I just returned from another great TSW conference focused on the long transformations that many companies are currently undergoing. In the below post, I share a few of the key themes from the conference and insights surrounding what much of the TSIA membership base is going through. We can agree with these key themes and circumstances being the “market reality” – we have seen these themes with our clients for years – and now TSIA has the data to prove it.
For those unfamiliar with our partners at TSIA and some of their key members, you can learn more about them here: https://www.tsia.com/why-tsia/our-community/current-members
Key themes of TSW 2019:
The market is forcing companies to undergo a transformation to remain viable and profitable in the new world.
Whether you realize it or not, almost all B2B technology-based companies are transitioning (or considering transitioning) from how they were built to thrive in the Old World, focusing on best-in-class pricing, best-in-class technology, or best-in-class service. In the New World, not only are those things table stakes, but your customers are now forcing you to build offers directly targeted at their needs.
We see it all the time and have been preaching that a customer-focused (customer intimacy) based business model is what it will take to win in the future, and according to the data, the future is now. Adding to the complexity is the market’s appetite not only for new solutions that are targeted at their unique needs, but that those solutions are structured in a way that is easiest for them to consume. Long gone are the days of a large hardware/software purchase tied to the highly profitable long-term service agreements, with which you could create the latest and greatest “version” to drive demand and revenue. Now the market is accustomed to models like “as-a-service” or “consumption-based”. The market wants an all-in package, inclusive of services and don’t want to worry about upgrading things as new features/functions are rolled out. As a result, Customer Success functions are taking off and businesses are being forced to transition the way they are structured and operate, and it is often very different than the old structure and operating model.
The looming (or ongoing) transformation is daunting. Success is dependent on internal alignment, deliberate planning, and most importantly – effective communication.
The data suggests that this transformation could take 5+ years. This requires a significant level of organizational commitment, especially with constantly changing leadership, ever-moving strategic priorities, and dynamic market pressures. As a result, alignment is critical. There is no part of the organization that is insulated from the changes that need to occur and there is no “one-size-fits-all” approach to doing it. You can’t dust off the playbook that someone else used and hope to replicate their results; in the New World, you need to create a plan, centered on where the market needs you to go, and then spend all the time necessary to achieve internal alignment. Directives don’t work here! Too much buy-in is required… Once you have finally agreed on a strategy and a plan for achieving that strategy, communication is critical.
Communication must occur on two fronts:
- To the market, as you prepare them for the financial reality of what the transformation will take;
Since the transformation cannot happen overnight and financial results will temporarily appear to dip when beginning this transformation, a communication plan executed early in the process is essential. Think about it — the cash cow for many of these businesses have been the large purchase and subsequent services contract, but if the business is shifting even a portion of its business to these subscription- or services-based models, it impacts both the total amount of booked and recognizable revenue in the short-term. The business is making a conscious decision to defer revenue now for: 1) de-risking the likelihood of a competitor doing what the market is asking for first; and 2) annuitized contracts that will eventually reduce the cost of sales and improve margins for the business. Not to mention, the additional investment required to make sure you can support these new offerings in the market. There shouldn’t be a surprise that the financial results will temporarily suffer, so don’t make it a surprise – get out in front of it with a plan and begin sharing new metrics of performance as soon as you have them to share.
- With individual clients as you work to ensure you have all the information you need to de-risk an individual deal.
As you move into this model, you are going to have to get good at communicating with clients on the front-end of a deal, before the deal is sold. You are assuming more risk of client outcomes in this new world, so make sure you are taking on a good deal. Whether the new offers are truly “risk-based,” meaning a portion of your revenue is tied to the performance or not, the fact that you are deciding to transition from getting that “big purchase” to getting into a long-term partnership arrangement with your clients means you need them to realize the benefits that were promised to them. Client adoption and utilization of your hardware/software/service is critical. This means that you can no longer throw your product over the fence to the client and wish them the best. Therefore, sales can no longer throw a deal over the fence to delivery and hope they are successful. Sales needs to be proactive in having conversations to understand how the client truly intends to realize the outcomes of your solution(s). Selling these types of solutions tends to be easier because there is far less capital risk (less money out of pocket initially) for a client, but there is still partner risk (are you the best company for me to outsource this critical function to), and having those early conversations with a client is a great way to make them feel better about their potential partner, while also de-risking the deal to you.
These few takeaways grossly underestimate the involvement of a large-scale transformation, but they were the few themes that continued to come up at the conference. Looking forward to the next TSW conference to see how the membership base continues to progress through their transformation and eager to continue working with them and others to help them get there.
Written by: Anthony Paluska
About the Author: Anthony Paluska is a Partner at McMann & Ransford with experience helping organizations overcome commoditization by developing stronger, more intimate, relationships with their customers. He has leveraged his management consulting, problem-solving, and change management skills to support 15+ Fortune 1000 organizations, across a multitude of industries.