Impact of Pay per Use on the hybrid cloud (SAP) architecture
Shifting from selling products to selling ‘Pay per Use’ solution bundles or Outcome-Based Contracts (OBCs) is one of the most popular ways to innovate servitization business models. With servitization, the company is paid not according to its product or service, but based on the business outcome which customer achieves by using the company’s product or service.
The servitization business model innovation shift to OBC may increase companies recurring revenue streams up to 20-30% , also due to the increased ability to offer advanced services like Artificial Intelligence (AI) SAAS (Software As A Service) cloud subscription license models.
Together with customers the complex value proposition of the solution bundle offerings should be defined and the appropriate value capturing (billing) and long term profit model is negotiated before signing the contract.
Delivering on ‘Pay per Use’ and OBC is challenging and requires companies to improve their collaboration with their customers and change their (SAP) cloud solution architecture to support a subscription billing licensing model into their software monetization strategy to maximize revenue generation.
The Hybrid SAP BRIM architecture
The implementation of ‘Pay per Use’ and OBC business processes require additional (SAP) value capturing and subscription billing software capabilities. SAP has combined all these capabilities within SAP BRIM (Billing and Revenue Innovation Management) product suite. The BRIM suite has 2 subscription billing solutions; 1. Subscription billing in the cloud. 2. S/4 HANA Subscription billing.
The Hybrid BRIM architecture for subscription billing in the SAP cloud
The following picture gives an overview of subscription Billing in the cloud capabilities with the integration with S/4 HANA which can implement some Pay per Use solution bundles;
The solution order cloud application enables new business models by selling physical goods, one-time service, long running services such as contracts, projects and subscription of product or services. The solution order dashboard (from 2108) includes solution order profitability analysis.
The SAP BTP cloud applications like subscription billing with data usage recording and SAP entitlement management with e.g. license usage recording will support the servitization business models. The SAP CPI cloud application will support the cloud integrations.
The Hybrid BRIM for subscription billing in S/4 HANA
The following picture gives an overview of the S/4 HANA subscription Billing, which can implement OBC solution bundles;
The BRIM solution within S/4 HANA comprises the following components:
- Subscription order management (generation of fees for periodic usage of rights & consumption of actual measurable usage)
- Convergent Mediation by digital route (consolidation of IoT metrics from multiple sources)
- Convergent Charging (flexible calculation & rating engine for recurring, one-time, and usage-based charges)
- SAP Convergent Invoicing (consolidation of multiple invoices and revenue sharing with partners)
- Contract Accounts Receivable and Payable (FI-CA subledger) (taxation, tax calculations according to country-specific accounting principles)
- SAP Revenue Accounting and Reporting (RAR) (manage revenue and income recognition cycles in compliance with various accounting policies)
- SAP entitlement Management (manages the entitlement lifecycle (e.g. software licenses))
The BRIM product suite is an flexible integrated hybrid combination of on-premises (e.g. S/4 HANA) and cloud applications (e.g. SAP entitlement management). This will require additional focus on IT Service Management (SAP SSM or Cloud ALM) in order to keep the consistency within the hybrid SAP cloud architecture.
The Hybrid SAP industry cloud architecture
Industry 4.Now is crucial to the SAP industry cloud strategy. Many industries have been seeking greater coordination between the shop floor and the top floor. With Industry 4.Now and the SAP industry cloud, SAP customers can transform their manufacturing operations, leading to more intelligent sales forecast, factories and assets that will provide faster and more accurate insights.
SAP’s industry cloud delivers innovative, vertical solutions from SAP and partners. These solutions are built on the SAP Business Technology Platform with an open-API framework, open-process model, open-domain model, and business services. This helps to ensure interoperability, rapid deployment, and integration with the SAP Intelligent Suite. AI, ML, IoT, and other advanced technologies from the SAP BTP platform are available to developers to accelerate innovation.
To date, SAP has announced seven industries that are currently live in its SAP industry clouds; automotive, consumer products, engineering and construction operations, industrial machinery and components, professional services, retail, and utilities. As part of the SAP IS-Utilities industry solution, the BRIM solution suite has been focussing on the high volume business model to handle massive amounts of meter readings.
SAP IS-U was built for the traditional commodity, consumption-based business model. SAP Cloud for Utilities is specifically designed for multi-service offerings and, as a SaaS solution, will focus on leaner hybrid processes. Key idea behind SAP Cloud for utilities is that customers will be able to pick the cloud solutions they would like and integrating into their SAP S/4HANA to provide the remaining functionality.
SAP Cloud for Utilities leverages the standard SAP intelligent cloud solutions and industry specific cloud solutions. The intelligent solutions consists out of a number of C4/HANA solutions, such as Commerce Cloud, Sales Cloud, Marketing Cloud and Service Cloud. The following picture gives an overview of the SAP industry cloud for utilities;
The Pay per Use functionality in the SAP industry cloud for utilities is extended with BRIM solutions like; 1 Cloud subscription billing, 2 Bundling of commodity and non-commodity products and services, 3 Complex orchestration of service and physical goods fulfillment, 4 Innovative self-service including smart home integration, 5 Outcome based business (OBB) insights for contract monitoring (post-contract), 6 Outcome based business (OBB) insights for contract simulation (Pre-contract)
As utilities companies transform into next generation multi-service providers they will need to develop and commercialise innovative new products and services. SAP Cloud for Utilities is supporting fast product innovation and reduced cost-to-serve.
The servitization business models for Pay per Use
Servitization business models differ per industrie segment and depends on companies servitization maturity. The following picture gives an high level overview of the different maturity levels;
Within my previous blogs; the servitization roadmap, the servitization use and benefits cases, the servitization maturity model and the servitization solution architecture have been described, which can help you with the required changes within all the business processes (e.g. OTC, service management and finance) and your servitization business transformation.
The agenda of the VNSG webinars on 9 September;
The agenda of the series of Pay per Use webinars on 9 September is the following;
1. Introduction ‘impact van pay per use on de (SAP) cloud architectuur’ — Frank Luyckx
2. The BRIM implementation (train tickets) at NS — Erik van den Brink
3. The BRIM IS utilities implementation (meter readings) at Vattenfall — Sebastiaan Galewicz
4. Subscription Billing at Bayer Radiology (Solution Bundles) — Mattias van Saane
5. The BRIM implementation at SAP internally (SAP software bundles) — Mayank Choudhary
6. The SAP BRIM product strategy / market trends by SAP product management — Amer Bukhari
Registration for VNSG members via the following link; VNSG Industry 4.now or send me a mail.
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