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The IT OEM's Rough Road to XaaS

By | November 22, 2019 | 7 minute read

Surviving Disruptive Transformation

Global cloud adoption is a major driver behind the everything-as-a-service (XaaS) movement, and has matured to a point at which nearly every single original equipment manufacturer (OEM) in the B2B IT solutions space is in some phase of transitioning their business. Some OEMs are further along in their transition than others, and those who are lagging behind may be at risk of becoming irrelevant. And this transformation is not limited only to the software vendors who are racing to reach a software-as-a-service (SaaS) model. Cloud adoption and consumption-based procurement of technology also impacts manufacturers of IT, data center and software-driven appliances.  

The demand placed on operational resources within OEMs during this transformation has been unparalleled by any other innovation cycle in recent history. Every aspect and function of the business needs some form of reinvention, which needs to occur while sustaining the existing business. This division of priorities has placed many OEMs under compromised operating conditions. Shifts in demand for their legacy portfolio cause reductions in revenue, and disruption creates strains on staffing resources, which puts their service-level agreements at risk, and their market share starts to yield to those who are more agile, such as new entrants. 


Business Transformation in the XaaS Movement Toward Global Cloud Adoption

It’s dangerous to think that “the more feet you have on the street,” the better. Your goal is to maximize sales volume and velocity — you owe that to your stakeholders and future, but not at the expense of value.

Your customers invest in value — the value attained by using your products and services. They seek a return on that investment, which ultimately reflects in their bottom line. Generally, helping to increase the customers’ bottom lines has a favorable impact on one's own. In other words, staying focused on providing added value should result in the highest possible volume and velocity of sales, which in turn, should lead to better recruitment of channel partners.

The best channel partners teach and motivate their salespeople to stay focused on value. A great channel salesperson will learn as much as possible about their customers' businesses before offering any recommendations. They develop high-value solutions to address the challenges identified in their due diligence. Offering more than a simple “quotation," they submit a comprehensive proposal, spanning design to deployment to training and support, ensuring that the user can extract the most value for their company.


6 Steps to Consider in Your XaaS Transition

Companies in the IT solutions industry have maintained close watch on cloud adoption to determine how or when it may impact their business. The “pre-cloud” vendors who were not leading the cloud solutions charge carefully hedged their bets as to what point in the adoption curve their hand would be forced. As the concepts of XaaS, consumption-based licensing and managed services matured and took a strong hold of the market, it became clear that many companies were reaching their tipping point. They began to realize how much their businesses would be impacted, and had to consider the measures they would have to take to remain relevant.

Many of the transformation plans established tech vendors put together included the following actions:

  1. Overhaul or otherwise rebuild solutions portfolios to accommodate consumption-based XaaS demand
  2. Replace existing appliance-driven solutions for cloud-based adoption
  3. Shift field services models to managed services
  4. Educate and rebuild sales teams to understand the value of consumption solutions and maximize average revenue per user
  5. Create entirely new go-to-market programs from the ground up
  6. Restructure accounting practices and financial modeling around new revenue recognition, forecasting and costing models

Any of these tasks alone can be significant and disruptive. Combined, they represent unprecedented overhaul.

A transformation of this magnitude is costly, draining operating capital and creating a period wherein the evolving business needs to maintain continuity and carry out normal functions under a very precarious balance sheet. The book “B4B: How Technology and Big Data Are Reinventing the Customer-Supplier Relationship” calls this interim period the “transformation time.” During the transformation time, the correlation between cost and revenue is represented as a “fish model,” wherein the “fish” signifies a financial timeline from the starting point all the way through the stage of greatest financial stress, and eventually to an inverse point at which the financial shift begins to show return. Depending on the size and complexity of the OEM and where it is in its transformation, that financial reward milestone may take a long time to surface.


How External Forces Impact XaaS Business Transformation

To further complicate transformation, companies around the globe are experiencing two major unprecedented external events that could make or break their business plans.

First, the fourth industrial revolution has impacted all manufacturers — technology or otherwise. More specifically, a subset of the revolution called “industry 4.0” emerged in part on the heels of internet-of-things innovations, and has started to revolutionize manufacturing. The principles, practices and technologies that came with industry 4.0 gave manufacturers a significant market advantage, as they began to realize the benefits of being more efficient, agile and responsive to market fluctuations. Ready or not, many manufacturers were compelled to adopt sooner rather than later.

Second, because they are virtually always wild cards, geopolitical factors can have major impacts on commerce and manufacturing. Already under the strains (and costs) of cloud adoption transformation, IT businesses recently found themselves navigating the unpredictable waters of the strained relations between the U.S. and China. Tariffs have been driving the manufacturing community around the globe to reconfigure distribution logistics across multiple geographies and dodge cost penalties. 

These additional factors have mostly only awakened new challenges on top of an already long to-do list in IT OEMs’ business transformation plans.


Getting Started on the Path to Long-Term Sustainability

Increased merger and acquisition activity in the IT space tells us that some OEMs are struggling to overcome the multitude of factors associated with an XaaS transition. Many of those OEMs have executed aggressive cost-cutting measures by eliminating operational expenditures or nonessential functions to counteract the compounded financial challenges they are (barely) enduring. But these cost-cutting practices aren’t always beneficial for long-term sustainability.

All things considered, however, there are still plenty of reasons to be optimistic. According to early measures, an emerging approach in the IT OEM community will likely provide the necessary relief in cash reserves, while also creating a culture of innovation. At the core of the approach is the decision to hyperfocus all energies on customer-driven innovation. OEMs that have already chosen this route have realized that they must embrace sweeping changes throughout their business in order to be successful and remain relevant into the next technological generation wherein XaaS reigns. To get there, they must make difficult decisions, challenge old assumptions and think more radically about how to really transform the business.

“To be successful in the future, the rate of internal innovation must exceed the rate of external innovation.” —John Spence, business thought leader and leadership development expert

Getting to this point can be challenging for many companies — especially larger and less agile ones. In starting the dialogue toward a hyperfocused state of mind, consider these important questions:

  • What aspects of the business distract or impede us from customer-driven innovation?
  • Which of our core competencies are essential to our target markets? Which ones are not?
  • What competency gaps do we need to fill?
  • What components of our business do we own that we could outsource?
  • Who in our partner ecosystem is best suited to support our newly defined future?

Questions like these drive conversations down the necessary (and sometimes uncomfortable) path needed for sustainability in the current market conditions.

Ready to get started on that path? Shyft Global Services provides comprehensive end-to-end solutions that allow you to release capital from your business, take on the XaaS transformation with more agility and simplify operations with a single technology partner. It all starts with a conversation.

About the Author

Bruce Sherman headshot 2019Bruce Sherman is the segment leader for the Market Management & Strategy team within Global Lifecycle Management (GLM), a specialized solutions business within Tech Data. He brings nearly two decades of professional technology industry experience to GLM, including years of bringing technology solutions to market. Sherman built his philosophy of successful marketing and product management through the long-standing relationships he has maintained at every step of his career. He has worked as a well-respected team leader, strategist, relationship broker and problem solver, and has vast experience in bringing his expertise in product management and marketing strategy to some of the biggest brands in technology across all disciplines. His history includes leadership over all aspects of a technology product lifecycle, from inception to sunset.