Everything-as-a-service Operating Models - Deloitte

Everything-as-a-service operating modelsWhat are the operating model considerations to support aneverything-as-a-service business?

XaaS operating modelCompanies may need to evaluate and update theiroperating model for delivering everything-as-aservice (XaaS) offerings to customersMany technology, media, andtelecommunications (TMT) companiesare shifting some or all of theirproducts or services to ones thatcan be consumed and paid forbased on usage. This changeintroduces additional complexityto operations, processes, andorganizational structure, yet at thesame time demands both agility andtremendous flexibility.focused on a deep understandingof customer needs and deliveringvalue to the customer at each stagein the customer lifecycle. This is verydifferent from the product-first focusof many existing operating models.Complicating matters is the fact thatsome companies find they need tomaintain their existing on-premisemodels even as they transition toflexible, cloud-based service offerings.To make a successful transition,companies will need to not onlyevaluate their strategies, businessmodel, and capabilities, but alsotake a hard look at their existingoperating model. Chances are theywill need to make some significantchanges. For example, flexibleconsumption, or XaaS operatingmodels are increasinglyBut what exactly do we mean whenwe say “operating model?” Our viewis that an operating model is madeup of two components: a set ofbusiness capabilities and a structurefor organizing them to optimallydeliver a company’s offerings to themarketplace. For example, a shift tosubscription, or pay-per-use offeringsmay require companies to acquire or2change many capabilities, includingoffer management and pricing,customer success management,billing and revenue recognition,marketing and sales, contractcompliance, and taxation. But that’sonly half the story. They also need tounderstand the optimal structure fororganizing these capabilities—so thatthe right work is executed in the rightway and in the right place.Making the shift to everything-as-a-serviceEvery day brings new ideas and possibilities to theTechnology, Media, and Telecommunications sectors.Everything-as-a-service (XaaS) model transformationallows customers the flexibility to consume and payper-use, but transitioning is complicated andchallenging.

XaaS operating modelsKey considerationsWhat category of capabilitiesare most important fordelivering your new offerings?Where should key capabilities residewithin the organization and howshould they be deployed?What is your appetite forchange as you move to anew operating model?Successful transformations rely ona company’s ability to identify thecapabilities that will differentiateits business and drive competitiveadvantage, while shoring upfoundational capabilities to support theoverall business strategy.There are a range of ways to organize andallocate ownership of capabilities. A best-fitoperating structure will optimize the level ofcontrol and alignment across the company,while accommodating the need for flexibilityand customization.Some companies want to movequickly into XaaS offerings, whileothers may want to retain someof their legacy products.3

What category of capabilities is mostimportant for delivering your new offerings?Each company’s set of prioritized capabilitieswill vary based on its XaaS aspirations andits current state. Start with determiningwhat capabilities will be necessary tosupport XaaS offerings in your desiredfuture state. Then determine the currentmaturity of these capabilities compared withthe how mature they will need to be in thedesired future state.3. Foundational: Approximately 70 percentof capabilities is necessary to run an XaaSbusiness model efficiently. Identifying“must have” capabilities leads to greaterefficiency and a consistent customer,partner, and employee experience.However, don’t over-invest instead striveto streamline these capabilities.We’ve seen most companies succeed whenthey leverage a 10/20/70 approach.Capabilities fall into three categories:Successful transformations focus onthe capabilities that will differentiate thebusiness and drive competitive advantage,while shoring up foundational capabilitiesto support the strategy. For example, ifyou are a customer-centric company,your foundational capabilities might besegmentation and customer enablement,but your true differentiator may bepersonalization (e.g., online experience,customer-specific pricing). Alternatively, if youare a platform-driven company, you will needstrong collaboration and asset managementfunctions, but partner enablement may beyour true differentiator. If you are a dataenabled enterprise, capabilities for data1. Innovative: Approximately 10 percentof capabilities should be innovativeand leading edge. The goal for thesecapabilities is to be best in classso that you can carve out a uniqueand differentiated positioning in themarketplace.2. Competitive: Approximately 20 percentof capabilities should be strategic.Optimizing these should drive competitiveadvantage.4capture, security, and reporting are required,but analytics might be what truly sets youapart.Offerings will need to be configured andpriced based on new service businessmodels and monetized based on valuedelivered to the customer.

