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.
Enterprise customers today want flexibility, affordability, and rapid access to leading-edge IT capabilities. Studies to date have addressed only pieces of the flexible consumption puzzle. Our survey aims to fill in the gaps.
The case for transformation to flexible consumption
Flexible consumption-based models are not new. Long employed by utility and telecom companies, flexible consumption is now expanding 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 that offer consumption-based products, platforms, and services can enjoy financial predictability, lower unit costs from aggregation, and enhanced customer relationships.
A number of critical customer, market, and technology trends are driving demand for and adoption of consumption-based services. The rise in cloud-based computing, in particular, has made it possible for business customers to opt for hosted solutions ranging from software-as-a-service and infrastructure-as-a-service to anything-as-a-service in which payment is based on service usage.
Companies in a variety of sectors that have brought consumption-based offerings to market have been met with considerable success. They have been rewarded by 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.
“You get what you pay for” may have negative connotations historically, but many of today’s technology, media, and telecommunications companies have flipped that adage around, creating highly competitive product and service offerings. “You pay for what you get” is the bedrock of flexible consumption.
How pay-per-use is playing out in different sectors
Flexible consumption business models are becoming the new norm across sectors, and companies that wish to remain competitive need to find ways to make the transition. Transformation has assumed different forms across industry sectors:
- Technology: Both business-to-business and business-to-consumer companies must be able to provide the flexibility and accessibility customers are demanding. This requires leveraging the power of the cloud. The ensuing commoditization of traditional infrastructure necessitates a migration up the value chain, from products to platforms, software, and services.
- Media: Winning in the media space is increasingly about access to content rather than ownership of content. This is having ripple effects throughout the industry, with critical implications for content producers, brands, content distributors, infrastructure providers, and content aggregators.
- Telecommunications: Technological evolution, new competitive tactics, and the increasing savviness of customers are eroding the profitability of the traditional model, forcing companies to seek growth through means other than scale. Innovation in services and business models is a necessity, as is finding ways to serve customers more profitably.
As value capture migrates away from traditional sources, the continued viability of previously entrenched companies and even entire industries are being threatened. Companies that fail to explore and then incorporate consumption-based products and services into their suite of offerings may find themselves on the path to obsolescence.
Why is it so hard?
Transforming to consumption-based modeling is extremely challenging because it calls for a fundamentally different way of doing business. For established businesses that are used to winning in the traditional way, the task is that much harder because current organizational capabilities may not support the new model, and entrenched, risk-averse stakeholders may be resistant to the required changes. In addition, they may need to sacrifice short-term performance 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:
Finally, we have a tested and proven framework and transformation methodology to guide our clients with confidence from business strategy through technical enablement:
- Business strategy: Overall business strategy to drive consumption-based business models for the organization
- Business model: Clear definition and alignment on “what” is sold, “to whom,” and “how”
- Business capabilities: Enabling processes and policies to support the target business model and operating model
- Operating model: Configuration of people, process, and technology that define how an organization operates
- Technology platform: Strategic automation of processes for efficiency via a technology platform—applications, infrastructure, data, integration, and security
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 from business strategy through technical enablement. 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.
Syncing the organization with the business
Flexible consumption—paying for technology, media, and data services as you use them—is a customer-focused business model that’s fundamentally different from how many organizations have traditionally sold and delivered products and services. Achieving this type of radical transformation has a huge “people factor.” Here are five people-related considerations aimed at supporting a flexible consumption model.
Read the blog at HR Times.
A quick take on Flexible Consumption
What is Flexible Consumption? It’s the ability for customers to access, consume, and pay for a service or product based on need and usage. Flexible consumption-it’s more than you think: Models that adapt to what customers need and want. Anywhere, at any pace, in any manner, and on any terms. Are you ready to make your move?
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