In my previous blog “What shifts are shaping the opportunity to become remarkable (again)”, I discussed what’s going on around us and how that shapes new opportunities to reimagine the core of what we do.
In my next blogs, I will discuss the opportunities to create new levels of differentiation due to the fact the very concept of work is being redefined as different generations enter and exit the workforce amidst a rapidly changing technological landscape. This blog is about the first opportunity: The redefinition of Value.
The shifts in the market have shaped ‘The age of the customer’ where experience is king. New technologies coupled with greater access to information and purchasing options have ushered in new customer expectations, preferences and behaviours whereby ‘perceived value’ more and more drives decisions. And this has triggered a movement whereby we propel from buying and selling outputs to buying and selling outcomes. And since customers live in a subscription economy they are no longer tolerating empty promises.
So, what does this mean?
The technological options we have at hand today allow us to reimagine experiences. This has already resulted in new innovative products, new ways of selling or pricing existing products or services, entirely new business models, or some combination of all of the above. And this goes beyond the shifts that companies like Uber, Airbnb or Netflix have created in their respective markets. These models are in essence still about ‘output as a service.’ Imagine if these services would shift to an outcome-based model? What would that look like? And in what ways would this make our work- and private life more valuable?
A very interesting B2C example comes from the theatre world. The TEATRENEU comedy club in Barcelona introduced the concept of ‘pay per laugh’ after they suffered the greatest loss of audience ever (+30% in just one year) as a consequence of a tax raise from 8% to 21% by the Spanish government. Entrance tickets were reduced to zero, and in exchange, visitors paid for every smile they made during the show. A clear win for the customer obviously, which at the same time resulted in a win for the theatre, as traffic increased, as well as ticket price. The latter rose by an average of 6€ per visitor.
And what would this mean to the B2B world? The agricultural sector has already made significant strides forwards by blending technology and data from sensors to drive the quality & quantity of crop production. Farmers don’t pay for the goods they use to farm, but for the quality and output, it helps to create.
Another good example is coming from the power industry. General Electric (GE) showcases that old rules don’t apply to digital business. It’s already managing infrastructure for many power companies on an as-a-service basis. Where appropriate, GE will offer guaranteed improvements in efficiency or output according to key performance indicators provided by the customer. If GE hits the target, it earns more revenue. If it misses, the customer pays nothing. And GE rarely misses.
My previous employer, business software vendor Unit4, is taking the concept to the next level by transforming their entire go-to-market from output to outcome to drive more value for their customers in the services sector.
And be honest, what option would you choose?
- Pay for financial software to manage your transactions, or pay for the actual change in annual profit?
- Pay for managing the enrolment process of students or pay for every new student you win as a consequence of better enrolment experience?
- Pay for managing the project delivery process, or pay for the physical impact it has made on reduction of project leakage or increase in utilization?
- Pay for managing the fundraising process, or pay for the actual growth of the average gift per donor?
Stating it is one thing, doing it is the other thing
Just imagine a world where +50% of your contracts would have shared objectives between you and your customer.
Or what if the value was not only measured in numbers but also by the impact on the community you serve (such as releasing people from poverty situations)?
The saying “not everything that’s countable counts, and not everything that counts is countable” plays an intriguing role here.
Shifting from an output- to an outcome-based approach introduces a shift in measuring success or impact. Suddenly ‘qualitative’ becomes a critical component of revenue recognition. The risk of the engagement shifts entirely to the supplier and turns the dynamics of doing business upside down.
So, what are the consequences?
To successfully shift from output to outcome-based services or product you need to rethink a range of things:
- How do you define success (the outcome), and from there measure it especially if its ‘not countable.’
- How will this change the way you capture data, especially if this data has to come from deep insights into your customer’s operation?
- How does this require your operation to change around aspects like research & development, marketing, sales, service delivery, revenue recognition and, very important, governance?
- How will this change the way you monetize — in year one, but more importantly over a more extended period?
- How do you empower the frontline (new mindsets, skills, behaviors, and tools)
And these are just some aspects.
The saying ‘If it was simple everyone would do it’ applies here. And indeed, shifting from delivering Output to Outcome is not an easy one. It turns a business model literally upside down. But the gains can be considerable. Done well, it drives competitive surges, to the point of creating ‘unfair competitive’ advantage. Since you deliver tangible value, revenue will most likely increase (volume), average revenue per deal/customer will grow, and as such margins should surge. And another good thing, clients will be delightful to work with since they pay for the outcome or nothing at all.
Beyond rethinking your model as described above, the technology component in this is essential.
- Delivering outcomes is all about data insight, you need to capture far more data than the usual transactions to understand your performance — think across your value chain, incorporate sentiment data, and depending your industry data from assets/things (IoT)
- Having data creates a big opportunity for Machine learning and AI scenarios to a) create autonomous processes b) intelligent signaling to identify new opportunities, and prevent compliance or escalations, and c) use the deeper contextual insight to develop superhuman powers through man-machine scenarios
- and to just name another one: platforms that allow you to increase the metabolic rate of your organization become essential. Nimbleness, creating quick wins and wow moments is an crucial quality to have.
How to start?
Here are four simple steps:
- Get a good get understanding of what’s going on in your customers’ mind and market. What’s trending and how does that challenge them to stay relevant. This is quickly kick-started by organizing a creative session with a limited number of open-minded people from both inside and outside your organization (customers!)
- Analyse the trends and challenges and quantify (with your customer(s)) which actions would drive the greatest value (outcome) if they were applied.
- Assess your current portfolio: What aspect of your product/service portfolio could potentially address these outcomes, and what needs to be done to transform/innovate these products/services into an outcome based service?
- Start, and start small. Work with your customer(s), get experience, test, learn and create momentum.
And please share your experiences how you / your company has already redefined the value its delivering through an outcome based approach. Value inspiration at its best is when it helps create a better world for all of us. That’s a cause worth aiming for. So share!