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Vectors for high tech growth and innovation
Reinvention in high tech
3-MINUTE READ
April 18, 2024
In my last blog post, I discussed how market disruptions pose a challenge to the high tech industry and established the case for high tech companies to reinvent themselves to succeed. In this blog, I'll explore a key opportunity for high tech companies to innovate and grow: the pivot to subscription-based revenue, through bundled device + service + software offerings.
This business model drives greater connection to and understanding of customers, creates recurring revenue streams and offers customers tailored solutions that meet their specific needs and budget.
I will also address the most common challenge that high tech companies encounter when scaling these bundled service offerings: the need to reorient their business models around this strategic shift. To truly reinvent for growth, high tech companies must reimagine their end-to-end business, including their digital core (enabling technology landscape), sales and customer service approach, product innovation pipeline, performance metrics and reporting, operating model, and their employee capabilities.
31%
of high tech executives are in the process of reimagining the sales effort with manual back-end processes to support as-a-Service business model & Go to market strategy
46%
of high tech executives indicated that their aaS go-to-market approach is aligned to their operating model model and capabilities.
Capitalize on the pivot to subscription revenue
Historically, the core business of high tech companies was in manufacturing technology products. In recent years, as device sales have slowed, I have increasingly discussed with my clients the importance of pivoting to subscription revenue to create new vectors for growth without losing their core competency.
Businesses and consumers increasingly are looking for easy-to-buy, easy-to-consume solutions. They no longer want to make the upfront investment of purchasing a product outright, nor do they want the ongoing responsibility of maintenance and upgrades. Instead, they prefer the flexibility of a subscription-based bundled product + platform + service, commonly called “as a Service”. Pivoting to these offerings is crucial for high tech growth as it creates a recurring revenue stream while driving increased customer engagement.
Why is pivoting to bundled products + platform + service so appealing?
There are 6 primary benefits high tech companies experience when offering a bundled product:
The top 6 reasons for aas implementation
1
Operational efficiency
Service consumers achieve a shift from high CapEx to more predictable OpEx + predictable recurring and renewable revenue streams.
2
Flexibility & agility
Scale capacity, operations and adjust cost based on demand by purchasing solutions that fit a need instead of developing in-house capabilities.
3
Breaking down barriers to innovation
AaS offers the availability of analytics and manufacturing tools by removing expensive capital equipment investment.
4
Greater share of wallet
AaS companies benefit from capturing greater share of wallet by providing maintenance, spare parts, peripherals, data analytics services and upgrades.
5
Recurring revenue stream
AaS enables manufacturers to provide components every month or every year, removing the lack of predictability to help derisk a company’s top line.
6
Enhance cross sell/upsell of services
AaS model offers valuable data that can be used to meaningfully service clients in the future.
We’ve noticed that companies that use the subscription revenue model experience better customer engagement, because they create dynamic, seamless experiences through product updates, support, and new features. This direct, continuous contact helps build loyalty and enables cross-selling and up-selling opportunities for high tech companies.
Dell Technologies was at the forefront on this when they introduced Dell Technologies on Demand, a set of consumption-based, aaS offerings. Dell delivers IT solutions with the agility of the cloud while providing customers the control, performance, and predictability of on-premises infrastructure. It allows Dell customers to more effectively budget, switch from CAPEX to OPEX, and pay for technology & services only as needed. Services are optimized and adjusted to balance customer’s financial and technology objectives.
Scaling new business models: Challenges & opportunities
The opportunities presented by pivoting to a subscription revenue model are significant, but the path to scale them is not without challenges. In order to shift to a bundled product + platform + service revenue model and scale it across the enterprise, companies must also reinvent the way their business operates.
Subscription based models
How to adapt business processes to shift to new business models
To meet customer expectations, enhance or build digital solutions to adapt to increased customer engagement coming from subscription models and optimize cross-sell and up-sell opportunities through tools like AI assistants.
The data used to determine pricing and margins for bundled services can be complex and high tech companies may need to refine their end-to-end pricing, data and reporting process to drive profitability.
The shift to incorporate platform engineering (hardware + software) into product offerings requires a different type of employee skillset and necessitates integration of separate engineering approaches.
To sell bundled service models, knowledge of how products, services and software will work together to meet client needs and reexamining compensation models and skillsets for the salesforce to incentivize and enable the new business models required.
To enable these bundled solutions, systems and data must be more integrated, adaptive, and responsive than ever; many high tech companies are burdened with legacy systems that they must address to enable these growth models.
Main roadblocks to transition to aaS
36%
of high tech executives stated potential latency and performance issues in the digital core
33%
of high tech executives stated compatibility challenges with existing systems
Up next
By exploring new vectors for growth like bundled product + service + software, high tech companies will be expanding industry boundaries as they reinvent themselves. In my next blog, we will continue exploring ways to enable new stages of growth via expanding industry boundaries, including how to operationalize it to drive reinvention in high tech.
In my next blog I will more deeply explore ways that high tech companies must reinvent the ways they operate by creating and delivering winning customer experiences, leverage partnerships to expand industry boundaries, and build a digital core and workforce of the future to enable this growth. The possibilities are exciting for high tech companies, should they take the bold moves needed to grow!