Today, we see an increasing shift to “servitization” or “everything-as-a-service” business models, which includes new digital business models such as streaming. This changes not only how products and services are consumed, but also how and when they are ordered and paid for.
This trend challenges traditional ways of doing business as it focuses on keeping customers for life by establishing longer term recurring revenue streams. Business models like these allow products and services to be offered in a completely new way instead of adapting or optimizing existing business processes.
How can your company or line of business achieve this? To remain successful, businesses across industries continuously re-evaluate how to create additional value for their customers. At SAP, we are working with our customers to reimagine business processes that increase productivity and unveil growth opportunities. This includes, among other things, how new offerings are sold to customers in order to increase customer loyalty at the end of the day.
From Selling Products and Services to Providing Bundled Solutions
While traditional business models are about selling physical goods and services, solution business models are built around the customers’ needs. Companies embracing these modern business models offer a combination of physical goods, services, and subscriptions to serve their customers’ needs holistically. And customers benefit from a one-stop-shop solution.
Whether offering products or services, these new models expand the responsibility of companies beyond the initial sale to include all elements of a solution along the entire life cycle; for example, the delivery of a machine, its installation, and corresponding maintenance services. The technical and the business processes must support the customer on this journey and minimize the business risk for the solution provider. Delivering this kind of solution-based value maximizes customer satisfaction and drives margin growth by selling higher value services.
This requires an order management solution that recognizes all the components of the order and has the ability to administer each step in the process — from capture to fulfillment, service, billing, and managing the profitability of the bundled solution.
The new solution order management process in SAP S/4HANA Cloud enables businesses to sell bundled solutions, including subscriptions, and leverage innovative capabilities for intelligent quote-to-cash. Let me highlight three impressive key capabilities.
Combining Products, Services, Projects, and Subscriptions in a Single Order
As a first step, SAP S/4HANA Cloud makes it possible to quickly design and sell holistic offerings, integrated into the order-to-cash process. Take, for example, our customer AAF Lufttechnik GmbH, a company that manufactures air filter systems, which have been in increased demand over the last couple of months. With SAP S/4HANA Cloud and solution order management, AAF Lufttechnik GmbH plans to combine the sales of the air filter systems together with the corresponding installation and maintenance services as a one-stop-shop solution.
Monetizing Services With “Pay-As-You Go” Subscription Models
With SAP S/4HANA Cloud, customers can facilitate new business models by offering a variety of different pricing models. These include subscriptions for one-time, recurring, and pay-per-use offerings. SAP Subscription Billing enables the design of flexible price plans, rating, and charging of metered usage data from technical systems, such as sensors from the Internet of Things (IoT). Subscriptions are now part of the end-to-end quote-to-cash process, built into SAP S/4HANA Cloud. All subscriptions can be managed end-to-end.
Rethinking Flexible Billing, Measuring Solution Profitability, and Automating Revenue Recognition
With the help of SAP S/4HANA Cloud, billing data from different sources can be flexibly integrated — from one-time orders, long-running contracts, deliveries, and external data — into a single invoice, which is consistent with the order. Because companies also need to carefully guard the profitability of solutions, SAP S/4HANA Cloud provides margin analysis for orders, including all elements of the bundle. It also automates revenue recognition for sales products, service contracts, recurring subscriptions, and projects, and supports a simplified period-end closing.
Today, solution and subscription models are top of mind for businesses across industries. Solution order management illustrates that significant added value comes from business process innovation. By integrating order-to-cash processes using the latest technology innovations, customers can unlock new opportunities for growth. That is why we at SAP continue to enable end-to-end processes and deliver business value to our customers.
Thomas Saueressig is a member of the Executive Board of SAP SE.
This story was originally published on LinkedIn.