The XaaS Effect
Transform your business with
A CXO’s Practical Guide to the
Everything-as-a-Service Revolution
Phil Wainewright
The XaaS Effect | Edition 1.0 |
Introduction










03
The origins and essence of XaaS






04
Converging products and services






07
How manufacturers blend products and services on the path to XaaS
10
Building subscription relationships that work in a XaaS world

13
A practical XaaS survival guide for CXOs





17
Outlining a technology roadmap to XaaS





21
Final words










23
Credits











24
Why read this d·book?
Business leaders are constantly exhorted to get ahead of ‘digital
transformation.’ As Paul Hermelin, CEO of professional services
giant Capgemini, recently declared:
“Digital is the obsession in the boardroom and the C-Suite.”
But why digital? And transform how?
This diginomica d·book provides an answer drawn from our
ongoing coverage of digital adoption in the enterprise.
The XaaS effect is one of those big-picture themes that’s all too
easy to miss when you’re caught up in the daily grind of keeping
up with today’s fast-moving technology and business trends.
But as we’ll show, evidenced by real-world examples across a
diverse range of industries, it’s a trend that has the potential to
either transform your business or enable a competitor to come
out of nowhere to capture your market.
Introduction
Modern digital technology is driving a fundamental change in
the way businesses interact with their customers. It’s become
so easy to stay connected that businesses can quickly build and
develop continuous relationships with their customers. Brands are
no longer selling a product or service. Technology is leading them
on a journey to provide a more engaging experience – a relation-
ship focused on continuously improving customer outcomes.
We call this XaaS (pronounced X-ass) because this digitally
connected model of customer engagement, monitoring and
continuous improvement was pioneered within the software
industry, as Software-as-a-Service (SaaS).
Today, the ‘X’ stands for Everything. Connected digital technology
has become a primary channel for customer relationships and
an integral component of business-to-consumer or business-to-
business product offerings alike, from razors to elevators, and from
home heating to earth moving. XaaS is Everything-as-a-Service
What’s notable is that businesses that follow this path are
changing internally too, as we’ll show with real-world examples
from industries as diverse as manufacturing, insurance and
technology. The shift from a purely transactional relationship
to one that is more of a partnership focused on delivering
better outcomes isn’t felt only at the customer engagement level.
It forces an equally fundamental transformation in internal
culture and processes.
How to use this d·book
Now that the XaaS effect is spreading out beyond the tech sector,
we’ve prepared this exclusive d·book to give our readers a practical
guide that helps prepare for its impact across every industry.
We’ve included links back to content on the diginomica website
where you can explore more details of the case studies we’ve
mentioned here.
This is edition 1.0 of a living document and a theme that we’ll
continue to elaborate with the help of the diginomica community.
We look forward to hearing your comments and feedback, and we’ll
send you topical updates as requested.
Chapter 1
PAGE 3
Chapter 2 The origins and essence of XaaS
Before the Internet came along, customers bought software on
disks or tape, which they then manually loaded onto their own
computers. Nowadays, if we need software installed, we download it.
But at the end of the 1990s, vendors came up with another option,
where the supplier ran the software ‘in the cloud’ and people could
log on and use it just like any other tab in their browser. This was
software delivered, not as a product, but ‘as a service’ – Software-
as-a-Service (SaaS).
It seems such a subtle change, but this single shift from on-prem-
ises to the cloud turned out to be far more than a relocation
exercise. Once the product had moved to the cloud, it started to
evolve into something new. Software was soon followed by storage
and processing, in the form of Infrastructure-as-a-Service (IaaS),
and development platforms, or Platform-as-a-Service (PaaS).
In the two decades since those early days, the as-a-service model
has gradually transformed the IT vendor landscape. It has created
new industry giants including $10 billion-a-year Salesforce and
$17.5 billion-a-year Amazon Web Services, while leaving other
former leaders scrambling to reinvent themselves. Now its effect
is spreading to many other industries.
Continuous relationship enhancement
In the beginning, the argument for running software and comput-
ing in the cloud was mostly based on lowering costs, due to the
huge economies of scale that providers can realise. Over time,
providers and customers discovered that the continuous connec-
tion between them realises significant new value, through a virtu-
ous cycle of engagement (left), measurement, and improvement.
