The evolution to everything as a service: Overcoming obstacles

As legacy B2B hardware and software companies introduce cloud offers, many are evolving into everything as a service (XaaS) solution providers, meaning they’re selling both hardware and software, as well as services, via a subscription model.

This approach has multiple benefits. Providing an end-to-end solution to customers creates more strategic relationships, new revenue opportunities, diverse revenue streams with higher margins, and recurring revenue that’s more reliable and easier to accurately forecast.

But the transformation isn’t easy. With most departments in large tech companies operating in siloes, creating and configuring quotes for an integrated solution may involve a dozen disparate systems and data siloes, and a lot of manual processing, spreadsheets, and emails.

And introducing fixed price, repeatable offers, and streamlined proposal generation, requires a huge culture shift for companies that have historically done mostly custom implementations.

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5 everything as a service challenges

Despite so many “born in the cloud” companies, the industry transition to XaaS is far from complete. According to TSIA’s professional services benchmark survey, the largest percentage of B2B tech revenue is still coming from legacy products.

Get more insight into XaaS trends & best practices HERE.

Incorporating renewable services into an integrated solution offer is logical, as they account for 26% of overall tech revenue, on average. Professional services (implementation, integration, customization, business and process consulting) account for 53% of services revenue, with an average annual growth rate of 31.1%, compared to 23.3% average annual growth rate for technology products.

But in making the transition, tech firms are dealing with five main challenges:

1. Order processing
2. Silos prevent collaboration
3. Billing and revenue recognition
4. Profitability analysis and planning
5. Culture and processes

Let’s take a closer look at the obstacles and how solution providers can overcome them.

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Order processing 

The ability to rapidly and accurately create a quote across hardware, software, and services, is critical. However, for most tech firms, this presents a huge challenge as they don’t have a single tech stack across all these areas.

Services firms expanding into hardware or software are typically light on customer relationship management (CRM) and need better capabilities to create and configure quotes and orders. Companies coming from a product heritage have more sophistication on the order processing side, including CRM, configure price quote (CPQ), and product catalogs, but little is automated, and customer experience falls short.

While products may be straightforward to configure, services are more complicated. To streamline quoting services as part of a bundle, firms are shifting toward more fixed price, repeatable projects.

The move toward fixed price offers should reduce the time it takes to generate a services proposal. On average, it currently takes 31.6 business days—over six weeks.

Fixed-price offers have advantages beyond streamlining the sales process. If companies do a good job capturing best practices and lessons learned on each project and include feedback in project plans, they build consistency each time the project is executed. This speeds output and requires less resources, which will continually improve project margins.

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The silo problem 

Data in legacy tech companies tend to be siloed, but so are processes. This becomes a stumbling block when trying to coordinate delivery activities across multiple product lines and services.

Services may be more complex to coordinate as there are resources (people) involved. It takes an average of 17.7 days to source the talent for a new project, and this timeframe will need to be dramatically cut to streamline order fulfillment for integrated solution orders. Some approaches:

• Service catalogs: Only 23% of organizations said they had adopted service catalogs in TSIA’s 2021 Professional Services Tech Stack Survey, and only 20% were planning on it. Creating a catalog of fixed price, repeatable projects will allow services to be more easily configured and bundled into integrated proposals.
• Expand CPQ to include services: Many TSIA members have reported that the CPQ platform selected for use both internally and to show to customers for e-commerce purchases is very product-centric and doesn’t easily allow the inclusion of services. Collaboration across product and service lines should extend to technology, so appropriate services can be configured as part of a hardware/software bundle, all within the same engine.
• Integrate resource management: Ideally, when a customer accepts a bundled offer, there is integration to the resource management module used by professional services to automatically identify the resources needed for the project and provide a start date.

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Billing and revenue recognition

Companies creating integrated solution offers also need the ability to create accurate invoices and recognize revenue in stages as various components are delivered. Offering detailed billing statements to customers is critical to reduce days sales outstanding (DSO), yet companies tend to bill by department.

