In Part Two of this series, we looked at the technologies and new types of business models driving this evolution towards more multi-faceted businesses. Here we discuss the types of new capabilities required to successfully diversify business models.
Multifaceted Businesses Require Many New Capabilities
Adding a new business model to a firm’s current mix is not to be taken lightly. Many factors must be considered, such as the competitive landscape, investments required for success, synergies with or conflicts/cannibalization of the company’s existing business model(s), and new capabilities required for the new model.
Here we focus on this last point, the new capabilities required. The journey to a multifaceted business model requires companies to acquire many new people and skillsets, develop new relationships with customers and providers, implement new processes, and deploy new technology/systems (both product IP and enterprise IT).
New People, New Skillsets
Adding a new type of business model requires adding new people and skills to the enterprise. A manufacturer or distributor that decides to start offering their product-as-a-service, with built-in IoT (sensors, intelligence, connectivity) and predictive maintenance capabilities, becomes a high-tech software developer and hence will need to acquire software and computer/communications hardware engineering capabilities, as well as people who know how to manage those types of development projects. The approach to sales and account management changes a lot, requiring more ‘farmers’ and fewer ‘hunters.’1 The service organization will likely change considerably as they take on dramatically increased responsibilities for maintaining the machines, including meeting demanding SLAs. Product management needs to think about products in a whole new way.
Acquiring talent, especially all at once during startup of a new type of business, may not be feasible. Many companies will outsource many of these new functions, at least initially, to reduce the risk and accelerate the launch of the new business. Later, they may decide to migrate those capabilities inhouse.
New Relationships with Outsourced Service Providers and Customers
To become more multifaceted, businesses often need to rely more heavily on outsourced service providers. A few key providers become mission critical for the core business. For example, they may outsource critical new product development, to gain access to specialized, highly in-demand expertise in software development, IoT, and artificial intelligence. They might need to establish a strategic partnership with a maintenance and repair network service provider, rather than trying to build out their own service network. They will then depend on that service provider to meet the critical customer SLAs. The outsourced service providers’ onsite technicians become the face of the company to their customer. Consequently, a business needs to do an outstanding job of managing these critical outsourcing relationships.
The relationship with customers also often changes dramatically. For a company that just sells things, the buyer-seller relationship is transactional in nature. Once a company starts to become more embedded, selling and committing to deliver desired outcomes rather than things, the relationship becomes more strategic. The business becomes more tightly integrated, more of an extension of their customer’s organization. This mirrors the reliance on outsourced service providers for critical functions that we just touched on. Thus, the outcome economy creates a more tightly knit web of companies, with more closely aligned incentives, deeper integration between the various players’ systems and processes, potentially creating longer-lasting relationships.
New Business Processes, Culture, and Metrics
When incorporating new business models, a business needs new business processes. They often require changes to their business culture as well. For example, sales culture and methodology evolves from a primary emphasis on winning deals to a primary emphasis on nurturing and growing the relationships with the customer. This can require changing the metrics and compensation basis, not just for sales, but across the organization, to align more closely with achieving the customer’s desired outcomes. The R&D process may need to collaborate with IT and sourcing personnel early in the development process. IT may morph from being solely internally focused, to becoming intimately involved in creating value-add services for customers, using the data from IoT and machine learning analytics. As an organization relies more heavily on outsourced service providers, the procurement organization may need to evolve into a mission-critical supplier performance management organization. Risk and performance management become elevated as meeting service level agreements and customer outcome metrics has major financial consequences.
New Technologies and Systems
Moving to many of these new models — such as subscription business, network-based business, IoT and product-as-a-service, and outcome-based business offerings — require the business to implement a number of new technologies and systems. These may include IoT technology integrated into their products, subscription management systems and billing capabilities, network-architected software platforms, and more advanced field service and SLA management systems.
Challenges for Smaller Businesses
Small growing businesses may view all of these changes as overwhelming and beyond their reach. They don’t have to. Through a combination of the right outsourced relationships and the right inhouse platforms, smaller firms can ‘play with the big boys.’ Smaller firms may have more constrained resources, but they also often are more nimble, creative, and responsive than larger companies. Multifaceted business platforms are available that can give them almost all of the capabilities of much larger competitors. We have seen many small growing companies invest early in their lifecycle, implementing a cloud-based ERP system that provides them with a platform for growth — in some cases we’ve seen small startups grow to a billion dollars and more in revenue, on the same platform they started on. But it is not just about growing revenues. You need to consider whether the single platform can support different revenue models. Selecting the right cloud-based ERP core platform, with the diverse capabilities to support these different business models, is critical to creating a true multifaceted business platform for growth.