• Measurement
The provider can analyse user behaviour, which helps them see
which features are popular or not, as well as detect and act on those
behaviours most likely to result either in a renewal or in losing the
customer to churn.
If a customer has a problem, the vendor can easily find the root
cause, and then implement the fix for everyone before others
encounter the same problem.
• Engagement
It’s easy to communicate
with customers, as they
are directly connected to
the vendor anytime they
use the service.
Customers can manage
their usage and config-
ure functionality through
self-service controls.
The pay-as-you-go sub-
scription model makes
it easier for customers
to get started and then
build up their commitment
incrementally. This incen-
tivises providers to invest
more in customer success,
to encourage upgrades
and renewals.
“Once the
product had
moved to the
cloud it started
to evolve into
something new.”
PAGE 4
• Improvement
As the provider controls and manages the software, they can
update it with new functionality and better performance any time
they like. Since customers are always on the latest version, they
immediately get the benefit of new features.
Because everyone is running on the exact same software, any
add-ons, connectors and templates can also be reused. This in turn
makes it attractive to encourage the development of a community
or third-party ecosystem.
Over time, providers build up a vast store of aggregate data on
user behaviour and other metrics. This is a digital treasure trove
for the application of artificial intelligence. Some providers are
using machine learning to further enhance their offering to
customers, perhaps by improving performance behind the
scenes, or by providing benchmark comparisons to guide indiv-
idual customers towards better outcomes.
This is just the start – much more will be possible in the future.
The essence of XaaS
The essence of XaaS is this connection between the provider and
customer, and the virtuous cycle of enhanced value discovery that
it enables. The continuous feedback mechanism keeps the provider
engaged in improving the outcomes that customers can achieve
from using its products and services.
While it’s enabled by technology, this essential characteristic of
XaaS is applicable far beyond the technology industry. Businesses
in every sector are beginning to harness connected digital technol-
ogies to add this continuous cycle of engagement, monitoring and
improvement to all kinds of product or service. Software surrounds
every customer experience, an essential ingredient in sustaining
engagement, tracking usage, and enhancing functionality.
XaaS requires five core technology-enabled elements to be in place:
• Digital connection The customer has on-demand access to the
provider’s services, while the provider is able to monitor the cus-
tomer experience, or to perform maintenance and updates.
“A digital
treasure
trove for the
application
of artificial
intelligence”
“Continuous
feedback keeps
the provider
engaged in
improving
outcomes.”
PAGE 5
• Powered by software The provider’s service includes some
element of software automation to help deliver and enhance the
customer experience.
• Networked resources The provider co-ordinates networked
data and other shared resources to provide services to all its cus-
tomers.
• Constantly evolving The provider constantly monitors its
services and customer experiences to find opportunities for im-
provement.
• Usage-based pricing A part or all of the provider’s revenue is
related to usage and is billed on a recurring basis.
But achieving the XaaS effect isn’t just a matter of putting in some
new technology. It’s what you do with it that matters. Building that
continuous cycle of engagement, monitoring and improvement re-
quires an overhaul of an organisation’s model, operations and culture.
“We’re not in the products business anymore”
This XaaS effect has a profound impact on the whole organisation.
Oracle, the $38 billion-a-year database, systems and software giant, has traditionally supplied products
that customers install and operate themselves. Under that model, once Oracle had sold its products,
it was up to the customer to get them working well. When they had problems, they often found Oracle
difficult to deal with.
In the past few years, Oracle has shifted to provide more and more via cloud computing – across SaaS,
IaaS and PaaS. With these offerings, it now takes responsibility for installing and operating its own
technology, while customers pay a subscription for what they use. As a result, Oracle has had to focus
on the entire customer relationship, not just the sales process. This has meant a complete overhaul in
how it does business, as Executive Vice President Doug Kehring, Chief of Staff and Head of Corporate
Development, recently explained:
“We’re in the service business, we’re not in the products business anymore … Now the way we
measure is not about how much [product] do I sell, but what are my renewals? The renewal rate
becomes the new indicator of success for a company, which means everything that happened
between the time that the customer got interested in the technology to when they renew that
subscription contract will play into whether we have a successful cloud business.”
With every business taking on elements of the XaaS model, many of the early technology and business
model learnings of SaaS and IaaS providers give valuable pointers to others making the same journey.
