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The building blocks for new As-A-Service commercial models

Innovation and digital disruption are driving the growth of the As-A-Service economy. This is leading to a new kind of “outsourcing for the masses” – enabling both large and small businesses to acquire services “on demand” as inputs for business operations. This is accompanied by new commercial models that can drive far greater flexibility and agility into your business operations.

Cloud, mobility and the Internet of Everything (IoE) are driving the emergence of a new As-A-Service economy – where you can buy just about anything “on demand” as a service. Even the smallest business can acquire a bunch of specialised services to run its business operations – without having to make the usual up-front investment in facilities and resources required to perform those functions itself “on premises”.

This is substantially reducing the lead times and set-up costs for new businesses. It is also increasing the pressure on legacy businesses to innovate and enhance their competitiveness.

And it is driving the development of entirely new commercial models. These are not just changes around the edges – they involve a significant shift away from traditional commercial models, and they require a change in mindset.

Building blocks for new commercial models

As-A-Service solutions are becoming available “on demand”, with payment on a consumption basis – or to put it more colloquially, “pay by the drink”.

This is leading to the development of new commercial models, based around the following building blocks:

Consumption – based pricing

  • Pricing is linked to actual usage – without minimum volume commitments.

Short-term commitments

  • As-A-Service arrangements generally don’t require business customers to make long-term commitments to their service providers. Instead, the onus is on service providers to earn customer loyalty, by delivering ongoing service improvement.
  • This removes the risks around the rigid “lock-in” arrangements that customers have had to agree to in the past, in order to obtain best pricing – often accompanied by punishing break fees for early termination.

Outcome- based services

  • As-A-Service solutions are focused around business outcomes, rather than vendor specifications.
  • This is leading to a more simplified approach to contracting – which is much less prescriptive in relation to vendor technologies and processes.
  • The risks around staying up-to-date with new technologies are transferred to the service provider. Contracts are focused instead on achieving business outcomes and maintaining competitiveness.

Performance metrics align with business outcomes

  • New approaches to performance metrics are required – closely linked to the required business outcomes.
  • This is leading to fewer performance metrics – and an overall simplification of performance management.

New governance models

  • New governance models are emerging to support new ways of working together. Governance is no longer just about managing to prescriptive contract requirements – it is built around collaboration to achieve the required business outcomes, and deliver ongoing innovation and competitiveness.

Future-proofed pricing

  • In the past, business customers often found themselves “out of the money” if market pricing fell faster and lower than expected. However, the days of long-term pricing lock-in are disappearing.
  • New “future-proofing” pricing mechanisms are emerging which provide business customers with pricing reductions in the case of demonstrable falls in market pricing.

All kinds of business functions and processes are being converted to As-A-Service – back-office functions, IT operations, production processes, supply chain management and customer-facing operations.

The ability to embrace and leverage the new commercial models associated with As-A-Service will be a critical factor in driving future competitiveness. Business customers can’t afford to be left behind in such a fast-moving environment, as flexibility and agility become the holy grail.

About the author:

Bernadette Jew is a partner in Gilbert + Tobin’s TMT and Project Services group. She has advised some of Australia’s largest companies across financial services, mining, energy, oil and gas, health, transport, retail, government, telecommunications and technology.

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