{"id":770,"date":"2018-07-02T04:51:03","date_gmt":"2018-07-02T04:51:03","guid":{"rendered":"http:\/\/kusuaks7\/?p=375"},"modified":"2025-11-26T14:11:38","modified_gmt":"2025-11-26T14:11:38","slug":"outcome-based-business-models-for-enterprise-software","status":"publish","type":"post","link":"https:\/\/www.experfy.com\/blog\/consumer-tech\/outcome-based-business-models-for-enterprise-software\/","title":{"rendered":"Outcome-based Business Models for Enterprise Software"},"content":{"rendered":"\t\t
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\n\t\t\t\t\t\t\t\t\tReady to learn Marketing & Customer Analytics Training?\u00a0Browse courses<\/a>\u00a0like\u00a0 Increase Cross Selling and Upselling of Products and Services<\/a> developed by industry thought leaders and Experfy in Harvard Innovation Lab.<\/em><\/strong>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tBuying Results Instead of Buying Things<\/strong>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tIn the \u2018outcome economy<\/a>,\u2019 people don\u2019t buy\u00a0things<\/u>. They buy\u00a0outcomes<\/u>. They buy the end results they are looking for. When a manufacturer sells a\u00a0product-as-a-service<\/a>, it is a sizeable step towards an outcome-based business model. Examples of this include all three major aircraft engine manufacturers selling\u00a0power-by-the hour<\/a>\u00a0instead\u00a0of selling engines; Philips customers can pay-per-lux with their\u00a0light-as-a-service<\/a>\u00a0instead of buying light bulbs; Schaeffler Industrial Services offers\u00a0bearings-as-a-service<\/a> for large\u00a0complex machines like wind turbines or cruise ships with a multi-year, pay-per-rotation contract;\u00a0Evergreen Lease<\/a>\u00a0from Interface who offered to own, install, clean, replace, and recycle their carpet squares so their client\u2019s carpet is perpetually new;\u00a0Contract Air<\/a>\u00a0service from Atlas Copco provides compressed air at specified pressure, dew point, and purity\u2014the customer pays by the cubic meter; Philips Healthcare offers\u00a0pay-per-use<\/a>\u00a0programs for their whole technology portfolio. Additional value-add services are wrapped around many of these programs.\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tThere has also been a lot of interest in moving our healthcare system from a fee-for-service approach (which just encourages more procedures and tests, regardless of their value) to\u00a0outcome-based healthcare. Instead of getting paid just for \u2018doing stuff,\u2019 doctors and hospitals would get paid for making us better and keeping us healthy.<\/a>1<\/a><\/sup>\u00a0Moving to this model is not easy. It requires restructuring payments, accurate ways of measuring and analyzing outcomes, and major changes to organizational\/team structures and incentives.\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tHello \u2026 Any Outcome-based Enterprise Solution Providers Out There?<\/strong>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tSo, what about enterprise software. Why do most enterprises still keep paying for the \u2018thing\u2019 (i.e. the software) rather than the outcome that they desire? Or to flip the question around, are there any enterprise solution providers offering outcome-based payment models? Some people argue that Software-as-a-Service is an outcome-based model, because instead of paying for hardware, and running a data center, the customer only pays for the software when it is up and running,<\/a>2<\/a><\/sup>\u00a0with all of the infrastructure taken care of by the provider. While SaaS is a step in the right direction, it is a fairly small step and we don\u2019t consider it a true outcome-based model by itself. This is because companies don\u2019t buy software just to get it up and running, but rather they buy software in order to achieve certain end goals and results. So, back to our question: do\u00a0any<\/u>\u00a0enterprise software companies actually sell\u00a0results<\/em>\u00a0rather than\u00a0software<\/em>?\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tThe answer is yes, a few do \u2026 a\u00a0very<\/em>\u00a0few, especially if we set the bar high, where 100% of revenue depends on outcomes being achieved. However, there are various gradients and flavors of outcome-based approaches, as we explore below.\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tEarly Experiments<\/strong>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\ti2 Technologies (now part of\u00a0JDA<\/a>) used to offer value-based pricing. During presales, they would conduct a two-week \u2018Strategic Opportunity Assessment\u2019 (SOA) to develop “as is” and “to be” solution processes and a business case for transformation. As part of this, they created a value\/ROI model that defined which KPIs they would impact and by how much, such as inventory reduction, E&O<\/a>3<\/a><\/sup>\u00a0reductions, decreased expediting charges, and so forth. The delivery team developed a method to measure improvements, to be used in post-deployment audits. However, there was no contractual guarantee of meeting these KPIs, in part because of the complexities of isolating i2\u2019s impact from the numerous other factors affecting the various KPIs. Nevertheless, i2 offered a discount in exchange for additional payments if certain KPI goals were met over time. This was an early example of partial outcome-based compensation.\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tIsolating the Impact of Other Factors<\/strong>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tThis highlights a perpetual challenge for providers of outcome-based software approaches: how to isolate the impact of your solution or service on any given metric from other factors. For example, suppose a sourcing solution provider promises a 10% reduction in the cost of specific parts. Is that good or bad? For starters, one would want to look at what kind of year-over-year savings the client has been achieving prior to implementing the solution. If they are already getting 10%, that\u2019s not an improvement. There are also external factors such as supply and demand or the cost of input materials or fuel that might have a huge impact on what the expected savings could be. Zero savings from the previous year might be an amazing accomplishment in one circumstance (say everyone else saw a 15% increase), whereas a 10% reduction might be a real disappointment in another circumstance (if others realized 25% savings on average).