I recently remodeled our family room. If you’ve ever undertaken a home improvement project, you know there are generally a couple approaches people take. One is to jump right in, usually creating a temporarily huge mess, and making change happen from the ground up. The other is a more stair-stepped approach. It might take longer but it’s sometimes a bit easier to live through.
While business transformation is far more complex than family room remodeling, the same lessons apply. There’s business Transformation (capital “T” totally intentional) and then there’s business transformation. While the former is the end goal when moving to a XaaS model, the latter may be where some companies need to head first—usually because the state of their business makes it more prudent to take smaller steps.
When I work with clients, some feel strongly that completely changing their business model all at once is too difficult, too expensive or too risky. Many companies take more of a staged approach where they break the transformation into two smaller distinct steps.
We’ll get to those steps shortly, but I can’t emphasize enough that business leaders need a strategic vision and a five-year plan before they begin. That involves some collective introspection by the C-suite.
In a recent Accenture XaaS Files podcast, Splunk President and CEO, Doug Merritt, describes the questions he asked his team before beginning Splunk’s XaaS transformation: “What kind of resiliency do we have as a business? There are certainly cultural aspects of that but there are also business model elements. Are we subscription-based or do we live and die based on daily or monthly payments and deal terms? Are we focused on being more of a platform, something that’s woven into many other businesses’ economics and success, or are we an organization that’s trying to march up that hill solo, carrying the weight entirely on our own shoulders? And then, culturally, what kind of employee population are we driving? How diverse is it? How effective are those multiple viewpoints in shaping a strategy? And do we actually listen to them and adhere to combined feedback within the company? All of this adds up to: How gritty is our team?”
Doug is very right. While the benefits of XaaS are deep and far-reaching, companies that aren’t born into this model need grit to transform.
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Step one: Set the stage
In Step One, company leaders focus teams on retraining customers to buy their software and services through a subscription model; think moving from Microsoft Office to Office 365. Not only does this increase customers’ comfort level with subscription-based services, it also gets sellers used to these type of deals and the accompanying changes, like how they get paid.
Leaders also institute other changes. It might be a new billing system to support the subscription model. Or maybe the finance team and how they recognize recurring revenue.
Maybe the company sets up a dedicated customer success function. Doug cautions that this is not a panacea, though: “The good news is, there’s really no way to have customer value achievement be only one group’s charter. The customer success manager leads that team, but the value achievement is on everybody. What were customers promised and how is value and ROI delivered? How are our partners actually facilitating that? Is the product and service working the way that it should and is it continuing to be enhanced in a seamless way? Did we market the right messages? Is the legal contract easy to understand and administer?”
All of this is work, but the most difficult and all-encompassing parts of the business transformation are deferred at this point. Most companies take two to three years just to accomplish Step One.
Step two: Scaled, deep change
Step Two is where the really hard work happens. This is where leaders reorganize the way work gets done, create a new cloud-based platform and product, and cut deep into eliminating the old business processes in favor of XaaS.
It’s during this phase that the business should be industrializing and scaling, because Step Two is all about accelerating growth. On average, I see most organizations take three or more years to accomplish Step Two.
Doug talked to me about what was necessary for Splunk to achieve at scale: “To really perform at scale, we had to turn our underlying technology into much more of a platform—a more elegant way to serve thousands, tens of thousands, millions of potential users. We had to make it cloud-based, not only to adhere to the trends we’re seeing in the marketplace around cloud, but more importantly, to give customers and partners that really rapid time-to-value.”
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Know why you’re doing it, be thoughtful on the major drivers and components. Be willing to listen and change.
- Doug Merritt, CEO Splunk
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Be clear and buckle up
This sounds like a huge effort, I know. But I see clients reaping significant business when they transform to XaaS. It’s worth it in the end.
Doug put it well: “Know why you’re doing it, be thoughtful on the major drivers and components. Be willing to listen and change. And then buckle up for a four- to nine-year ride before you really get the traction you want, and the assurance that you’ve gone in the right direction.”
Transformation takes grit, that’s for sure. But there’s usually no payoff without it.
If you’d like more words of wisdom from Doug on how Splunk made the XaaS transformation, check out The XaaS Files episode replay. And for more insights on growth in an XaaS business model, check out this recent Information Week article by Vik Viniak, Accenture’s Electronics and High Tech strategy practice global lead.
I’ll be back with another post soon, sharing insights from another well-known CEO who has made the XaaS trek.