How a pay-per-use business model can build resilient operations
By Guneet Bedi, senior vice president of global sales, business development at relayr
The term “digital transformation” means more than just plugging in technologies like IoT or AI to enable predictive maintenance or advanced analytics. True transformation uses digital technologies to make your business more predictable in what can more accurately be described as a business transformation.
This type of transformation can enable you to open new revenue streams and make your business more resilient against disruptions. One way to do this is by switching to an Equipment-as-a-Service (EaaS), or pay-per-use, financial model.
While the ongoing crisis has exposed problems with traditional operations, such as the lack of remote capabilities, many are looking to EaaS to improve the supply-and-demand side of their businesses.
In fact, in a survey we recently conducted 200 senior leaders in the US and German manufacturing industries, 63% of domestic respondents said pay-per-use gave them an advantage.
The benefits of EaaS and how it works
Equipment-as-a-Service is a subscription business model, not unlike software licenses in the SaaS industry. In EaaS, your equipment is provided for a recurring fee with ongoing maintenance, installation, replacements, and other value-added services bundled in.
Compared to a traditional leasing model, EaaS, combined with advanced technology like IoT, is more suitable for demands from today’s customers. It includes a guaranteed availability of the assets thanks to more in-depth data intelligence. The customer enjoys better service and greater flexibility in both payment options by purchasing only what they need.
Meanwhile, your business becomes a more integral part of your customers' processes throughout the machine's lifetime, which is often very long for industrial equipment. By bundling hardware, software, and services into one solution, your organization can benefit from reliable data and insights.
One of the biggest game-changer of EaaS, though, is the shift from offering limiting capital expenditures (CAPEX) to more flexible operating expenses (OPEX).
By providing machinery in an OPEX model, there is no one-off sale or costly upfront investment for the customer. At the same time, you benefit from a more predictable and stable recurring-revenue stream. In fact, according to Bain & Company, not only are long-term operating costs lower for customers, your potential revenue doubles—a win/win scenario.
How to transition to pay-per-use
When businesses embark on change, they're often focused on finding the best technological solution.
Advanced technology has, indeed, enabled innovations we couldn't have imagined even a decade ago. Still, these tools cannot provide value if there's no deeper understanding of how and why you're using them. Even if you have that understanding, any change to how you do business brings a shift in mindset that needs to be carefully considered.
Frankly, emphasizing technology is a sure-fire way to end up in pilot purgatory, or worse, back where you started. This is why a digital business transformation, first and foremost, should be led by business strategy, and not by the technology.
Transitioning to EaaS brings fundamental changes to your entire organization and value-creation chain—from planning and development to manufacturing, marketing and sales. As such, it's paramount to craft a rock-solid strategy aimed at reaping benefits and mitigating risks.
Here are some best practices to get you started:
•Focus on the cultural transformation alongside your business one. What your company needs to do to succeed and compete will look different from others. Do you want to be a bold company, or a cautious, conservative one? Do you have the focus and energy to keep up the momentum? Do you need to know all of the risks before starting? Identifying what this "shift" is early on will set the tone for your entire transformation.
•Get buy-in from the top, but keep all departments informed. The C-suite should drive the transition, but remember, all departments will play a role. Ensure leaders from every department are on board and aligned before embarking on change.
•Listen to and understand what your customers want and their reasonings. In some cases, you might even be leading them to what they need. Either way, you need to fully articulate the "voice of the customer" to demonstrate value.
•Set micro-goals. This may seem a bit obvious, but it's where we see many organizations go wrong. If you're so focused on the BHAG (big hairy audacious goal), you might lose steam or miss points on the journey where you should have pivoted. Instead, focus on learning, improving and celebrating those incremental milestones along the way.
•Find a partner who has done it before. They should understand your desired business outcomes and work closely with you to build the solutions needed to meet those objectives head-on.
The time to start is now
Every manufacturer faces similar concerns amongst a rapidly changing market, where competitive lines are blurring and you're looking to stay relevant when others are offering similar products at a lower price.
Intelligent subscription-based models can be the answer, and they’re more practical and affordable for many companies than ever before. Yet, it's not an easy journey, and for many businesses, the process can take 2-3 years to implement.
To make this model work for you, it takes careful planning and a laser-focus on business strategy, not the technology you use to enable it. Keeping those considerations in mind, those starting down this path today will be better equipped to compete in the future.
