I consolidate all the invoices for various elements of the solution? How do I send detailed invoicing in a customer-specific format? How do I allocate revenue across various solutions and recognize them accurately and be in compliance? How do I track the entitlements that customers are eligible and its consumptions at the point of service? How do I prevent revenue leakage on the services? How do I scale my infrastructure and operations for product/platform ramp-ups? …

Check out this video on how companies such as Microsoft, Lexmark and eBay are going through some of their business model transformation.

It is more critical than ever for companies to have the mindset to transform their business while innovating and take advantage of the immense business
opportunities present, due to advances in technologies.  To be successful, companies have to think from solution design all the way to solution servicing, have 360 degree insights of the customer you serve to offer right services to your customers.

In the next part of the series, we will share how SAP solution portfolio addresses these business transformations in the following order (links will be updated - please revisit this blog)

• Solution Design, Solution Fulfillment and Solution Orchestration
• Entitlements
• Mediation and Metering
• Solution Billing and Invoicing
• Customer Financial Management
• Revenue Recognition
• Business Analytics

Please share your thoughts on the challenges that you are seeing and how you are addressing them.