“Can’t we buy this capability As a Service?” A simple question that can open the door to a whole new way of thinking about your business and how you run it. Before you take that step, be sure you’re ready - there may be much more to it than you think. Our expert Peter Allen looks at the new world order of As a Service contracting, what it means for both buyers and sellers, and what it takes to win.
You’re a new world business. There’s a gap between what needs doing and the resources you need to do it … and it’s decision time.
Whether buying or selling, chances are you’ve already encountered the As a Service question. It’s one that’s being asked more and more frequently in the C-suites of companies of all sizes and situations. But, beware, no matter how experienced in services and outsourcing you may be, this step will take you into new and unfamiliar territory.
What does it mean to buy “As a Service?”
Generally speaking, when you buy As a Service you are accessing goods or services on demand; the provider organizes all the supporting elements. When we stay at a hotel, we take for granted that all aspects of the experience – elevator maintenance, linen cleanliness etc - will all be managed together by the hotel chain. Uber provides transportation “As a Service." As a consumer, all you do is request a class of service, and indicate a point of departure and arrival. In the same way, As a Service buyers expect that all aspects of their service experience will be integrated and comprehensively engineered as a complete service, and they will not be expected to knit together its component parts.
Modern businesses built on As a Service components
In the past, when competition was perhaps less intense and requirements more predictable, companies could afford to develop, own, operate, and manage their own businesses with the special sauce of unique capability.
But when economies turned, those companies looked to outsource those capabilities to survive, instead of building and operating them in-house. Similarly, shared services became a popular way to cut costs through standardized tools, processes and cost effective allocation of talent. However, both practices still carry the considerable costs of managing the way those capabilities are structured and operated, and checking the work of the service provider, whether or not that provider has the credentials as an employee.
Fast forward to today, and we have left the days of building bespoke solutions far behind. The impact of digital technologies on consumer thinking and expectations has transformed what companies now consider to be truly differentiating and proprietary – and many are now being constructed and managed entirely on the components of As a Service offerings.
- Companies are now creating Enterprise Services strategies, with lists of viable service providers that are “turnkey” with respect to scope. There are rules of engagement to drive consistency in interfacing across service participants, enforcing data and security standards and ensuring operating resilience.
- Many are also looking to classify their workforce by type of function, and provision business capabilities to those workers based upon their functions. Users receive the class of service appropriate for their roles.
As a Service buyers become sellers too
Increasingly, as business leaders look for As a Service alternatives, they find their customers seeking to do the same. Product companies are finding that their customers want to avoid capital outlay and the ownership obligations associated with buying a discrete product. Many companies are finding their markets shifting in the same way, especially those in product-oriented businesses. And, once proficient in buying As a Service, those companies may soon be thinking about selling/delivering their own products in the same way.
As a Service contracting takes a very different form
In the As a Service economy, the market defines the range of offerings, and associated pricing and commercial contracting takes a very different form, one that challenges the conventional thinking of procurement professionals.
- Services deliver outcomes
- Demand-led services, bundled and integrated
The As a Service buyer-provider interface is governed in a very different manner. Often referred to as a service catalog, bundled components are managed holistically and provisioned in response to demand from a subscriber. This term is used increasingly to describe a different commercial experience, where sources of value are packaged and activated. Sadly, the term service catalog often suggests an interactive ordering scenario when, in reality, it is the service provider’s operating interface.
- Turnkey operations
Services are integrated, comprehensively engineered and ready for immediate use. Lines of demarcation and hand-offs between that service and adjacent functions are clearly defined, logically organized and managed, not left in the lap of the client.
Buyers will want to make sure their service provider is fully committed to a holistic life-cycle of service evolution, and able to offer evidence of their commitment to a particular business segment. That will include their ability to change and adapt to fast-shifting circumstance and market conditions.
All parties must change to meet new demands and expectations
Meeting the new demands and the accompanying expectations of the As a Service economy introduces big demands on the decision-making protocols of corporations, and a need for aligning IT, security/risk, functional and executive leadership across the organization.
For As a Service providers, none of these new demands are trivial to meet. They will need to match the buying interfaces seamlessly across highly complex supply chains, placing a greater burden on the heritage outsourcing industry to step up to the challenges.
For providers there are also significant new challenges and risks:
1. Greater risk-acceptance for service delivery
By its very nature, the shift to As a Service clarifies and intensifies the boundaries of responsibility for the performance of a service. There are fewer dependencies outside the control of the service provider, and as such, the risk profile of the service provider changes in multiple dimensions. In an As a Service arrangement, the provider is expected to have designed its service to be resilient, with full control over the variables that introduce operating and financial risks. Providers’ legal and sales teams must adopt a progressive form of engagement, grounded in the understanding that they are offering a defined service with defined pricing and terms.
2. Higher, unpredictable variability in volumes
As a Service subscribers are members of a free market economy who may choose to opt-in or out of the relationship based upon their own business needs and satisfaction with the contracted service. The service provider’s sales and marketing, service provisioning, decommissioning, and client relationship management skills must all evolve with this new environment. These will be significant challenges for companies that operate in a requirements-driven, structured manner. The winners in the As a Service economy will be market-based in all ways.
3. Much greater focus on end-user experience
If performance is poor, customers will vote to leave and service volumes will decline rapidly. Each service experience will therefore be a test for whether or not the buyer will remain in the relationship. Buyer organizations will be geared towards frequent measurement of satisfaction, and the As a Service economy will offer many alternatives.
Relationships key to confidence and trust
Clients will seek input to the services lifecycle planning processes of their providers, and insist on evidence that investments are made to sustain service excellence over time. Relationships will therefore remain central to confidence-building and trust. New techniques for addressing these relationship-based expectations will emerge, such as through service planning, public reference to subscriber volumes etc.
Courage and conviction needed to win
That we have left the days of building bespoke solutions behind is clear. The provider community is challenged to meet the new demands and expectations, and step up to the plate with a different, more progressive, risk profile for market-based service solutions. Courage and conviction are needed to win.
About the author
With passion for innovation in the commercial business models that enable improvements in how companies organize and operate, Peter Allen & Partners is the premier source of expertise to navigate the shift to the As a Service economy. Peter’s practice, which focuses on the art of marketing, sales and service delivery for value-creation, serves companies seeking to buy/subscribe to business services in ways that promote agility – the ability to flex with the nuances of market changes. Peter describes himself as “an architect of substantial and sustained change through technology-led service models.”
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