Multifaceted Business Platforms
Even if a business is not multifaceted today, they can prepare by putting in place the right platform for growth. With the right cloud-based core ERP platform in place, a business will not have to switch horses midstream and will be ready to effectively compete and grow into a multifaceted business when the right time comes.
Multifaceted Businesses Need Multifaceted Business Platforms
Enterprise business solutions (ERP, CRM, SCM, Sourcing and Procurement, etc.) are traditionally designed for one type of business — one type of system for manufacturers, a different one for distributors, and different ones yet for retailers, or for service providers, for software providers, and yet another for professional services firms. This is because each type of business has had distinctly different needs. But that is changing.
For example, manufacturers need a manufacturing execution system (MES),2 but in the past, distributors didn’t. However, when a distributor broadens their offerings and starts doing kitting and light manufacturing as a value-add service for some of their customers, then they too need some of the functionality provided by an MES system (at least they need a ‘light’ version of an MES). Similarly, Software-as-a-Service companies need a subscription management system, whereas traditionally manufacturers did not. But as manufacturers start to offer product-as-a-service, then they too need subscription management capabilities.
So, what is a business to do? Trying to run a business using multiple core platforms is problematic for a number of reasons:
- It is very challenging to provide a single face to the customer (for instance a single unified invoice);
- Business process and data integration between multiple core enterprise systems comes at very high implementation costs and ongoing maintenance costs;
- Multiple systems integrated together are inherently harder to evolve as the business changes, making the business more rigid, less agile;
- The business won’t have one view of the business without adding additional expensive layers.
Therefore, it is better to have a single core business management platform that can support the wide variety of capabilities needed by a multifaceted business. This includes not just what the business needs today, but capabilities they may want in the future as they grow. Some key capabilities to look for, to enable growth as a multifaceted business, include:
- Engineering tools for managing combined software, hardware, and service development.
- Product lifecycle management, from concept to EOL (integrated into manufacturing and service).
- Manufacturing planning, scheduling, and execution capabilities for your type3 of manufacturing.
- Partner, promotion, and rebate management for multi-tiered distribution.
- Advanced service management, with SLA and outcome metric tools.
- Subscription management, including unified billing and revenue recognition capabilities.
- Project management and professional services management.
- Ecommerce, fully integrated into the suite, with authoring, website, and business workflows.
- Configure, price, and quote.
- Supplier management and SLA management for managing outsourced service providers.
- Retail/omni-channel capabilities, such as distributed order management and store execution systems (e.g. store operations, clienteling, etc.).
- Flexible forecasting and demand management, to handle multiple types of demand streams (bulk orders from retailers, bulk orders from multi-tier distribution, individual consumer purchases).
- Supply chain, logistics management, and S&OP.
- Network orchestration capabilities, to manage a network of providers and customers, with services such as brokering/request-matching, order tracking, logistics, and so forth.
- Micro-verticalization of solutions, to enable rapid implementation of the specific capabilities and processes needed by your particular business.
- Rich network of deeply integrated best-of-breed solution partners (since no one platform can do it all).
- Deep and flexible extensibility of the platform, to enable affordable and timely creation of unique differentiated services.
It may seem impossible to find a single ERP platform with all of the above characteristics, but some come quite close.4 The right cloud-based ERP platform will incorporate all of the above capabilities, either natively or via tightly integrated partners. This provides businesses with the agility to meet practically any future needs, enabling growth through business model diversity. Cloud-based systems with micro-verticalized rapid implementation will also help small business get up and running quickly with very low ongoing administrative overhead required. Growing business will find that the investment in the right platform, from the start, will pay off big time as they develop and expand into different new business models.
Flogistix – Multifaceted Oil and Gas Business Running on a Multifaceted Platform
Flogistix is an assemble-to-order manufacturer of onshore high-tech vapor recovery, compression, and water transfer equipment for oilfield operations. But they have evolved to become much more than just a manufacturer, describing themselves as “an oil and gas optimization company.” Their equipment is ‘smart iron’ (i.e. IoT enabled), outfitted with over 50 different sensors, providing data every few seconds about exactly what is happening at the machine. With this data, they provide their customers with a real-time control panel to remotely view the status of each piece of equipment they use, as well as receive alerts when something needs attention. Flogistix’ larger compressors come with an edge server, enabling autonomous well optimization (unmanned adjustments and autostarts). Flogistix also sells a data/analytics subscription service (called ‘Flux’) providing access to all that data, with deeper analytics such as trend analysis and ‘over the air optimization.’
