Over the last decade many High Tech companies have changed their business model from selling products to selling solutions. Back in 2015 I wrote a blog on Solution Business – Advantages of a New Business Model where I touched on the benefits and challenges of becoming a Solution Business. At that time a few High Tech companies had changed their business model in order to offer complete solutions that include hardware, software and services to their customers. I featured companies like EMC, Lexmark, IBM, Varian Medical and VMware who shared their experiences in short videos. Companies, who successfully changed, found that offering a solution instead of just a product increased their margin, increased their share of wallet, increased customer loyalty and helped them fend of competitors.
Now, only two years on, an increasing number of High Tech companies are trying to become a player in the “Outcome-based economy”. The main difference compared to the solution business model is to provide a measurable outcome that is important to their customers instead of selling a product or a solution to them. Dave Carlisle, CTO at HPE, joined me recently on a radio show to discuss the Future of Manufacturing in the Outcome-Based Economy
What distinguishes an outcome from a solution and does the difference require a change in business model?
The outcome-based economy is enabled by digital technologies including sensors, a near unlimited bandwidth to communicate huge amounts of data, and big data & analytics to make sense of all those data. Adding sensors to products that allow collection of data about the products’ usage as well as controlling them via the Internet of Things (IoT) is only the first step. Combining that with advanced analytics on huge amounts of data to get insight into the outcomes that these products provide is the second step. To succeed in the outcome-based economy and consistently provide the desired outcomes for their customers, it is necessary that High Tech companies take a third step and build an extended ecosystem of business partners and customers.
Only this ecosystem of suppliers, including co-opetitors (competitors who also co-operate), software developers, start-ups and other innovators can consistently achieve the desired outcomes for the customers. In order to enable all partners to collaborate on the outcome, a platform has to be provided that connects and aligns all partners. The platform can collect and analyze data from all participants – including customers – and ensure that outcome commitments are met.
As High Tech companies move from products to outcomes, the power of software becomes apparent. Coupled with the speed and scale of the internet as well as extensive ecosystems it enables the outcome-based economy and disrupts existing industries. Because of the rising importance of software, analytics & big data and platforms, High Tech companies who want to stay competitive need to expand their capabilities and ecosystems in these areas to compete in the outcome-based economy.
In summary: Moving into the outcome-based economy is a gradual process.
Many High Tech companies have just recently moved into the Solution Business. They often offer subscriptions to solutions and let their customers pay per usage. Becoming an outcome provider requires a different business model – one where customers can pay for the outcome. As High Tech companies realize this, they are increasingly acquiring, building and joining the platforms and ecosystems that are needed for the outcome-based economy. Is your High Tech company ready? Do you have a strategy in place to master all the technological challenges around sensors and smart devices, big data and analytics, the Internet of Things, platforms and ecosystems?
One way to find the answers is to sign up today for this year’s transformational SAPPHIRE NOW + ASUG Annual Conference, May 16–18 in Orlando. See full session catalog here and start building your own agenda for the outcome-based economy.