A Holistic View of Business Transformation: How Subscriptions Change Everything

Large software and hardware companies across the globe are trending towards digital transformation.

Essentially what they’re trying to do is to increase top-line revenue through new flexible consumption models. While businesses shifting to a SaaS model might take a hit on revenues in the short-term, over the long-term companies that successfully make the shift stand to increase top-line revenues and stock prices, gain a bigger multiple in the market, and make shareholders happy. Forrester reported that 77% of firms that reported themselves as being in a mature phase of digital transformation reported an increase of at least 10% in their YoY revenue growth rate.

But a lot has to happen behind the scenes to achieve the goal of “SaaSifying” your product.

Your business has to transform on all fronts—from product offerings to GTM strategy to sales comp to revenue recognition. The impact is wide-ranging, touching on every function in your organization.

Let’s take a closer look at how every function in an enterprise is affected by business transformation:

Functional Area: Product

In order to sell a subscription product, you need to flip your product so that it’s consumable in a different way. You may have previously sold software with a license key in perpetuity or a solution with a one-time fee with ongoing maintenance, but this has to change in the new world.

Your software product or service needs to be revised so it’s available to be consumed online and with the flexibility to monitor its usage. This enables you to create flexible consumption models, which are demanded by today’s consumers in both the B2B and B2C worlds.

Functional Area: Marketing

New subscription products and services = new marketing strategy. If you’re using an ERP system, you can’t monetize these new consumption models—there’s simply no concept of pricing per consumption and there is definitely no element of time.

When you transform to selling SaaS, you need the ability to experiment with new pricing on the fly without messy workarounds or waiting for IT to hard-code new pricing models for you. Your marketing teams want to focus on creating campaigns that increase ARPU (average revenue per user) by introducing mid-contract promotions.

Marketing can be much more creative and proactive with pricing and packaging, if they have a flexible system that supports them.

Functional Area: Sales

Once you have a new product, you have to be able to sell it. This means your go-to-market strategy has to shift. Selling services is very different from selling perpetual licenses.

A subscription world is where you are creating an ever-evolving customer relationship; you are enticing your customers to interact with you often by buying more quantities of your offering, bundling that offering with their existing services, and continuously personalizing your offerings.

To support this, you cannot be using your traditional CPQ system that was build to configure, price, and quote a piece of hardware or a perpetual product, because it is not built to sell these ever-evolving subscriptions with their consumption- and usage-based charges. Sales needs a new way to configure deals—not the old way of configuring products.

Functional Area: IT

Your technology needs to be able to enable these new business models. The old linear order-to-cash process that used to drive in a direct line from CRM to ERP just won’t cut it. Subscription models are dynamic, with ongoing customer events, upgrades, downgrades, prorations, credits, co-terminations, etc.

Ever wondered, what will happen when you want to roll out new products, or start a new service, or make an acquisition, or expand to a new country with your service? You need to be prepared for these eventualities.

IT needs to develop a modern IT architecture that is centered around subscribers, not products, and focuses on quote-to-cash automation.

Functional Area: Finance

Once the product and go-to-market strategy has evolved, there are multiple downstream impacts that affect the finance team. Finance’s job in this transformed world has become critical as they could very well become the roadblocks to company disruption.

In a subscription world, finance teams have to focus on enabling product teams, sales teams, and marketing teams to have flexibility in their go-to-market approaches, but still maintain control around revenue and accounting. This is achieved by tying your COA upstream in the product catalog and then automating all of the downstream implications whenever a product is bought, bundled, upsold, downsold, etc.

Finance teams also need to focus on new forward-facing metrics so they can share better visibility of their business to the CXO teams—metrics like MRR, ARR, ACV, TCV, CAC, ARPU, churn rate, and net retention.

Functional Area: Customer Success

Customer support has been around for around 50 years, but customer success? No, that’s a new wave driven by the Subscription Economy, which is the transformation from a product-centric world to a customer-centric world.

While customer support was about answering calls and emails and reacting to customer complaints, customer success is about building an ongoing meaningful relationship with your subscribers. With subscriptions, there is a concept of renewals, upgrades, downgrades, transfer of licenses, etc.—these ongoing interactions deliver a customer experience.

Companies that are able to deliver the best customer experience win!

Functional Area: HR and People

Creating a new business unit for customer success isn’t the only organizational change that trickles down from business transformation. Personnel changes will be jump-started throughout your organization.

Suddenly you need to hire for and build teams around all the new roles necessary to supporting your new SaaS business—new titles like chief digitization officer.

You get the point! Large traditional hardware/software companies need to transform in order to drive higher valuations and greater shareholder value, compete with ongoing disruption, and satisfy shifting buyer demands. Digital transformation is a process of disruptive re-engineering that takes place within a business, affecting literally every function in the company.

Are you ready?