As a McKinsey CEO survey showed, 80% of CEO’s see their business models at risk from competitors [FN1]. Changing your business to compete requires transformation of business models for “growing the core, expanding geographically, diversifying into adjacencies, and taking opportunities that arise from value-chain disruptions and integrations.” [FN1] Because of this, delaying needed change is no longer an option.
Accelerating and Incubating Organizational Transformation
Many organizations are diving into deliberate and purposeful change. However, the most successful separate these efforts to avoid disrupting established business. They create new avenues and channels for growth. These organizations know their business models are at risk, so they focus on innovation and growth as a means to address competitive disruption.
[P]lenty of the country’s largest companies are creating separate divisions inside their companies where employees can work on advanced and oftentimes secretive projects. Alphabet’s Google X and Facebook’s Building 8 are among the most buzzy examples.
Having separation—both physical and institutional—between innovators and the rest of an organization was considered crucial to Skunk Works’ creator, Kelly Johnson, whose motto was, “Be quick, be quiet, and be on time.”
Rather than develop… ideas from scratch, some companies are choosing to nurture young companies in their early stages through corporate accelerator programs. And it’s not just Silicon Valley tech giants that are investing in young talent; Coca Cola, Deloitte, Lowe’s, and Target are all running active acceleration initiatives [FN4].
These companies have adopted the successful “need seeker” innovation approach to organizational transformation. Many companies are adopting the “Skunk Works” ways to business model transformation, along with the relentless focus on customer needs.
Making the Transformational Change
We hear about Skunk Works from time to time, but few know the history. From the beginning, the Skunk Works set out to get the job done while avoiding the normal bureaucratic trappings that prevent innovation and acceleration. The Lockheed Skunk Works adopted a mission to build “the world’s most experimental aircraft and breakthrough technologies in abject secrecy at a pace impossible to rival” [FN5].
When studying the Skunk Works’ 75 years of success, you might overlook a rarely recognized feature emerging in the last forty years: Lockheed Martin’s Skunk Works (or Advanced Development Program – ADP) has started to co-innovate, co-develop, and co-create with direct competitors on many projects. Their drive to get the job done, at a “pace impossible to rival,” has led them to be less insular in designing and developing innovative aircraft technologies.
A skunk works was a quasi-independent group of people within an organization. The most talented individuals within the organization were borrowed from various departments forming a cross-functional, entrepreneurial environment. Both geographically and hierarchically isolated from the rest of the organization… The skunk works usually had full control over its resources, budget, and procedures so that it could pursue innovative ideas from concept to realization… Skunk works also typically received strong support from top management in the form of autonomy and funding. Short chains of command and freedom from organizational culture and bureaucracy allowed for efficient time utilization and rapid prototyping. The skunk works team managed its own progress, promoting a sense of ownership, empowerment, and when necessary, a sense of urgency [FN6 pg. 73.].
History has shown that skunk works, a small loosely structured group of individuals with a common goal, can become a powerfully creative force. Using this configuration Apple Inc., reimagined personal computers, Sony Ericson made pioneering strides in mobile broadband access, and Pfizer, Abbott, and GlaxoSmithKline revitalized entrepreneurial behavior in pharmaceutical research [FN6 pp. 71-72.],
For these types of innovation initiatives, a key success element is a corporate program support that has the resources and technologies to enable the pursuit of customer or marketplace needs. Transforming the organization to develop the new business models is a critical component. However, a business also needs to have the tools and technology to support existing business while pursuing new ways of doing business. Don’t distract from your innovation, integration, and transformation mission with tools that don’t support new ways of doing business. We have the S/4HANA pre-configured reference system for X-as-a-Service business models. Whether you want to work with your own hardware, software, data services, usage-based processing, third-party products and services, DaaS asset management, or various combinations, contact us today for how our reference solution handles all of this and more.
Transformation to Recurring Revenue and Subscription Billing
Many companies today are seeking or expanding recurring revenue channels. They pursue various subscription models and services, either organically or through third parties. Additionally, you and your competitors seek new options to supplement organic products and services, or to operate in new channels and with new models. To achieve these goals, many companies find that turning to Device-as-a-Servive (DaaS) accomplishes this and creates strategic customer stickiness.
DaaS also includes hardware lifecycle management services – acquiring devices, supporting them, retiring them – and other management services. The latter can be on a vague-but-broad spectrum that includes such components as a help desk, device backup – the latter often to the cloud – asset tracking and reporting, and pre-delivery provisioning of any number of applications in security, productivity and other categories. [FN2].
The customer switch from Capex to Opex can be attractive. When customers also add in the ability to periodically refresh their hardware, have someone else do maintenance, and leave the management to your company, they can free up internal staff to focus more aggressively on their own business models and transformation. In many cases, the Total Cost of Ownership (TCO) is lower for the customer because of your company’s economies of scale across multiple DaaS customers.
