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Flexible consumption: Transition to win with pay-per-use business models
Flexible consumption business model transformation allows customers the flexibility to consume and pay-per-use, but transitioning is complicated and challenging. Companies exploring consumption-based business models should think through the implications of the complex and interrelated business decisions they will need to make as they transition.
The case for transformation to flexible consumption
Flexible consumption-based models are not new. Long employed by utility and telecom companies, flexible consumption has now expanded to businesses in other industries, creating value for both customers and the companies that adopt them. Benefits to customers include flexibility, convenience, and affordability, while vendors can enjoy financial predictability, lower unit costs from aggregation, and enhanced customer relationships.
Companies that have brought consumption-based offerings to market have been met with considerable success. They have been rewarded by consumers as well as investors, challenging conventional valuations and placing pressure on traditional industry players that are retaining traditional business models, such as perpetual licensing and long-term contracts.
Adopting pay-per-use business models has become a business imperative for many organizations. Newer companies that launched with these models at the outset are at a considerable advantage. Large, complex, and more entrenched companies face a bigger challenge—both in effecting a successful transformation and in determining the optimal pacing and sequencing of the transition.
How pay-per-use is playing out in different sectors
Why is it so hard?
For established businesses, transforming to consumption-based modeling calls for a fundamentally different way of doing business. Current organizational capabilities may not support the new model, and entrenched, risk-averse stakeholders may be resistant to the required changes. In addition, short-term performance may need to be sacrificed for the sake of long-term success, which has significant implications both internally and externally.
Transitioning to pay-per-use business models is complex and requires companies to make a set of critical, interrelated decisions:
- What type of business model should we have?
- How will we monetize this model?
- How will we organize operations to support the new model?
- How will we ensure that our technology infrastructure and platform are capable of supporting the demands of a pay-per-use business model?
- How quickly should the transformation occur?
- How will we migrate customers?
- How will we manage the changes to our internal controls, income and sales taxes, accounting systems, and revenue recognition policies?
- How will we incentivize and compensate our employees and partners?
- How will we communicate these changes to the marketplace?
- How will we manage investor expectations?
All of these are difficult questions that call for strategic thinking, high levels of coordination, and visionary leadership.
Deloitte can help
Deloitte has guided a myriad of companies through the transformation to flexible consumption. We have deep knowledge of consumption-based business models and understand the challenges they present. We understand that modern businesses comprise of a number of highly complex, interrelated systems, which is why we don’t view any transformational element in isolation. We can help you think through the implications of the business decisions you will need to make as you transition to a pay-per-use model.
With a full range of capabilities, we can work with you through the entire transformation, from inception and design through execution and operation. We have professionals who are knowledgeable about all industry dynamics, core functional areas, strategic capabilities, and enablement technologies. In addition, we also bring together team members who are highly experienced in:
- Change management and compensation
- Critical regulatory and compliance aspects of revenue recognition, including the impact of the new revenue recognition guidance, and related costs such as commissions and internal use software costs, controls, security and privacy, legal entity structure, and tax considerations
Designing the shift to flexible consumption
Our tested and proven flexible consumption transformation framework and methodology guides companies with confidence through all stages of the transition: business strategy, business model, business capabilities, operating model, and technology platforms. Our systematic, structured, and repeatable approach helps us identify interdependencies and pursue parallel tracks of decision-making and execution throughout the three primary phases of the transformation: decide, design, and deploy.
Interactive transformation framework
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