In the past, Hewlett Packard Enterprise (HPE) used to focus on selling servers, storage, and related components. Today, HPE sells outcomes. “Everybody is trying to move up the value stack and drive every dollar to more impactful, true business innovation and outcomes versus traditional run aspects of IT,” says Dave Carlisle, Chief Technology Officer at HPE Global IT.
The “Outcome Economy” has become the mantra of many industries, but high-tech has taken to it particularly. The shift is toward selling goods and services based on outcomes rather than quantities or traditional value.
“Even if you are a medium or large company, a lot of practices have been standardized and incorporated into software,” says Amit Sharma, Chief Product Officer — SAP Cloud for Entitlement Management. “Customers are asking what is substantially going to change. Closing the books a little faster is nice, but they aren’t going to spend $20 million or $100 million, if you can’t clearly define the value of a technology for the shareholders or customers.”
As a result, high-tech companies must compete on delivering measurable results important to the customer. Sharma gives the example of a jet-engine manufacturer not focusing on the 99.999% uptime of its product, but instead knowing what that uptime means to its airline customers: Since airlines have to pay extra if their planes are stranded on the tarmac, uptime translates directly into profits and customer satisfaction.
A Deeper Understanding
The Outcome Economy isn’t simply about focusing on business benefits, though. It’s about gaining an intimate understanding of what’s truly important to customers. Consider, once again, HPE. Carlisle says saving on cap-ex expenses (the cost of buying and owning a piece of technology) or provisioning services for developers faster are useful benefits. However, they don’t strike at the heart of what HPE’s customers want most.
With the explosion of data, technology enabled business model innovation, and speed-to-outcome pressures, Carlisle says that CIOs and infrastructure managers are under “intense pressure” to innovate. Consequently, a conversation with customers will focus on how HPE can deliver modern flexible services to free up a customer’s IT staff so they can innovate.
“We are redefining how we can help customers achieve that outcome,” he says. “It goes beyond showing up with the best box to instead providing much richer, connected experiences and delivering true, entire, customer outcome-centric solutions.”
This “total experience” can include intellectual property (IP) spanning hardware, software and services HPE is bundling for things such as machine learning, as well as bringing partners together in customer-centric ways to achieve their outcome goals. Recently, HPE’s CEO announced the company would focus on outcomes and provide all its offerings as a service. SAP S/4HANA is providing the backbone of HPE’s new subscription and consumption platform.
“The innovation and material architecture simplification delivered with SAP S/4HANA and the new E2E solution quote and subscription order management natively on SAP S/4HANA provides a great foundation and is easily integrated with the rest of the enterprise,” Carlisle says.
“At SAP we support constantly evolving business models that are driven by the customer’s outcome,” says Manfred Kopisch, Director, Solution Management, High-Tech IBU for SAP. “Their outcome isn’t about wanting a piece of technology; it’s about solving a business problem. Maybe they want to get a million orders processed during Christmas. If you look at it in a bigger context, you think about a whole ecosystem of partners that are needed to deliver that outcome.”
Focusing on the Journey
Succeeding in the Outcome Economy isn’t simple. “Outcome is a label that comes off the tongue easily,” Carlisle says. “However, it is a constant adaptive journey rather than a project. One could technically deliver something as a service but still miss on being truly outcome-oriented in a customer-centric way. It requires a lot of commitment. You have to really understand the strategic outcomes of a customer and tie straight-line relevancy between the customer outcomes and what you bring to the table.”
Jeff Howell, Global Vice President, Head of High-Tech Industry Business Unit for SAP, outlines the steps companies entering the Outcome Economy:
- Develop a clear understanding of what outcomes your customers want, and what outcomes you can produce.
- Forge new partnerships with other companies to produce those outcomes.
- Clearly understand what the market expects.
- Examine your internal processes, which may need to change as you move to an Outcome model.
Each of these steps brings considerations and nuances that affect business models, the way high-tech manufacturers sell, and ultimately require a fierce commitment to results.
New Metrics Might Be Needed
More and more, the Outcome Economy is paired with the subscription economy. Rather than sell a physical product, a company sells “usage rights” related to the bundled solution offering.
This is a significantly different type of transaction than most technology vendors have focused on in the past. For example, Howell says that a company that used to sell one printer for $10,000 will now sell 10,000 $1 transactions. This will drastically affect how the company monetizes its offerings. For example, it will place new pressure points on business processes that were not designed to support the subscriptions model, such as financial reporting compliance, responding to dispute claims, and equipment service.
This puts a premium on new and better kinds of data to track and understand customer behavior. Take an offering that includes a notebook, a one-time installation service and a yearly subscription to productivity software that has a free trial period followed by a monthly fee. All these contract items can have one or many entitlements (customer options and rights to use different capabilities) that need to be tracked and potentially adjusted throughout the product life cycles.
SAP Entitlement Management supports the Outcome Economy by tracking all this information. It captures if a customer has purchased a service but is not using it, putting them at risk of churn. Most importantly, it allows companies to deploy new offers, related entitlements, and business models that will generate recurring revenues.
“Not every customer is created equal,” Sharma says. “You need to define the engaged customers from the unengaged customers. If you fail to identify who is engaged or has the characteristics to become engaged, you might be doomed. You might start working on requirements for customers who are not engaged.” This reemphasizes the idea that the outcome economy requires manufacturers to take the time to intimately understand the needs and desires of their customers first.
The Selling Process Changes
“A classic transactional sale around infrastructure is a completely different discussion than a dialogue with a customer about what their disruptive strategy priorities are and the outcomes they’re trying to drive,” Carlisle says. “Many industries are under intense pressure to be creative and rethink their business models.”
The Outcome model has lots of complexity. For example, buying a server (a cap-ex expense) may provide more options on how to amortize the expenditure than technology that is bought on a pay-per-use basis (an op-ex expense). Every dollar spent on a service is a dollar that comes off margins.
Carlisle says HPE has developed a richer set of sales playbooks related to higher-level outcomes they see becoming common in specific industries. “In the past, much of the high-tech industry has been product-oriented — it largely was about shipping boxes and widgets,” he says. “The game has totally changed.”
He adds that digital native startups, which are not encumbered by old business models, put more pressure on traditional companies. “There is a danger in defining outcomes too narrowly or too traditionally depending on your history,” he says.
You Have to “Tear Off the Bandage”
“Every high-tech company has outcome as an agenda item, but they have trouble tearing the bandage off,” Howell says. Tearing off the bandage refers to shifting from selling a physical good to a service, which can mean a temporary drop in revenues.
Instead of immediately shifting to an Outcome model, many companies favor a hybrid approach, where they still service their traditional products. In this case, outcome is not yet an overall philosophy but an option.
While the hybrid approach makes sense, it also brings risk. “A startup with some unique IP can be 100% focused on the most relevant, modern way — they are born digital.” Carlisle says. “For all companies — and particularly those facing industry transitions — we have to boldly protect our future versus our past.”