3 Ways OEMs Can Help VARs Rethink The Shift From CapEx To OpEx
By Bruce Sherman, Global Lifecycle Management
Everything-as-a-service (XaaS) has disrupted the traditional IT procurement model, opening the doors to more revenue streams for original equipment manufacturers (OEMs). The transition to consumption-based licensing models, which have a slimmer margin profile at the onset, has led many IT OEMs to create new value-add, margin-rich service offerings to support the XaaS model. The industry’s largest technology providers now generate more revenue from services than they do from product sales.
Over the last several years, technology suppliers have set their sights on XaaS, as it continually proves to be a scalable, profitable recurring revenue business. But for traditional OEMs and legacy manufacturers, XaaS presents massive challenges. Born-in-the-cloud suppliers come into the market XaaS-ready, posing a significant threat to established OEMs. XaaS demands that technology suppliers adopt new strategies to implement efficient, scalable, and profitable service offerings. Legacy OEMs can improve their XaaS offerings at scale by adopting a two-prong approach, with changes to culture and skillsets.
Culture: Enhance XaaS Success With Product Management
Product management teams lead the charge into XaaS and will be paramount to the success of a customer-led innovation focus going forward. As OEMs become more services-driven, they must rethink and reinvent their strategies to meet changing customer needs. By focusing on the end-to-end customer experience, product management becomes deeply involved in developing XaaS-focused innovation strategies coupled with consumption-based pricing and professional services[2]. However, despite the importance of product management, only 46 percent of XaaS companies have placed the chief product officer as a direct report to the CEO or business unit general manager, versus 76 percent of software-as-a-service companies2.
The cultural focus of the company must, therefore, shift away from creating “the next greatest tech” to enhancing “customer outcome delivery.” Modern customers adopt solutions based on the value those solutions create and delivering XaaS at scale is about value. Current product management strategies focus on creating value through product and service offerings, realizing value through effective marketing and capturing value through sales. By shifting the focus of the product management team to lead the company into customer experience-driven, services-based delivery, the OEM can achieve the profitable services-based business that XaaS offers.
The challenge with cultural shifts typically involves resource management. OEMs can’t stop supporting legacy customers while shifting resources to build out product management teams in support of XaaS. Some OEMs have looked to managed service providers, integrators, channel partners, or value-added resellers (VARs) with augmented and/or complementary services to maintain existing contracts. But these partner businesses may be in the process of evolving their strategies, too, which means they may lack the resources necessary to keep up with OEM demands.
An often-overlooked strategy is a partnership with a certified services provider to help OEMs and their channel sales partners fill coverage gaps. Through partnership, OEMs can streamline their transition from a legacy product supplier into an enterprise-scale, profitable XaaS portfolio. Partnering with a services provider also helps OEMs sustain existing revenue without creating channel conflicts, as well as provide services to their VAR community.
Skill Set: Learn The Language Of XaaS
Many OEMs are faced with the challenge of upskilling existing teams or otherwise reassess them to align with the transition to a services-based business model. It’s been estimated that 54 percent of all employees will require significant reskilling by 2022[3], which may translate into a burden of cost and time for many employers. This skills gap is one of the most challenging aspects of the XaaS shift. Business leaders in every consumption technology sector — including equipment manufacturing — struggle with maintaining a competently skilled, billable staff while riding wave after wave of technology disruption.
Without adequate training, OEMs often end up turning away possible revenue from net-new service-based accounts to protect their brand reputation. To fully capitalize on XaaS, OEMs and their partners need to speak a common language. Training and upskilling internal teams help employees master foundational, next-generation XaaS skills, including designing outcome-focused offerings, services portfolio management, and key metrics that indicate consumption model sales success. From there, OEMs can educate their VAR communities on XaaS offerings through unleveled marketing and sales tools.
For evolving OEMs, there is a delicate balance between upskilling to increase services-based volume and sustaining the satisfaction of the legacy customer base during the migration to XaaS. By partnering with a team of certified service delivery experts, OEMs can maintain customer satisfaction across existing accounts while evolving business practices and team skillsets. As net-new XaaS customers come on board, internal teams can seamlessly turn those accounts over to their partner teams for ongoing services fulfillment.
The demand for XaaS requires OEMs to rethink not only their business model but also their culture and employee skillsets. Companies that have already made the shift understand the benefits. Whether the goal is business optimization, increased revenue, modernization to keep up with the competition, or a combination of the three, XaaS is a proven path to success in today’s IT landscape.
About The Author
Bruce Sherman is a segment leader at Tech Data Global Lifecycle Management.