Anyone considering the move to Hardware as a Service (HaaS) understands the necessary transition period where they are exchanging product revenue – usually recognized immediately – to longer contract revenue – recognized over the life of the agreement. While in future blogs, we will discuss the changes that must accompany the selling and delivery of HaaS, this blog will explain how advisory services can help businesses overcome the challenge of the Fish.
Implications of the “Fish of HaaS”
Legacy companies must “swallow” the financial fish1 as they transition to the XaaS business model. Top-line revenue shrinks as revenue from large, pay-up-front deals are replaced with incremental payment plans. Additionally, costs rise in the near-term due to the investment in new capabilities. Over time, however, top-line growth occurs, as does cost reduction due to a rise in efficiency and scale.
Overcoming the Challenge: Organizational Focus and Market Support
There is some good news for companies that feel truly dedicated to the transformation – once all the preliminary work is done – solidifying the offer, structuring to sell, and delivering on the promise of real impact for the customer – the market is very supportive of the strategy. As long as progress is being made and the company is transitioning accounts into the HaaS model, the market usually supports the effort. Developing and maintaining this market support requires clear, ongoing communication. Additionally, the organization’s unrelenting dedication must be maintained to transition the business to the new model; if there is any wavering, the house-of-cards will come crashing down.
What can be done to improve the overall financials during this period?
A strong critical mass Advisory (Professional Services) business focused on customer issues can drive significant revenue. Let me be clear that this is not always the case. If your product is very expensive, and it is the big wheel driving your financials, then leveraging advisory as the financial powerhouse is more challenging. However, in situations where services around the product are the big wheel driving the financials, advisory services can be used effectively to boost revenue and improve the financials during the transition period.
Example 1: Metals business
For example, let’s say you are a metals business and you sell to mid-stream businesses that take your raw products to created finished products that are put into cars, oil, and gas tanks. In this case, it’d be a strong financial decision to move into a situation where you assume a greater part of your customers’ business. This might entail becoming a partner who works on the customer site and drives improved manufacturing through your economic power or your more sophisticated metal technology. A company could leverage advisory services to transform the customer to be able to leverage the new offer. This would increase upfront investment by the customer and drive better and faster outcomes for both companies.
Example 2: Train engine manufacturer
In another example, you sell train engines, and most of your value is derived from long-term service contracts. Your goal could be to move to contracts that pay you based on your impact on the metrics that matter to the railroads – average speed and downtime. That aside, it would be a major undertaking for the railroad companies to embrace and leverage the new HaaS contracts. Large Advisory contracts could be undertaken to make this a reality.
Example 3: Drug distributor/ medical device manufacturer
A final example is in Hospital industry. The product company might provide a product that gets implanted in the patient or this example applies to a drug distributor. In both cases, much can be done to improve the efficacy of product usage. In drugs -assuring the selection of the right drug – price and efficacy can be overtaken by a vendor and in the case of hip, knee or shoulder replacements, the seller could greatly impact the diagnosis, speed to repair, and speed of recovery. In both cases, Advisory would greatly assist the Hospital in making the necessary transition to the improved new way of doing medicine.
Obviously, customers’ real issues and opportunities must be understood to make HaaS real and impactful. But, the addition of Advisory services helps both the product company in increasing upfront revenue and the buyer in making the transition meaningful faster with less risk.
- B. Wood and Thomas E. Lah, Technology-as-a-Service Playbook, https://www.amazon.com/Technology-as-Service-Playbook-Profitable-Subscription-ebook/dp/B01FG3TDA8.
Written by: Dean McMann
About the Author: Dean McMann is a Founding Partner at McMann & Ransford with 35+ years of experience in consulting and professional services. He is a sought-after expert and speaker on topics of: B2B differentiation, professional services best practices, and overcoming commoditization. In addition to his extensive experience in the Professional Services space, Dean also serves on the board of various non-profit organizations.