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Consumption-Based IT Procurement Models Break Down for OEMs

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Everywhere you read, there’s ongoing praise for the everything-as-a-service (XaaS) movement, and for good reason. Customers can procure what they truly need, for as long as they need it, avoiding significant upfront IT capital investment. Simultaneously, original equipment manufacturers (OEMs) in the technology industry can deliver a better customer experience and increase customer retention by reducing the traditional cost and complexity of product sales. None of this has come without its challenges, however. How could it not when we’re talking about an entirely new IT procurement business model that transforms legacy products and processes into a collection of consumable services? 

Changing With the Times

These IT procurement business models require new skills, but all too often, technology vendors assume that their workforce (and even their channels) will automatically fall into place. For example, as OEMs focus on increasing sales volumes to compensate for lower XaaS margins and longer-term revenue recognition, they’ve also had to innovate and expand their professional service offerings to meet customer experience expectations. 

Innovation in technology is nothing new, but what is new — and proving to be difficult — is maintaining a competently skilled, billable staff to fulfill this professional service–focused dependency at a time when technology solutions have never been more complicated. Maintaining the right staff across all technology disciplines is impractical — if not impossible — for many solution delivery teams, resulting in incomplete services rollouts and delivery backlogs. In turn, this has caused many OEMs’ sales professionals to be hesitant in thoroughly scoping out work, instead choosing to leave money on the table rather than risk the entire sale due to poor services engagement.

Overcoming Skill Gaps in the Workforce

This XaaS world represents more of a shift in culture, mindset and skill set than a technical shift. Transitioning to a consumption-based IT procurement model can be daunting to begin with, but today, the challenges are compounded by a general skills gap in the workforce. For example, it’s estimated that 54 percent of all employees will require significant reskilling by 2022i, and today, 67 percent of employers can’t find qualified candidates for their open positionsii.

As an OEM, a newfound emphasis on increased professional services will inevitably strain your organization as it amplifies a long-standing pressure point in the overall technology vendor community. But based on a TSIA professional services benchmark study, the gain is worth the pain. According to its findings, customer success and professional services’ growth and profitability go hand in hand. For example, the average revenue growth rate for XaaS-focused companies is 24 percent versus an industry average of only 13 percentiii.

Service Providers, Channel Partners and Resellers

This common breaking point is where it makes sense to look to strategic partners who have the proven skill sets and resource base required to tackle this service shift while allowing you to focus on what your organization does best: innovate technology. Many OEMs have concluded that involving a service provider, channel partner or traditional reseller with expanded, complementary services could help address this issue. Unfortunately, however, resellers are also transforming their IT procurement business models and cannot keep up with the expectations and needs of today’s OEMs.

Global Agnostic Service Providers

This struggle causes OEMs to think bigger picture, such as leveraging a proven expert that offers everything from a global distribution network to a range of professional services outside of the traditional IT procurement channel. A global agnostic service provider can help you transition from your legacy product portfolio, deliver XaaS offerings and supporting services and, most importantly, accomplish this while sustaining existing revenue without creating channel conflicts.

This complete product and customer lifecycle partner becomes your cost-effective, scalable workforce, consisting of dedicated experts who have the ability to deliver, deploy and support even the most advanced technology anywhere in the world. This means that if you’re a mature OEM transitioning to this volume game, it can quickly help level the playing field. Or, if you’re a newer OEM, it can catapult you out of the gate faster, and with greater success. In either case, it means the freedom to deploy your capital and operating budgets elsewhere. There is less risk overall, and your sales staff will once again have the confidence to properly scope out complete solutions for your customers knowing that they will be properly implemented and managed going forward.

As we’ve learned from history, no major industry shift comes without its challenges. By choosing the right strategic partner, you stand to mitigate the pain and increase your gain as you transition to a consumption-based IT procurement model. 

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About the Author

Eileen (1)Eileen Gibson serves as vice president, Market Management & Strategy for Global Lifecycle Management. She is responsible for strategic and go-to-market planning including segment identification and management, route to market selection, sales and channel enablement, portfolio and offerings management, innovation and investment processes, and marketing. Gibson joined Tech Data in February 2017, upon Tech Data’s acquisition of Avnet’s Technology Solutions division. An industry veteran, she holds more than 30 years of experience in strategy, sales and marketing – bringing vision to life for leaders and organizations alike. 

References

i World Economic Forum, The Future of Jobs Report 2018,  http://www3.weforum.org/docs/WEF_Future_of_Jobs_2018.pdf
ii Daily Infographic, Understanding the Tech Skills Gap, https://www.dailyinfographic.com/understanding-tech-skills-gap
iii TSIA, Professional Services for XaaS: Is It Different?, https://www.tsia.com/blog/professional-services-for-xaas-is-it-different