PAGE 6
Converging products and services
XaaS transforms the external relationships and internal
operations of every enterprise. The engagement, measurement
and continuous improvement that stems from continuous
connection is equally applicable to companies in traditionally
product-centric industries such as manufacturing and consumer
packaged goods. Several converging trends, propelled by advances
in connected digital technology, are driving this change:
• Always-on connectivity and smart automation is making
it possible to deliver services alongside products, instead
of each operating as separate lines of business. For example,
industrial equipment can have built-in sensors and upgrade-
able software, so that the manufacturer can remotely manage
performance optimization and maintenance throughout the
product lifecycle.
• Greater sophistication and flexibility in business systems
makes it easier to deliver contract-based services with pay-
as-you-go and subscription billing. This can be either in
combination with, or instead of, traditional product sales.
As consumers, we’re all used to buying cellphones on a
monthly subscription that also includes our calls and data,
and maybe add-on services too. Now the same model is being
applied to all kinds of products in the B2B world.
• New digital-native enterprises have shown how it’s possible
to deliver solutions to customers over the Internet, on demand,
as a service. As we saw in the previous chapter, this originally
got started with Software-as-a-Service (SaaS). It’s now possible
to deliver pretty much anything – or as we say, Everything-as-a-
Service (XaaS), from pop songs to accounting.
As these trends accelerate and mix, established businesses find
themselves disrupted by new competitors. It’s important for the
C-suite to make the right choices as they guide their business
into the future. But when the world is changing so fast, it’s easy to
misjudge the direction and pace of change. Often, one part of the
picture can look like the whole story, but miss crucial elements.
We’ve identified five distinct trends in the XaaS effect. But it is only
by recognising and embracing all of them that an enterprise can
survive disruption as the world turns to XaaS. >>
Chapter 3
“Often, one part
of the picture
can look like
the whole story,
but miss crucial
elements.”
PAGE 7
1 | It’s more than a switch from products to services
Manufacturers first started embracing services in the 1990s, when the rather ungainly word ‘servi-
tisation’ was first coined. But back then it usually meant transitioning from a mainly product-based
business to one that led with consulting services — for example the huge shift that IBM made from
hardware to software and services – or GE’s move at the time into financial services.
We still see large enterprises today following this pattern. Network equipment maker Cisco’s recent
acquisitions of software businesses and the massive restructurings of computing giants HPE and
Dell are attempts to lean more towards software and services. But the danger here is that the objective
is seen as merely to add some higher-margin lines of business to counterbalance declining product
margins. There needs to be a more fundamental shift from product thinking to an outcomes-based
service design mindset, joined up across the enterprise. As servitisation expert Professor Tim Baines
from Aston Business School recently told us:
“The organisational structures have to be sympathetic to it. You can’t have manufacturing
here, and design services over here. They have to have this internal connectivity happening.”
2 | It’s more than transitioning to a subscription model
Another fallacy is to imagine that repackaging a product or a service contract as a
monthly or quarterly subscription is no more than a financial restructuring of how your
customers pay you. This apparently simple change in fact has a far-reaching impact on
how the business engages with its customers, as Tien Tzuo, CEO of subscription business
management platform Zuora explains:
“[Our customers] are not talking about plumbing, or automation – they are talking
about re-inventing their businesses and driving business model innovations.”
If you think of the subscription model as simply a different way of paying for the same
thing, you really haven’t figured it out at all. Once you shift from a one-off sale to a renew-
able contract, you enter into a continuous relationship with the customer, where instead
of shipping an item, you are engaged in achieving an outcome. As Professor Baines puts it:
“With the services, you’re buying an outcome. You’re buying a process, rather than
simply buying a thing, which you then want to figure out what to do with.”
3 | It’s more than putting in some new technology
When tech is the enabler, it’s tempting to imagine that once the technology is in place, the job is done.
But that’s just the starting point. The technology fuels new engagement, delivery, and business models,
but these won’t crystallise unless the people and the organisation are ready to deliver them. >>
PAGE 8
>> There’s a much bigger transformation of business models, operations and cultural mindsets that
has to take place before the XaaS effect can have an impact. When videoconferencing vendor Lifesize
introduced a cloud-based subscription service, the new management had to change the firm’s mindset
from product-centric to customer-centric, explains Chief Customer Success Officer Amy Downs:
“We had to redesign the entire company. Customer support was like a complaints department.
A customer-centric approach was not in anyone’s DNA at the company in any way. We had to
shift the attitude and culture of the company to think with the end user in mind first.”