Customers can buy or rent the equipment. Flogistix provides preventative maintenance and repair services, billed on a parts and labor basis (some of the parts are covered by the original manufacturer’s warranty).
Thus, Flogistix is an industrial and high-tech manufacturer, a maintenance and repair services provider, a software/data subscription services company, and a rental company, all in one. Flogistix operates these diverse business models all on a NetSuite ERP system, with additional functionality from NetSuite-integrated best-of-breed third-party applications.
Flogistix uses NetSuite for WIP (work-in-progress) inventory control during manufacturing. That is being enhanced with an RF-SMART system to provide barcode scanning of inventory and processes throughout manufacturing. By tracking the start and finish of every step, Flogistix is able to track exactly how long each task is taking, measure productivity, and do activity-based costing/analysis.
They use NetSuite’s inventory and FAM (Fixed Asset Management) modules to track rental assets—each customer location is set up as a virtual warehouse to which rental units are transferred. The transfer order includes billing information, automatically sending rental unit specifics to the billing department and rental unit data to Flogistix’ inhouse field service software. They track individual serialized part numbers in the manufacturing plant and in the field. Thereby, they maintain individual unit profiles, with up-to-date as-built and as-serviced serialized BOMs for all systems. This helps with service (such as for recalls of parts with specific serial number ranges) and for quoting (running queries to find a specific configuration).
Flogistix salespeople use ConfigureOne for CPQ (Configure, Price, Quote). When they are at the customer’s site, discussing the client’s needs, the salesperson does not have to say “I’ll get back to you later with equipment availability and a quote.” Instead, they can then enter configuration information, find available units, and provide a quote to the customer right there on the spot. Soon, the system will be able to make recommendations about which equipment to use, based on the well conditions, production amount, and other parameters the salesperson enters. The system will then create a rental contract which the customer can sign, all while the salesperson is still there with them. Strike while the iron is hot!
Flogistix uses NetSuite’s SuiteBilling to present a unified invoice to the customer. It is able to support Flogistix’ complex mix of equipment sales, rental, repair services, and subscription services, all automatically in a single bill. Further, it supports the complex behind-the-scenes revenue recognition rules for these different types of income streams.
Using the NetSuite platform, along with best-of-breed functionality from NetSuite’s partners, Flogistix has been able to rapidly grow their business, while controlling costs. Their goal is to become “the leading onshore domestic provider of high-tech compression products and services within the next three years.” Their diverse products and services, and the multifaceted platform they’ve invested in, will be key enablers of them achieving that goal.
Taking the Leap
There are risks and significant investments needed to expand into new types of business offerings. It should be done with prudence, but also with a realization that the risk of continuing with business-as-usual might be much greater than the risks in trying to expand your business model. If the competition is forging ahead with new offerings and approaches, or there are bold new entrants gaining market share, then a firm’s survival may be at stake. A business needs to assess their own strengths and weaknesses and consider how they can provide more value — a lot more value, to their customers.
Starting these transformations sooner gives a company time to learn, try things out, and start acquiring necessary resources. Wait too long and those resources become even scarcer as the good developers, salespeople, domain experts, and partners have been snatched up. Start soon enough and the journey can be made incrementally, with pilots and experiments. Postpone too long and eventually a bet-the-farm investment may be the only option left.
It is never too soon to start putting in the right foundational pieces, such as a business platform that supports multifaceted business models. So, if you do your homework, select and implement the right platform and partner(s) early on, and take the leap, your chances of success will be increased tremendously.
1 ‘Hunters’ are salespeople who love closing deals — as many and as big as possible. ‘Farmers’ are salespeople who thrive on creating long-lasting relationships with each customer, spending time with them to help make a positive impact on the customers’ business (and thereby grow the account). — Return to article text above
2 An MES system manages manufacturing systems and factory floor data flows to enable effective manufacturing scheduling, execution, quality control, and production performance. — Return to article text above
3 Whether you do make-to-stock, configure-to-order, build-to-order, engineer-to-order, batch process, or continuous process, the system needs to support the type of manufacturing you do or anticipate doing in the future. — Return to article text above
4 A good example is NetSuite. — Return to article text above
To view other articles from this issue of the brief, click here.