Where should key capabilities reside within theorganization and how should they be deployed?The next thing to agree on is where the workshould be executed—in other words, whichoperating structure best supports thesecapabilities.For each capability ask, “Where is thiscapability best delivered?” Here you willneed to consider the level of customizationrequired, the degree of proximity thecapability has to the customer or businesspartners, and the costs associated withexecuting the capabilities. Complexcapabilities which require customer inputtend to be more effective when executedin close proximity to the customer in adecentralized manner (e.g., configuration ofofferings into a solution, customizing dealstructure for specific customer needs). Onthe other hand, standard capabilities thatare highly transactional tend to be moreefficient when executed in a centralizedmanner (e.g., transaction processing, salescommission calculation) and are candidatesto be centralized. Once you have configuredcapabilities, choose which capabilities willreside in which functions, geographies, andbusiness units.5For example, software developers focusedon an industry-agnostic platform productmay be centralized in order to pool platformexpertise and enhance collaboration.Meanwhile, the developers tasked withbuilding the software applications that runon the platform might be decentralized toalign with industry verticals. This way theyhave better access to deep knowledge aboutcustomer needs and can build more relevantsoftware solutions.The customer success function also offersanother example of how companies takedifferent approaches to organizing anddeploying XaaS capabilities. Companies needto decide how to organize traditionalaccount management, renewal, andcustomer support activities, along with newcapabilities that focus on cross selling andupselling. As companies consider how tobest support this critical capability, someplace it on sales, others in renewals, stillothers set up an entirely new separatefunction.With recurring revenue models, thefocus shifts from reactive serviceand support to proactive customersuccess management. Metricsand analytics will be central tounderstanding customer health, andcompanies will need to enhance postsales capabilities to drive adoption,retention, and maximize cross-sell orupsell opportunities.

Where should key capabilities reside within theorganization and how should they be deployed? Centralized: In a centralized model, skillsand initiatives are consolidated into acentral unit, increasing efficiency andprioritizing an XaaS model across theorganization. While the benefit is greater Tactical: This is where organizationscoordination and alignment,generally start or end up defaulting to.implementation can be challenging, as thisIn this model, capabilities reside withinrequires aligning all business units with thebusiness units that are experimenting withfuture state of the XaaS model. In thisan XaaS model. However, organizationalmodel, a single individual is calling the shotschanges and investments required for XaaSand orchestrating flexible consumptionmodels are made in isolation, with limitedefforts across all business units.coordination across the organization. Business as usual: While business as Federated: In a federated operatingusual (BAU) may be the desired end statemodel, a consumption-based strategy isfor companies undergoing an XaaScommunicated across the company, andbusiness model transformation, in realityrelated capabilities are in place acrossvery few companies (if any) are currentlybusiness units with additional support fromhere. In this model, culture, processes,IT. There is a common set of tools, but nobusiness models, and technology related tooverall governance. This model requiresflexible consumption are fully embedded inmultiple strong leaders who can set thedaily life across the organization. BAU reliesvision for an XaaS model in each of theiron strong governance and alignment ofbusiness units independently.vision. This model is typically seen inAs you consider changes to your operatingmodel, configuration decisions combinedacross capabilities typically lead to one of thefollowing four archetypes:6startup companies that began with XaaSbusiness models. It is much harder formore-established businesses to achievewithout a complete overhaul of theiroperating model.

What is your appetite for change as youmove to a new operating model?Not every company can jump feet first into anXaaS model—commercial intensity does notequate to product readiness. For example,sales and management may want to sellflexible offerings, but the company itself maynot have all of its capabilities configured in away that enables it to do so. If yourcapabilities are not at the level required toaccommodate your chosen business model,your roadmap will need to account for thiswith a phased approach. For example, animportant question for companies as theyplan their transition roadmap is whether—and how long—they deliver XaaS offeringsusing their legacy operating model. This willhelp determine how quickly they shouldundertake an operating modeltransformation.7There is no one size fits all—operatingmodels vary widely depending on anorganization’s strategy, capabilities, andfuture vision. Nevertheless, by designinga robust operating model, you will bebetter equipped to make downstreamimplementation decisions, including thoseimpacting organizational design, rules ofengagement, and technology platforms.Sales force and partners willrequire a different set ofincentives that accommodatesmaller upfront revenuestreams and increase focus ongrowing customer consumptionof offerings.