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Mar 28 2022

How to evaluate as a Service

10 units of product vs. 10 units of service = The wrong view

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Over the years I have seen many buyers simply compare 10 units of a product versus 10 units of a service and conclude the Service is 3x more expensive so they are better off to keep buying in the traditional way. So if that’s the case, why are so many smarter buyers moving to as a Service?

The key is to find the value that the service delivers more effectively than just a product purchase.

In most cases the service will simply help to fix a challenge that is either financial, reducing risk related or accelerating your time to market.

Some of the best examples of business cases for as a Service offers have been:

  • A bank reducing its IT supply chain from 6-9 months to providing new services in minutes;
  • A retailer who launched a new service, realized there was no demand so failed fast without huge costs incurred;
  • A service provider being able to grow their deals size by 10x;
  • A credit reference agency launching a new product to car dealerships 9 months ahead of schedule - resulting in over 15% revenue growth for the business unit;
  • An automotive manufacturer almost pivot its research and development projects over night from Diesel efficiency to Electrification and Autonomous Driving.

When considering a move to as a Service the main business challenges and subsequent benefits center around three main pillars:

  • Cost;
  • Risk;
  • Time.

As such, the key is to evaluating and finding value in as a Service is to:

  • Understand the business problems that the service is addressing;
  • Understand how the service delivers benefits;
  • Determine how to monetize the value of the benefit obtained.

 

So, if we look at how as a Service works we can then start to address how the service delivers benefits.  As we said right at the start, most business cases analysis looks at 10 units of products vs. 10 units of service.  In the best examples these all focused on what the service did for their business.  So let us consider the key points of differentiation of the pay-per-use solution Fujitsu uSCALE versus traditional procurement:

  • If you don’t need 10 units on day one then only 3 would be delivered – start small and grow;
  • Billing is monthly based on usage so you preserve your capital for longer - Net Present Value benefits;
  • Fujitsu provides the buffer zone to support growth and scales it in-line with actual usage - at its risk – removing your provisioning risk;
  • Infrastructure is consumed and paid for by the business – not by the project – allowing for further provisioning reductions and time to market benefits;
  • New services can be scaled on demand – accelerating revenue growth.

 

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Now with an understanding of how the service works it is easier to see the many great benefits that can be used to build out the uSCALE business case.

 

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In a typical business case, these are the basic foundations used:

  1. Present Value – because uSCALE is a pay-per-use model, billed monthly there is a tangible benefit to agree the unit rate today and paying for the service over time.
  2. Pay-per-use – customers liken this to being 100% commercial utilization. The point here is to agree that at no point will you consume 100% of what is deployed BUT the difference is you only pay for what is used. This helps to level off the 10 vs. 10 comparison to a more realistic analysis.
  3. Benefits of not over provisioning – often the true cost of over-provisioning is over looked as its deemed and intangible saving. However, a number of real tangible costs should be included like extra licensing costs, DC space and Power plus staff costs.
  4. Time to Market Gains  - these are often two-fold and should include:
    • costs taken out of the traditional supply chain process;
    • revenue gains.

I have seen these benefits calculated in a variety of ways.  The most commonly used method has been to assess and agree the reduction in time spent provisioning infrastructure in the traditional versus as a Service method (i.e. 90 days). By taking this time out of the business, it can focus its efforts on bringing in revenue.

 

Conclusion:

In most business cases, the agility gains and the pay-per-use benefits are enough to build a compelling business case.  The reality of moving to as a Service is that there are so many different Cost, Risk or Time related benefits as to why people consume rather than buy.  The key is for you to understand what problem the service resolves and the best way of monetizing that value.

At Fujitsu, we have a team of financial experts willing and able to help you build out your business case. Our philosophy is to be transparent and open. We do not want to baffle you with numbers and metrics. However, we do want you to be able to see the value and efficiency gains that uSCALE could deliver for your business.

 

Karl Hausdorf

 

About the Author:

Karl Hausdorf
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Head of Customer Experience, Data & Consultative Sales, FUJITSU. Karl has been in IT for over 10 years in various roles & functions such as Strategy ...

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