Software Licensing Featured Articles

How Can High Tech Generate More Service Revenues?

By TMCnet Special Guest
Christian Kelly, Managing Director for Accenture's Strategy Group

Many high tech companies, such as aerospace, medical equipment and software manufacturers, are looking for ways to grow their businesses. Growth may be attainable by managing their information technology in new ways.

In today's digital business arena, however, these companies can face challenges. One is keeping pace with rapidly changing information technologies and associated business dynamics. Accenture (News - Alert) and industry research suggests, for example, that these companies could be losing an estimated $100 billion in annual revenues due to non-compliance with software subscription licenses, lost software subscription renewals, and unintended software giveaways.

New way of doing business

To avoid these challenges going forward -- and grow their businesses overall – companies might consider focusing more on selling hardware, software and services on a “pay as you go” subscription basis. For example, an airplane engine manufacturer could sell a subscription to an airline to use the plane for a certain number of hours rather than pay to buy the engine, which would cost them more. Similarly, a manufacturer of x-ray machines could sell to a hospital a subscription for the hospital to use the machine for a set number of hours instead of paying more to own the machine. Or a company that produces software as its core business could sell more of its products to customers by subscription.

This subscription-focused business is one of several “everything as a service” models high tech firms could embrace to grow their businesses. Leveraging cloud computing, everything as a service is about delivering a range of products, such as software, infrastructure, storage and desktop PCs, on a service basis.

By providing customers with subscription services, for example, high tech companies improve the buying experience of customers because they can continuously evaluate the hardware, software or service. Experiences customers have using these become paramount. High tech companies could investigate how this new model supports business strategies, increases their chances of possessing the underlying capability blueprint to support new subscription models, and affects their operations.

To help sell these services, companies may want to establish more direct and consistent contact with their customers. By doing so, they could augment sales efforts of front-office personnel such as sales and marketing teams. Back office employees, for example, would be able to enhance their customer communication skills to improve the customer experience. Structurally, IT development and operations may benefit from a sharper focus on developing products, managing and providing product lifecycles, and deploying services.

Functional integration may also be beneficial. Using applied analytics and customer insights, high tech companies may want to integrate portfolios, innovate ecosystems and operations, and manage pricing, contracting, billing, finances, services, and support processes. This model, flowing from IT, to sales, to marketing, to research and development, to products, to finance, offers a blueprint for the digital economy that can facilitate:

• new business and operating models;
• customer engagement with meaningful and unique experiences;
• connected devices;
• digital manufacturing;
• sales transformation;
• digital products in the extended enterprise; and
• analytics-based operations.

Underpinning all of this would be embedded security and a cloud computing infrastructure.

Renewals, entitlements and billing

To make this new business model successful, companies may want to integrate and refine three subscription business services: renewals, entitlements and billing.

Renewals

Subscription renewal revenues are important because they often enable a high tech company to generate incremental annual subscription revenues that account for most of their profits. It should be relatively easy for customers to execute renewals. Because there are numerous opportunities for cross- and up-selling renewals, a company’s best sales people might be well suited to get involved in this process. When selling renewals, companies could use analytics to segment and target customer renewals based on software usage. By improving renewals, these companies can:

• reduce revenue leakage;
• increase existing customer spending;
• improve sales delivery;
• decrease operating expenses; and
• lower sales costs.

Entitlements

Building on renewal improvements, companies could improve efficiencies of entitlement programs. These programs enable companies to verify which customers are eligible for subscriptions or sales support and determine what services they should receive. Subscription business services based on entitlements can:

• increase revenue assurance;
• reduce billing errors and improve customer satisfaction; and
• decrease costs by converting customers to other billing channels.

Billing

In the billing arena, subscription business services can lead to higher software license sales, increased customer satisfaction, improved support profitability, and higher renewals. To maximize their billing effectiveness, companies may want to ask their customers: “Is your billing capability effective at supporting renewals and unified billing as well as leveraging analytics to resolve billing inquiries?”; and “Do you have advanced analytics and reporting in place for customer segmentation, pricing and cross- and up-selling?”

Final thoughts

Companies may find it useful to consider that products and services are typically no longer sold – they are experienced. From the outset, integrated, end-to-end business processes need to be designed to meet revenues targets. Ultimately, high tech companies may want to be more open to providing customers with what they really want: not more products or services, but more meaningful outcomes.

Christian Kelly, a Managing Director for Accenture’s Strategy Group, focuses on the communications, media and technology markets. He can be reached at [email protected].