Innovation – for example, to improve efficiency and / or customer experience – is driving…
The fish model & why you don’t actually need to eat it whole !
SERVITIZATION:
I recently read an article which used the fish model to show what OEM’s have to do when adopting new service led models. It is a very simplistic graphic displaying that revenue goes down (or is delayed) and investment costs go up whilst you implement the new business model. Such a graphic could put off manufacturers looking to transition to an “as-a-service” (XaaS) model. XaaS is key right now for many manufacturers who are looking at it as a vehicle for moving to service led IOT and Industry 4.0 offerings in order to gain early adopter competitive advantage, sell more services, improve CX and retention as well as have other potential revenue streams.
Software companies have it easy & are already on desert…..
Rightly the author of the article had pointed out that adoption of new pay per use or subscription models by software companies was infinitely easier than for product led or hardware companies. The rationale being that software costs close to nothing to produce, whereas a piece of hardware has to be funded in some manner. The transition was thus easier, and indeed Microsoft and Adobe are two examples of where this continuing recurring revenue model has benefited them during economic uncertain times such as Covid-19, their revenues as a result of the business model shift now being more predictable and stable.
Eating the fish bit by bit…..
The article in question also points out that you can do this gradually by mixing hardware sales with XaaS sales, thereby not cannibalizing your revenues completely. This then begs the question, how do you select who or which segments get such an offer, and do you risk losing customers to competitors who will offer them XaaS?
Another option proposed was that of setting up an expensive SPV or subsidiary that can purchase the equipment or even front the XaaS offering, however I’m not sure this will help on revenue recognition in all cases.
What they didn’t mention: FINANCING!!!
Something to wash down the fish, a good quality French dry white wine perhaps ?
What the article does omit though is that there is another mitigant……and one that Invigors and the asset financing industry can help with. The simplest way to reduce the impact on revenue recognition is to fund the deals through assignment of receivable type structures. This helps overcome one of the biggest hurdles for product led and revenue focused organisations & OEM’s are thus not restricted to offering XaaS to a limited customer set. Invigors are well placed to assist and advise on the mechanisms of funding and financing structures for organisations transioning to XaaS solutions as well as helping develop the strategy and operationalize XaaS.
Things to ask before dining out at the fish restaurant….
What are the potential upsides in terms of customer value creation, customer retention and higher quality revenue?
What would it take to gain a broad consensus—among executives, board members, investors, sales teams and customers—to embrace this shift across your enterprise?
Do you have all the capabilities and experience to undertake a solo navigation or might it make sense to be accompanied by an experienced guide that has undertaken this XaaS journey many times, helping accelerate the process and avoid some of the potential obstacles and missteps?
Nick Feasey is Head of Practice, Pay per Use & XaaS at Invigors EMEA, part of the Alta Group
Ian Robertson is an Executive Director at Invigors EMEA, part of the Alta Group
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