4 | Back-office functions become part of the change
The customer-centric mindset applies just as much to the organization’s internal opera-
tions as it does to its external relations. Being digitally connected within the enterprise is
changing the way the back-office functions such as HR, finance and IT itself work with the
business. Here too, continuous connection is fostering a virtuous cycle of engagement,
monitoring and improvement.
Activities that used to be sent off to be done centrally — such as booking a vacation in an
HR application or adding a new metric to a dashboard in a financials application — can
now be done by the worker themselves, accessing the functionality in a cloud-based appli-
cation to complete the task, often on a mobile device. The back-office specialist now be-
comes a network resource to call on when something unexpected comes up, or if additional
advice is needed.
Turning back-office functions into automated services helps speed up responsiveness and
encourages cross-functional collaboration across the enterprise. These patterns of work
help make information and actions available where and when they’re needed.
5 | It’s about delivering outcomes
When you put all of these different elements together — the service mindset, the technology, the sub-
scription management systems, and the blend of products and services — what you get is an engage-
ment with the customer that’s all about what they’re trying to achieve, rather than what you succeeded
in selling to them.
This is a continuous relationship where businesses have to keep delivering value to earn a renewal, and
where they’re constantly getting feedback and metrics they can use to enhance and improve the service
they’re providing. Rob Bernshteyn, CEO of procure-to-pay SaaS vendor Coupa, put all this into a book
published in 2016, Value as a Service. He believes this is the inevitable outcome of the XaaS model:
“We’re competing in a whole different world here. It’s not just functionality, it’s not just that
it’s delivered via the cloud, it’s that it’s clearly delivering business value.”
PAGE 9
Chapter 4
In the coming chapters
we’ll provide real-world
examples of how the
XaaS effect has changed
businesses as we explore
the themes raised so far
in this book.
How manufacturers blend products
and services on the path to XaaS
A combination of rising connectivity and more sophisticated auto-
mation is bringing the XaaS effect to traditional businesses as they
blend products and services in new ways. In product-led indus-
tries such as manufacturing, this trend first manifests itself in the
growth of services alongside products. But it doesn’t stop there.
As enterprises progress along this journey, they discover that sell-
ing services in a connected world fundamentally changes how they
engage with their customers. They are no longer selling discrete
products and services. Instead, the two blend both together to
satisfy a customer need within an ongoing relationship that fosters
engagement and continuous improvement. Welcome to the world
of XaaS: Everything-as-a-Service.
Here we’ll explore what several leading manufacturers have
discovered as they’ve set off down this path, which business aca-
demics often call servitization. Professor Tim Baines, an expert in
the field from Aston Business School, says that many businesses
begin by adding services around existing products:
“Quite often it means moving first towards what we call interme-
diate services, which is prepare, overhaul, condition monitoring,
help-desk, a bit of training on the side, those type of things.
“Ultimately, it moves into these more advanced services, much
more of the outcome-type contracts. They’re delivering the out-
come, delivering the process, delivering the performance.
Changing the relationship
Organisations that are already delivering ancillary services can
use today’s more agile, collaborative technology platforms to make
those offerings more engaging. Hewlett Packard Enterprise, the
$50 billion revenue IT giant, retains a significant services capability
despite spinning off its consulting and outsourcing business in 2017.
Overleaf, Adam Jones, Advanced Planning & Innovation Lead
within HPE’s technology services organisation, explains how new
technology and different expectations are changing the service
organisation’s relationship with customers. >>
Prof. Tim Baines,
Aston Business School
PAGE 10
“We’re seeing our customers wanting to be more proactively,
pre-emptively notified of what’s going on. They want to be socially
connected to resolve issues and indeed to solicit feedback on best
approaches and also want us to understand their social profile and
align our engagement with their needs.”
Proactive service culture
In manufacturing, the ability to add sensors and Internet
connections to products helps improve existing field service and
customer service offerings, as well as add new outcomes-based
services. One example is elevator and escalator maker Kone, which
already derives around 45% of its $10 billion in annual revenues
from its services business.
Kone has used technology to connect its 20,000 field service techni-
cians, along with agents in its customer service call centers, at the
same time as adding sensors to products in the field. Company CIO
Antti Koskelin says this has opened the doors to a more proactive,
predictive service culture:
“If we’re able to get a better view of what kinds of requests cust-
omers will make, what their service needs are going to be and
what types of issues they might face with their equipment, then
we’re able to react better. And if a service technician arrives at
a customer site with more information about the customer, its
equipment and its contract with us, then they’ll do a better job.