For hardware companies, they may gain additional revenue streams by embedding IoT type functionality to monitor, track, and service the hardware. Depending on how this all is applied, they may be able to sell data analytics, IoT transactions, hosted (cloud) data storage, and even other third-party hardware and products. Add in customer stickiness, with predictable revenue streams, and you have a win-win. Then, roll in the possible tax and financial benefits of carrying the asset value, depreciating those assets, and maintaining much clearer field visibility into the product portfolio, and you have a home run.
For insight on the benefits of DaaS (and other X-as-a-Service) models, and how they “could offer businesses greater flexibility and lower costs, and can free up IT staff to focus on tasks beyond the day-to-day management of devices,” see BizTechMagazine.com below [FN3].
Why Our S/4HANA Solution, and Not Other Market Options?
A company out there claims to have started the subscription economy– probably a lot like how some politicians claim to have invented the Internet. However, that solution offering, and many like it, is incomplete at best and often oversold. Many of these companies claim to manage subscription billing but fail to focus on the difficult parts of the process: complexities around bundling, variable contract negotiations, physical products, data, storage, content items, service agreements, third-party items, DaaS asset processing, usage-based items with different pricing for the overage, and deal-making.
Add into this the finance regulatory requirements around accounting, and you may end up with financial reporting requirements that do not look like your customer-facing agreement (although the top-level finance numbers match). Layer in customer fulfillment with contract changes over time (with pro-rating, cancellation terms, etc.), and you can see this business model transformation is not trivial. Our competitors will not bring up these areas, and many others, because of the inherent weakness of their products.
Our S/4HANA solution includes all of these things and more to free up your organization. Your sales force can also use these tools to experiment with new bundle combinations, new products, new services, and reselling other vendor products or services to completely satisfy customer needs.
Many of Our Competitors’ Weaknesses
Where the competitors may claim support for these complex business models, they generally require a large solution stack with multiple software products, hundreds (or thousands) of effort days of custom development, and high-priced, ongoing solution maintenance. When you need a business model change, you may be stuck with many dozens or even hundreds of effort days in more custom development and regression testing. Their solution “support” for these items generally requires you to buy and integrate other software products and solutions.
To me, this does not seem like a recipe for long-term business model success. Yes, they may have simple, successful product launches, but what about two, three, or five years later? How much effort? How many support staff? How much manual workaround do you need to support more complex and holistic sales and delivery models?
With enough time and money, they can make their solution do just about anything our S/4HANA pre-configured reference solution does natively. How much time and money do you have? How carefully have you structured your contract, so their software “solution” change orders do not crush your business transformation effort? How much complexity will you have to distribute to numerous other systems to make this all work?
Our S/4HANA pre-configured reference solution can transform your business. With our X-as-a-Service reference capabilities, we can satisfy your customers and grow your revenue. Whether your as-a-Service options are devices, software, data, storage, IoT transactions, service contracts, or other combinations of data, hardware, and services, we can help you reach your goals quickly.
Move your salesforce from selling widgets (your own organic products or services) to looking for holistic ways to satisfy customer needs. In satisfying customer needs, you also create strategic customer stickiness. We can also provide you with e-commerce self-service capabilities to automate your processes further. Our solution has significant automation, making it the perfect complement for your business to expand into e-commerce.
For more information, or a demonstration, contact us today!
[FN1] https://www.mckinsey.com/business-functions/strategy-and-corporate-finance/how-we-help-clients/growth-and-innovation (retrieved January 28, 2019).
[FN2] Keizer, G. (2018). FAQ: What the device-as-a-service (DaaS) trend is all about. Computerworld.com Online at https://www.computerworld.com/article/3309062/microsoft-windows/faq-what-the-device-as-a-service-daas-trend-is-all-about.html (retrieved January 28, 2019).
[FN3] Goldstein, P. (2106). The Benefits of Adopting a Device-as-a-Service (DaaS) Model. BizTechMagazine.com at https://biztechmagazine.com/article/2016/08/benefits-adopting-device-service-daas-model (retrieved January 29, 2019).
[FN4] Zarya, V. (2017). 5 Corporate Skunkworks You Should Know About. Fortune Online. http://fortune.com/2017/06/15/corporate-skunkworks-innovation-startups-facebook-oracle-walmart/ (retrieved January 23, 2019).
[FN5] Lockheed Martin. Missions Impossible: The Skunk Works® Story at https://www.lockheedmartin.com/en-us/news/features/history/skunk-works.html (retrieved January 29, 2019).
[FN6] Vitton, J., Butz, N., & Schulte, P. (2017). Organizational Structure as An Engine for Innovation: Discovering Stealth at Lockheed Martin’s Skunk Works. Southeast Case Research Journal, 14. 71-76.
