Digitization and keeping pace with customer expectations
As our everyday life becomes increasingly digitalized, both the products and services that companies offer and the way customers buy, consume, and pay for them are changing dramatically.
Industrial machinery and components (IM&C) manufacturers increasingly recognize that, in order to thrive, they must provide new and attractive offerings. In fact, they need to be more customer-focused and increase their customer lifetime value, which means they can no longer rely on just an initial sale.
In general, there is a shift from moving from products to complete solutions, and providing personalized, digitally enabled solutions composed of a mixture of hardware, software, services, training, and insights. Software is the key differentiator of these solutions. In addition, this is driving a shift from a capital expenditure (CAPEX) to operational expenditure (OPEX) business models.
Subscription-based and pay-for-outcome business models can provide significant benefits to both manufacturers’ customers and manufacturers alike. But these models require manufacturers to have closer relationships with their customers, and have clear understanding of costs and risks for each customer to remain profitable.
Why entitlements matter
This change in business models requires manufacturers to manage a range of customer entitlements. Entitlements can be software specific, such as the right to licenses, downloads, updates, or free trial periods. They can also entitle customers to maintenance and support services, training, and warranties for physical hardware. Entitlements are often wired to unique hardware ID (equipment number).
A typical example would be a bundled offering that includes an equipment, a one-time installation service, an onsite quarterly maintenance, a yearly subscription to software upgrades, a training for a certain number of employees, and access to a knowledge base that has a trial period followed by a monthly fee. In addition, there can be additional entitlements that can be used for enabling features on hardware products, like enabling video analytics.
Often one contract item will have one or many entitlements that need to be tracked and potentially adjusted throughout their life cycles. Many companies have tried to manage entitlements using custom built or highly adapted systems. But these systems have often proved to be inefficient and hard to scale when there are new business needs. As more new business models are introduced, a flexible and adaptable entitlement management system is essential.
An effective entitlement management is critical to create customer value.
Managing entitlements of digitally enabled solutions impacts every part of the value chain – from
Product Development and Engineering, sales, logistics service and delivery. Now there are many different software versions, and complex compatibility information between different software versions and other components of a product. Logistics and service department needs to be clear which version is at which customer need, so the correct upgrades and patches can be provisioned, and the correct service can be provided. Understanding what is at each customer site can help with position additional feature or upgrade selling. Which helps sales due to improved customer intimacy.
There are 2 other key areas, firstly finance has to manage multiple billing approaches and all revenue recognition standards. Also the use of different suppliers and contract manufacturers mean that additional IP is often included in products, customers also install spare parts that are not original, which can invalidate the warranty. Entitlements can help gain visibility and control, through bridging the gap between all these different stakeholders.
Entitlement management challenges
There are unique challenges in how to manage “right to use”, “authorizations”, privilege, access or permissions that are given to customers.
Multiple Lifecycles. Each component of a bundled solution is different and Its own lifecycle after the initial sale. The challenges in managing entitlements is completely different for hardware (pure equipment, machine), software (e.g. firmware, apps), and services. For example, software licenses can be upgraded or re-assigned to other machines. Traditional ERP systems lack this process support.
Flexibility When commercialization departments come up with new offerings or monetization models, companies struggle with flexibility of their current technical systems to implement them. The management of entitlements with proprietary or excel based tools often becomes a business risk. A scalable system is needed to quickly adapt or introduce new offering to the market, and then generate, track and assess the related entitlements and bridge the gap between sales and execution.
Customer intimacy. Subscription based models rely on renewals. Sales and channel partners need a clear view what their customers use and what they are entitled to, so they never miss a renewal, cross-sell or upsell opportunity.
Intellectual Property (IP) compliance and security. Companies strive to eliminate revenue leakage due to unauthorized usage of the solution bundle as well as to facilitate legal audits by having access to all customer entitlements and the full lifecycle history. Protecting digital assets (IP protection) and combating product piracy through effective entitlement management is important when considering contract manufacturing for high-value consumables and spare parts into account.
Harness the power of managing entitlements with SAP
SAP Entitlement Management streamlines and automates entitlement management processes and operations from initial modelling and full lifecycle management to reporting.
SAP Entitlement Management is a native SaaS solution built on SAP Cloud Platform, a modern, public cloud, micro-service architecture. The architecture is extremely flexible and open and designed to address any type of entitlements.
SAP Entitlement Management allows for definition of new entitlements that can be flexibly assigned to different offerings, channel or geolocations. All activities that impact entitlements such as status changes, entitlement changes, returns, and version changes can be defined, along with the rules on how the system behaves while entitlements are created or updated. This includes triggers to other systems for downstream processes, such as provisioning. There are comprehensive reporting and analytics to provide customer insights on entitlements.
SAP Entitlement Management provides out of the box integration with SAP S/4HANA, in addition an API framework to allow integration with almost any system landscape and for self-service scenarios, and includes support for ISO-19700ITAM (Guidelines for asset and entitlement management).
Successfully embracing the business benefits
SAP Entitlement Management provides a high degree of flexibility, agility, and a great user experience. Improving business outcomes for all involved parties.
- Your sales representatives and channel partners have a clear view of what their customers are entitled to, never missing a renewal, cross or upsell opportunity.
- Your commercialization teams can quickly deploy proposed bundles, knowing with certainty that they can track and assess market performance.
- Your IT and license administrators have the tools to deploy, manage and report on any type of entitlement.
- Your customer service reps know exactly what the customer is entitled to, giving them the tools to best assist the customer and engage in any upsell or cross opportunity.
- Your customers are given transparency into their entitlements, will receive entitlement related alerts and reminders, and are restricted from unauthorized usage, which can result in revenue leakage.
- Your suppliers are given transparency into their entitlements, to avoid unauthorized usage and to protect your IP.
- Your business development – Helps IM&C companies to move to a solution provider model to easily integrate subscription and usage-based offerings.
Looking forward to your responses on how manufacturing companies manage entitlements to grow their businesses and attract their customers.
Marion Heidenreich is Senior Solution Manager in SAP’s Industrial Machinery & Components Industry Business Unit, focusing on go-to-market activities and product innovation to drive end-to-end industry solutions.
Marion has 20 years of experience in the software industry, in business development and solution management, working with a variety of customers in the manufacturing industries.