“But it goes further than that. We need to be very good at
providing the services that customers say they need, certainly,
but our goal is to provide the services that they haven’t
recognized themselves yet and point it out to them.”
A new service mindset
In the mass consumer market, home and kitchen appliance maker
Bosch is also shifting from one-off sales to a more connected, en-
gaged customer relationship. It has pursued an Internet of Things
(IoT) strategy to make its products connected, as a result of which
it has to fundamentally change how it thinks about customers.
This has meant learning new ways of working that are unfamiliar
to product companies, as Stefan Ferber, VP of Engineering at Bosch
Software Innovations, explains overleaf. >>
Antti Koskelin, Kone
PAGE 11
“The company has moved quite a lot over the past few years and with
that we have learned what it means not only to be a producer, but also
you serve the customer, you have a continuous relationship with your
B2B and B2C customer. These are all things that are not so common
to producers in that space.”
The customer relationship is quite different, because when the
product is connected, it means staying in touch with the customer.
In the old product sales model, the manufacturer only heard from
the customer if they had a problem, he explains:
“The story starts when the customer for the first time is opening
a box with your product in there. Then you build up a new connec-
tion, a new relationship with your customer. From there the real
product story starts.”
For traditional companies ‘success’ meant the customer got their
product, had no problem, job done. If someone is calling, you had
a problem. This mindset of course takes some time to change, you
need different sales people, you need a different marketing ap-
proach, you need a different call center approach.
Not just adding services to products
These insights from enterprises that have embarked on this
journey demonstrate how much more of a transformation it is
than merely adding services to the product set. The combination
of connected technology and continuous service delivery opens
up a new type of customer relationship that combines engagement,
monitoring and continuous improvement.
Some of the key characteristics include:
• Instead of the transaction ending when the customer receives
the product, that’s just the beginning of a continuing relationship.
• Services delivered alongside the product are designed to help
customers optimize the results they achieve.
• The vendor proactively engages in dialog and collection of
feedback from customers.
• Connected products send back data that the vendor uses to
improve their performance and maintenance.
In the next chapter we’ll
look at other aspects of
that new relationship,
including the move to sub-
scription and pay-as-you-
go business models.and
a more customer-centric
service design ethos.
Stefan Ferber, Bosch
PAGE 12
Building subscription relationships
that work in a XaaS world
Rapid innovation in connected technology encourages enterprises
to re-evaluate how they sell products and services to their custom-
ers. These used to be discrete, but businesses are now able to blend
them in new ways, transforming their relationships with customers.
This is all part and parcel of the trend towards XaaS, when
everything is sold and consumed as a service. But the new business
models that enterprises adopt to sell these new offerings to their
customers are not quite as simple as it might seem at first glance.
In many industries, the first step towards converting products into
services has been subscriptions. We can see this happening in the
automotive industry, where carmakers are teaming up with finance
houses to sell new vehicles for a recurring monthly fee. Often that
monthly sum also includes servicing, perhaps insurance, even a
regular top-up of fuel. All for a predictable monthly sum.
In the early days of Software-as-a-Service, software vendors adopt-
ed an equivalent model. They would take a traditional perpetual
software license, carve up the price into 36 monthly instalments,
and add in the cost of hosting it on servers in their own datacentres.
Trouble was, they didn’t adapt the software for this new model, so
there were few economies of redundancy or scale they could lever-
age, and little scope for continuous improvement.
The Dollar Shave Club story
For a salutary example of the limitations of this approach, let’s
turn for a moment to the consumer packaged goods industry, and
the case of Dollar Shave Club, which launched in 2012 and which
Unilever bought four years later for $1 billion. As Ben Thompson
explains in his Stratechery newsletter, Dollar Shave Club had used
online subscriptions to fatally undermine the dominant incumbent
Gillette model of marketing replacement blades at high margins
through traditional retailers.
Gillette’s owner Procter & Gamble (P&G) had too high a cost base
to respond to this new competition by simply rehashing its retail
pricing as a monthly subscription.
Chapter 5
PAGE 13
That’s because Dollar Shave Club had eliminated R&D, marketing
and distribution costs with a new model that finds customers using
Internet word-of-mouth, and then ships no-frills blades in return
for a low-cost subscription. The cost base of this Internet-based
business model had completely different dynamics than the incum-
bent Gillette model.
This story illustrates the risk that every established business has to
face up to when it shifts to the XaaS model – that some disruptive
innovator will use some new dynamic of the model to find a cheap-
er way of delivering the same (or better) outcomes to customers.
