For more than a decade businesses have been talking enthusiastically about the need to put the customer at the centre of what they do. But subtle changes in the digital economy, particularly the shift from selling goods to selling ‘Everything-as-a-Service’ is profoundly changing business models, organisational models and information systems.
It’s a transformation for which many businesses are ill-prepared. Traditional financial management, ERP and accounting systems focus on ‘sales-as-a-transaction’ but contribute little to the customer experience, better knowledge around customer behaviour, resourcing service commitments or decisions about product positioning, pricing and bundling. CFOs ignore this change at their peril.
So what exactly is the Everything-as-a-Service’ economy and how can CFOs tip the balance in their favour?
What is ‘Everything-as-a-Service’?
When you get home tonight just spend a few moments looking at the television adverts and see how they are dominated by innovative new service offerings (usually via a mobile App), from comparing hotel prices, finding the cheapest insurance, delivering restaurant take-aways or finding and rating the quality of tradesmen. But the innovation is not confined to start-ups and new services. Traditional organisations that previously sold capital goods, say, aircraft engines, business software and medical devices are instead offering the same items as a service, i.e. for a monthly rental with additional maintenance agreements on top.
It’s a win/win situation. Customers get low cost entry to the goods and services they need on-demand and suppliers get more dependable and more diverse revenue streams. And if they are smart, providers of services can tap into unique insights about the way their kit performs, valuable knowledge about how to optimise their resources and deep insights into the way customers use their services.
A new survey from CFO Magazine has revealed that 70% of CFOs say more than half of their revenue now comes from services, which include professional services, subscription-based services, service-level agreements, managed services and usage-based contract. Almost one-third (28%) of the CFOs indicate all of their company’s revenues are services-related.
Legacy ERP systems are holding businesses back
Despite this major shift in business models, most ERP and billing systems haven’t kept pace and do not support modern customer engagement, because they are not joined up.
A global FSN research study of more than 760 finance professionals “The Future of the Finance Function 2016” found that organisations that had fully linked their front office (customer-facing) systems to their back office (financial management) systems were further along the modern finance journey. For example, their finance functions were over 50% more likely to be engaged in helping the business create value, 40% more likely to be actively engaged in business decision-making and twice as likely to make quicker business decisions (and rely less on gut-feel).
So how can CFOs tip the balance?
Cloud platforms seem to point the way forward. Not only do they act as an accelerant for process standardisation and automation but the common development, design standards and single business model allow cloud vendors to build out the functionality required without duplicating data.
Take for example, FinancialForce, a cloud ERP vendor that I particularly admire for its innovation. It started modestly a few years back by famously linking Salesforce CRM to its accounting and billing systems but this has now culminated in “FinancialForce Billing Central” (announced last week) which combines Service Management, Human Capital management and Revenue Recognition – all in one consistent environment.
It’s a wonderful living example of linking front to back office systems – and it’s bi-directional. In other words, the emphasis has shifted from simply capturing and posting accounting transactions in one direction, to visualizing the entire customer lifecycle – from opportunity to renewal in the other. CFOs can literally see how customers are behaving across all revenue streams and because all of the information is in one environment they can leverage real time analytics to inform resourcing, pricing and product bundling decisions – something that would simply not be possible in legacy ERP systems that were designed for a different era.
Smart CFOs know that they risk losing out from unidentified revenue earning opportunities, as well as potentially unsatisfied customers and productivity gains unless they ‘grasp the nettle’. Meeting the competitive pressures of the ‘Everything-as-a-Service’ economy on the outside means that everything has to be joined up on the inside as well.