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Advice and Information for Finance Professionals

How to make a big move to in-demand, “as-a-service” business models

Guest Author

By Kirk Carlsen, Dee Houchen and Jennifer Toomey, Oracle

In 2020, our humble homes became the essential support beam for both human health and business continuity, something that wouldn’t have been possible without “as-a-service” applications for food delivery, physician care, day-to-day job responsibilities, and more.  

The as-a-service business model certainly isn’t new. Everything from music to movies to maintenance can be delivered using a subscription model. But it’s fair to say that people value these services now more than ever, and they are an emerging opportunity for businesses looking to build new revenue streams.

In fact, many businesses are already there. In an October 2020 survey, 62 percent of all companies said they’ve implemented solutions to manage an increased demand for online interactions and services. And more than half of respondents (53 percent) believe the change will stick after the pandemic subsides, as consumers and customers settle into the “next normal.”

Introducing new revenue streams based on the as-a-service shift is one of four Big Moves that finance leaders should make to grasp opportunity and move their businesses forward.

How finance drives value in new business models

Optimizing your portfolio might not be a top priority right now, but research indicates that it should be. McKinsey & Company analysis found that “companies that invest in innovation during a crisis outperform the competition on market capitalization by 10 percent; investing in innovation after a crisis gives them a 30-percent advantage.”

For pure product companies, the biggest opportunity is to identify offerings that are wholly new or extend the value of existing products. Companies such as Apple, John Deere and Boeing are well known for augmenting their highly technical products with internet-delivered services for preventative maintenance, localized configurability, real-time in-field analysis, and more.

CFOs and their teams are an essential part of decision-making for new business model innovation, and making sure investments deliver on expectations is vital.

Organizations need to evaluate their most and least profitable lines of business, locations, or products, so they can shift resources as necessary. Finance professionals who use profitability and cost management solutions can help identify areas to reduce costs and uncover investment opportunities.

Finance teams can also advise on methods that will improve visibility and flexibility. For example, zero-based budgeting—a method where finance creates an annual budget based solely on costs with a justified need, rather than simply modifying the previous year’s spending—can provide a wider view and deeper understanding of your exact spend, so you can control costs and reprioritize as needed. This method has worked well for Oracle customers such as Argo Group International, which decreased its expense ratio (a key performance indicator used in the insurance industry) by 250 basis points.

Best practices for business model innovation

To help finance leaders as they lead this charge, Oracle is offering a Finance Starter Kit with best practices and advice on first steps. Below is an abbreviated version of best practices as outlined in the kit.

Best practice #1: Rethink what your target customers want

Collect feedback via social listening, customer community groups, surveys, events—anywhere customer voices are prominent. This will help you to identify what your customers want and don’t want, as well as what is motivating them to make a change.

Best practice #2: Analyze various business models

Take advantage of scenario modeling. Model different scenarios for multiple offerings, market conditions, or other key drivers that can help you stay aligned with your revenue goals.

Best practice #3: Collaborate throughout the innovation life cycle

To get the most ROI out of your innovation efforts, break down silos and create a process that involves multiple stakeholders. One of the most effective ways to collaborate is with a connected suite of cloud applications.

Best practice #4: Design for customer success

Customer satisfaction is the biggest predictor of future revenue for as-a-service offerings. If your customers aren’t happy, they won’t renew. Integrated cloud suites can help you configure an offer, price it, provide a quote, simplify contract negotiations, and provide self-service options for customers to modify or change their subscriptions.

Best practice #5: Measure outcomes and respond quickly

This is where finance needs to collaborate closely with line-of-business leaders to keep them informed about what’s working well—and what isn’t—so that business leaders can quickly change course for a better outcome. KPIs for a new business model might include annual recurring revenue (ARR), customer churn, renewals, and customer lifetime value.

Make a big move toward success

The pendulum of crisis has swung from focusing reactively on survival, to being proactive for growth. Take some time to consider how new business models could help your business build long-lasting advantages.

Learn about other big moves that finance should make right now.

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