Improved business outcomes. Isn’t that why any business invests in technology? According to Thomas Lah, co-author of a new book, B4B – How Technology and Big Data Are Reinventing The Customer-Supplier Relationship, the focus on measured business outcomes is growing. Moreover, shared risk and responsibility for those outcomes is becoming a differentiator and a new source of revenue for systems integrators and solution providers.
This was one of the themes at the 2014 Alcatel-Lucent Enterprise Executive Partner Days in Panama City, Panama. As the executive director at Technology Services Industry Association (TSIA), an author and a professor, Thomas Lah is in a position to offer some unique insights to the technology services industry. During his presentation Lah shared an emerging operating model that transitions the traditional B2B model to what Lah and his co-authors J.B. Wood and Todd Hewlin identify as B4B.
The evolution to a “business-4-business” structure is a services growth model. It is enabled by new technologies, (think Big Data and Cloud), is outcome-focused and is operationalized by the addition of two distinct service level offers that ultimately bring new value to both customer and supplier. And ultimately, isn’t mutual value the key ingredient for a lasting relationship?
The traditional B2B model is based on the principal of “make, sell, ship.” It is vendor- and product-focused and the relationship leaves customers responsible to own, operate and create their own outcomes enabled by the products purchased. Business technology, given its natural complexity, quickly adopted the second level offer whereby vendors deploy, manage and maintain the products they sell. This second level of service delivers a broader feature set, is often customized, but also brings the highest customer total cost of ownership (TCO).
The construct and potential of a more mature business-4-business model emerges now from what Lah defines as the “new rules of tech.” It represents a third and fourth service level framework, which coincides with the emergence of the cloud and hosted services and is structured to benefit both customers and vendors. See the trend here?
Lah identifies the new rules of technology as follows:
- Risk is shifting to vendors
- Simplicity will be king
- Users drive technology decisions
- Customer aggregators shrink the direct market
- A channel value reset is occurring
- Tech pricing is under pressure
- Behavioral data is leveraged
In contrast to traditional B2B offers, the business-4-business model is customer-centric, compensated on performance and is customer outcome focused. One of the many implications of this change is that it offers alternative financial models for both customers and suppliers, shifting customer CAPEX models to elastic and scalable OPEX subscription models. Performance is monitored, measured, and outcomes become a service level agreement component, which then becomes a new source of revenue for vendors that structure outcome-based offers.
As the cloud and other technologies mature, they are creating new opportunities for technology providers willing to stand up Level 3 and Level 4 offers. The result will be new revenue steams for suppliers, while at the same time addressing the needs of customers to adopt new or modified financial models. Properly structured, it will support your CIO’s need to define, manage and report on business-focused KPIs. It will also be welcomed with open arms by the CFO and CEO as in the end, it is a win-win scenario.
Are you currently exploring outcome-based service agreements, or have you implemented any yet? This was the question put to the audience at our Enterprise Partner Days in Panama recently.
This commentary was originally written for and published here on the Alcatel-Lucent Enterprise blog. Many thanks to ALE for their interest in my thoughts, and the ability to contribute my voice to their blog.