\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tTrying to isolate the effects of the solution from other factors can be quite challenging. However, we have seen clever approaches being used. For example, one retailer was adopting RFID tags on their apparel lines, to improve inventory accuracy with the expectation of getting an uplift in sales. To isolate the portion of sales uplift caused by the RFID tags, they conducted an experiment. They created pairs of \u2018like\u2019 stores\u2014i.e. stores with similar characteristics, whose sales had historically closely tracked one another. Then they implemented RFID in one store but not the other for each pair. By doing this, they convincingly showed that RFID was resulting in a sales uplift averaging about 10%.<\/a>4<\/a><\/sup>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tThe Chain of Goals\u2014Connecting the Dots from the Most Granular KPIs Up to the Broadest Corporate Goals<\/strong>\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tAnother question for companies moving to an outcome-based model is which goals and metrics to focus on. Companies usually have KPIs and goals that range from very granular, low-level metrics all the way up to their corporate mission statement. Between a company\u2019s missions statement and their lowest level metrics are various levels of intermediate metrics and goals. In the example below, on the right are higher-level goals and KPIs taken directly from\u00a0GSK\u2019s mission statement on their website<\/a>. On the left are increasingly granular goals and KPIs<\/a>5<\/a><\/sup>\u00a0that might be used to measure progress towards the higher-level goals. An individual contributor\u2019s personal goals and metrics should connect up to departmental goals and ultimately to an organization\u2019s balanced scorecard. Many companies are not quite that well organized in maintaining a connected chain of KPIs and strategy. Still, alignment of goals and KPIs up and down is a worthwhile ideal to strive for.\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\u00a0Example of ‘Chain of Goals and KPIs,’ From Most Granular to Most Encompassing<\/p>\nFor outcome-based software, a provider would like to measure impacts at the highest levels. However, often it is much more practical to measure more granular impacts. Picking the right metrics that can be solidly attributed, easily measured and agreed, and provide the most value can be challenging.\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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\n\t\t\t\t\t\t\t\t\tCoupa\u2019s Focus on Measurable Results<\/strong>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tCoupa<\/a>\u00a0has been one of the fastest growing and most successful spend management\/sourcing and procurement solution providers in recent times. When I attended Coupa Inspire (their annual use conference) earlier this year, I was struck by the overwhelming number of references to precise, measured results achieved by their clients. There is a similar abundance of specific measured results\u00a0on their website<\/a>. Most enterprise solution providers have a smattering of quantitative metrics improvements mixed in with qualitative descriptions in their case studies. The reason Coupa has so many more of these stats is because of how they engage with prospects and clients.\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tWhat Are We Trying to Achieve? How Will We Measure Success?<\/strong>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tCoupa starts presales with \u2018value discovery,\u2019 working together with the prospect to define the goals of the initial implementation. They ask \u2018what problem are we trying to solve<\/em>\u2019 and \u2018how will we measure success<\/em>\u2019? The goals are diverse\u2014some companies are looking to lower transactions costs and increase procurement productivity. Others may be looking to reduce data entry errors. Almost everyone is looking for hard dollar savings through reduction of spend, but in different ways. Some are looking to consolidate spend, others to bring more spend under management, or capture early payment discounts. Some look to reduce procurement or product cycle times, or standardize processes, or improve regulatory compliance.\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tDefining Goals Upfront and Continually Driving to Achieve Them<\/strong>\n\t\t\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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\n\t\t\t\t\t\t\t\t\tCoupa insists that the business goals, objectives, and success metrics for the project are defined up front. Some prospects ask \u2018can\u2019t we just get started and figure that out later,<\/em>\u2019 but Coupa told me they won\u2019t move forward until the customer, with Coupa, defines what they are trying to achieve and exactly how they will measure success. The folks from Coupa said, \u201cGo live is not the finish line, it is the starting line.<\/em>\u201d They do periodic \u2018value reviews\u2019 to check progress against the original goals, and set additional goals when ready. This results in expanding Coupa\u2019s solution footprint at each client, not by asking \u2018what else can I sell them,\u2019 but by focusing on the client\u2019s desired outcomes first. One manufacturer of industrial and aerospace control systems that I heard at Inspire set the following five objectives:\n