For many organizations, this change enabler has been, and should be, the Chief Information Officer.
Through conversations with leading CIOs, the essential playbook for enabling a subscription business model has emerged. Here I outline the 5 key plays that a CIO must consider and own.
Force the conversation around how different products and services could fit together to enable unique value. For example, because subscriptions can be cancelled more easily, offering the same exact bundle of services as a competitor may cause people to switch based on price. This is a race to the bottom which can be avoided.
Know what parts of the business are not right for a subscription. Subscriptions should be targeted to products or services that repeat at a high enough volume that the opportunity cost of lost access exceeds the (potential) value of seeking out alternative options. Opportunity cost can be missed value, stress from risk, or because assembling the collection of offerings oneself is prohibitively difficult.
Understand the expected rate of growth. Ask what the model looks like at 10x. Define pricing structures based on product/service use and evaluate whether usage-billing is appropriate. Most importantly, gain alignment on the mindset shift that this is a fundamental business model change across the entire organization.
Simultaneously map this to your own internal business capabilities, end-to-end processes, and technology, and identify where the company is adding, or detracting value in improving the subscriber’s experience.
Leverage this mapping exercise to expose process and technology dependencies, so that leaders can be hyper-aware of the degree of cross-functional collaboration necessary to make this shift successful.
Okta CIO Alvina Antar recommends that “in order to develop a unified experience, you have to understand who your subscriber is: are they recurring, what are the purchase and usage patterns. But more importantly, are they happy, healthy, and likely to renew? It’s only then that you are invited to highlight opportunities for new offerings.”
Questions to ask yourself include:
o Do you know your monthly and annual recurring revenue by product by customer?
o What is the expected usage rate that indicates retention or churn?
o Are all of our subscription models profitable, and if so, at what volume?
o Do we know the up and cross-sell patterns?
o What is an acceptable amount of time to complete a given business process?
Unity Technologies’ CIO Brian Hoyt recommends that a “CIOs can add tremendous value by harnessing data to give a company real-time visibility into predictive patterns that gauge the health of a subscriber, so the company can be proactive, rather than reactive.”
Few companies will be able to start from scratch, so CIOs must examine the technology used throughout the order-to-revenue process (and the analytics of each step in the process), including how to:
o Acquire leads and convert them into opportunities
o Manage customer and product master data
o Structure product/service catalogs and pricing tables
o Sell commodity or configurable quotes
o Create and manage recurring orders of various quantities and durations
o Collect recurring payments (both system to system or credit card)
o Manage returns or credits
“As technology leaders, we need to provide the business confidence and transparency in the transformational journey required to pivot their business,” says Antar.
“You cannot just bolt on subscriptions to your existing homegrown or highly customized legacy processes and systems, you have to look at the entire order-to-revenue lifecycle and redesign for agility and scale.”
As the architecture is developed, “buy what is proven,” says Symantec’s Jordan, “and build where you need to truly differentiate and integrate. No one solution solves it end-to-end, so you have to stitch together what makes sense.”
This group should elect which product/service area to start enabling via subscription and be positioned to adapt to the market’s demands.
While certain capabilities, such as the product catalog, will require some end-to-end thinking, the execution of the roadmap to the future state architecture should follow a phased agile approach.
What is critical to remember is that “having a subscription business model is not a differentiator in itself,” says Symantec’s Jordan. “It’s about your ability to re-innovate to win the relationship with the customer. This requires a new operating model where teams are structured with product engineering, IT, and business subject matter experts to prioritize the roadmap and deliver in agile sprints.”
Small teams that build-test-learn in order to identify the potential risks and limitations in the architectural design will uncover flaws in a design much faster than those that go through a big-bang plan-build-QA-release cycle.
One of the biggest risks in this entire effort to enable a subscription business model is not a team’s ability to technically execute, it is the paralysis of business leaders defining the logic and rules that have to be codified in the system. Create a sense of urgency for the business subject matter experts aligned to the delivery of this type of work, or the quality will suffer.
Technology leaders have the unique opportunity to drive the transformation to enable a subscription business model from end-to-end and enable a win-win-win scenario for customers, businesses, and investors.
Just remember that success is not implementing a new technology or launching a new bundle of services—it is winning with the hearts and minds of the subscriber over, and over, and over again.