If a customer receives separate invoices for software, hardware, and services, it impacts the customer experience by making things harder for them, and gives the impression that your company lacks a single view of the account.

Many legacy companies find that aging ERP and billing systems don’t support subscription billing and are harder to integrate to the multiple systems tracking the delivery of an integrated solution.

For example, 44% of professional services organizations budgeted for billing, invoicing, and collections in 2021-2022, because they needed tighter integration between services automation and billing systems to increase the transparency of project billing to customers.

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Profitability analysis and planning

The ability to accurately forecast demand across a diverse portfolio of products and services, and analyze profit margins on every component, is another big challenge for companies new to integrated solutions.

The ability to constantly adjust pricing and packaging to maximize profits is critical. A detailed understanding of margins across a complex portfolio will also help establish stronger discount policies. TSIA finds that most companies don’t have strict policies on services as they do for about products, even though professional services deals with tight margins.

For example, 47% of XaaS companies say they’re allowed to discount professional services projects as high as 20%, which quickly erodes the average delivery margin of 33%.

Forecasting is critical to understand the revenue pipeline for services as well as resource planning. As companies enter new geographies and verticals and create new products and features that require different expertise, they need forecasting to understand the skills and experience required for consultants three, six, or 12 months down the road.

Considering it takes as average of 48 business days—nearly 12 weeks—for a newly hired consultant to become billable, firms need a lot of lead time to hire and train staff.

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The human factor 

Any transformation has a big impact on employees. They have new roles to learn, new teams to collaborate with, and new technologies to master. Don’t assume employees will immediately support new approaches because they’re told to do so.

One of the biggest challenges legacy companies may have evolving into an integrated solution provider is effectively re-framing culture, policies, and processes.

Here are ways to gain employee buy-in:

• Sell the plan: When the goal is to transform the way the company does business, you must sell the plan internally to employees. Explain the plan clearly and the anticipated business and customer impacts, so that everyone understands that though there may be pain involved in learning new processes and systems, there’s a business benefit, which will positively impact them.
• Identify influencers and involve them: Recognizing team leaders and involving them in the project up front will help overcome barriers to change. Every department has employees who others look to for cues on how to react. These may be longer-term employees or just the most vocal ones. Involve them in requirements gathering, task them with providing detailed explanations of roadmaps, and include them in any demos and pilots. As part of the project team, they’re more likely to be receptive to changes, and their support can easily push a major project toward success.
• Publicize early wins: Becoming an a XaaS solution provider may take 12-18 months or even three to five years. To keep the momentum going, heavily promote early signs of success to energize change-weary employees, and to affirm their support. Customer wins, revenue or margin increases, positive press coverage or Wall Street quotes, must be celebrated.

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As a service transformation: Doing it right 

Here are more best practices to ensure the success of your evolution toward becoming an integrated XaaS solution provider:

• Focus on the basics: At every step, focus on cross-enterprise integration and data integrity, visibility and transparency, agility, and operational efficiency. Moving to XaaS makes it harder to hide problems (think outages), so focusing on the basics is key to long-term success.
• Establish strong partnerships with technology providers: Coordinated planning and shared roadmaps with technology providers maximizes technological agility to operate in dynamic environments. Your vendors have likely been through a similar process internally, and they’re certainly working with other customers starting this journey. Look to them for advice.
• Limit the number of primary technology providers: To provide a seamless customer experience from sales, through delivery, ongoing support, and renewals, eliminate the disparate departmental systems and data siloes and converge toward as few platforms as possible. This will go a long way toward data integrity, and also reduce the complexity and cost of your tech stack. Today, engaging with three to four primary partners seems to be the norm.

Keep in mind, you don’t need to “boil the ocean” and do this transformation all in one year. Create a migration plan and set realistic milestones for a solid foundation that leads to success.