Innovative Business Models, CLARITY

Service Customization, Servitization, and Outcome-based Business Models

The changing world of industrial manufacturing puts a constant strain on manufacturers, forcing them to create new, effective ways to adapt to innovations. With every passing day, customers expect higher value from the products and services they get. For higher revenue and profit growth as well as greater consumer loyalty, top industrial manufacturing companies are investing in advanced service-based models, including subscription and outcome-based models. Now they are offering not only products of outstanding quality but also unique value to consumers. It is reflected in the growing business trend of using everything-as-a-service (XaaS) business models.

More and more businesses are trying to keep up, and the companies that were originally selling only products or the most basic services on top of physical assets are now selling a mix of physical assets, services (both physical and digital), and software on a subscription basis with fixed or floating payments based on usage and/or outcome/performance guarantees. Companies are bundling different types of services to become holistic providers.

Servitization, subscription, and outcome-based models – the terms associated with advanced-service models – point to the rising trend of companies adopting XaaS models.

Manufacturing parameters are available for service processes.

For customers and end-users, entry costs associated with purchasing and managing expensive software and hardware are reduced allowing to pay-per-use. This frees up capital that can be invested in other areas of the business. Additionally, businesses can pay for services on a subscription-based model, which can help to even out cash flow.

Distribution of product-use information for production planning.

After embedding usage-based technologies, manufacturers can improve the production chain by producing the exact amount of finished materials for a certain period of time and, in this way, organize and optimize the distribution chain. It helps companies determine how much product to produce, how much inventory to maintain, and how to allocate resources efficiently. It also helps them identify potential problems and develop strategies to address them.

SAP Subscription Billing (SAP SB) accelerates time to market.

Manufacturers, who are looking for ways to launch subscription-based business models, want to get to market quickly, making few changes to existing processes and with the minimum impact on their current backend. SAP SB, being an essential component of a comprehensive subscription-based model solution, is committed to assisting them with a smooth and easy transition. It can be quickly integrated with the existing backend and be of great assistance in managing subscription-based products, services, and pricing models. The solution helps companies synchronize complex sales and revenue management processes all within one solution.

SAP SB capabilities include:

  • Define subscription-based (digital) products.
  • Manage your subscriptions components.
  • Control subscriptions throughout their lifecycle.
  • Generate subscription billing data: one-time, recurring, and consumption charges.

The transition to a subscription-based model can test manufacturers’ abilities to adapt and experiment. How to decide what to choose: a pay-per-use or recurring subscription model, or a combination of them? Some companies, who are not sure if fully migrating to subscription-based model would be beneficial for them, can test it out with existing customers by offering them more services. After getting their feedback manufacturers can analyze whether they are bringing more value to the customers with this approach. Luckily, the technology allows you to quickly change your strategy on the fly.

SAP Billing and Revenue Innovation Management (SAP BRIM) boosts the transparency of revenue management.

SAP BRIM makes the entire revenue management process more transparent with scalable, flexible, and highly automated software for billing, invoicing, and revenue management. It also allows companies to integrate with third-party systems, such as ERP or CRM systems, to ensure data accuracy across the entire system.

The XaaS business model brings the following benefits for manufacturers:

  • Subscription-based models increase business resilience by providing predictable and consistent revenue. Furthermore, subscription-based models assist businesses in better forecasting their income, allowing them to plan better for not only financial resilience but also operational and strategic resilience.
  • Using product usage analytics, you can gain a deeper understanding of how your products are being used. By tracking user behavior over time, you can easily identify trends in customer behavior and their preferences and then work on tailored services to improve usage.
  • Сustomer loyalty grows as you constantly monitor customer satisfaction, add additional value, and focus on providing the best possible outcome for the customer.

The Bottom Line

The XaaS model has become increasingly popular among manufacturing industries due to its ability to provide organizations with cost savings, scalability, and improved customer experience. Customers can access the latest technologies and applications on a pay-as-you-go basis with reduced entry costs, which allows them to remain competitive in the ever-changing business landscape. You will see how it can transform your business if you adopt the XaaS model.