As Thompson writes:
“Gillette’s model and P&G’s formula generally cost a lot of
money: R&D cost money, TV advertising cost money, and
wholesalers and retailers had to earn a margin as well, and
that’s before P&G realized the return on their investment.
The result was that cartridges that cost less than a quarter to
manufacture and package were sold for $4 or more. That
worked as long as P&G’s other advantages in technical
superiority, advertising, and distribution held, but were they
ever to falter, it was eminently viable to sell cartridges for less
and still make a healthy margin.”
Most chilling of all, at the time of the Unilever acquisition, Dollar
Shave Club had already captured 15% of the US shaving cartridge
market by unit volume, but only five percent by value. In other
words, if it triumphs, the value of the shaving cartridge market will
contract by two-thirds, mostly at the expense of the advertising
and retail industries being cut out of the picture. This is what many
people think of as ‘Uberisation’ writ large – a new business model
that threatens to wipe out an existing established business by doing
things differently.
Delivering enhancements is part of the service
But there’s one crucial element missing from the Dollar Shave Club
story. It doesn’t factor in the additional step of wrapping software
around a physical product. When products become smart connect-
ed devices, it becomes possible to deliver functional enhancements
as a part of the service, as in the examples of Kone and Bosch in
the previous chapter.
This ability to deliver functional improvements can be applied to
all kinds of traditional industrial products, from electric cars and
“When products
become smart
connected
devices, it’s
possible to
deliver
functional
enhancements
as a service.”
Michael Dubin, CEO,
Dollar Shave Club
PAGE 14
elevators to kitchen appliances – and perhaps even razors.
Many manufacturers are already wrapping their physical products
with connected software to maintain a relationship with the cus-
tomer that’s focused on constantly improving outcomes. This is
the essence of the XaaS model.
Here, then, is the Achilles’ heel in the Dollar Shave Club prop-
osition, which leaves scope for others to win market share at its
expense. Rather than delivering blades for the cheapest monthly
subscription, a provider could add value by using connected
technology to improve the shave over time, and perhaps further
enhance the customer experience by introducing optional groom-
ing services.
It’s all about outcomes
Outcomes are the takeaway here. Connected digital technology
opens up a new vista of potential outcomes. Mikal Hallstrup, found-
er and CEO of the Designit design agency says that whereas twenty
years ago an enterprise might sell a thousand products each of
which fulfilled a single function, today digital technology makes it
possible to ship a handful of products supplemented by thousands
of services. What’s important, he says, is to focus on the human
need that’s being served:
“What a lot of clients are realising is that they are competing in a
very different industry than they expected. Design comes in in a
very new way. It’s not shaping formats… it’s shaping interactions.”
Rather than replacing products with services, the as-a-service
model delivers the connected product as a means to the outcome,
in return for an ongoing subscription.
When UK-based smart home provider Centrica Connected Home
introduced a recurring subscription model as an alternative to one-
off product sales, the switch turned marketing on its head, says Jo
Cox, Commercial Director. Instead of starting by selecting a prod-
uct to sell, product marketing for its Hive branded services now
starts from the experience customers want, and then assembles the
products and functions that bring that to life. She explains:
“What our customers feed back to us is, ‘I actually don’t care
about the technology, I don’t care how it does it, I just want to
know what it does for me.’”
“Digital
technology
makes it possible
to ship a handful
of products
supplemented
by thousands
of services.”
Jo Cox, Centrica
Connected Home
PAGE 15
One early finding was that customers for smart home technology
didn’t want a fixed, 24-month subscription of the type that’s com-
mon with mobile phone contracts. Hive therefore unbundled the
Hive Live service element of its subscription and switched to a
12-month contract, which covers the cost of its hub and other
devices. Customers who want to continue to use the smart home
app at the end of the contract carry on paying for just that element.
It’s not one size fits all
What works for razors or consumer devices doesn’t necessarily
work for capital equipment. Connected products and intelligent op-
eration are an established part of Caterpillar’s range of earth-mov-
ing engines. Its Cat Connect family of solutions combine connected
technologies and services that help customers improve in areas
such as safety, sustainability and productivity. But that doesn’t
mean Caterpillar is becoming a software company, as Tom Bucklar,
Director of Innovation & Digital, explains:
“Our goal is to still be the leading manufacturer of earth-mov-
ing equipment and engines into the industries we serve. But we
know that the only way to continue evolving and build more value
around those products is these types of site-level systems and
services… and so obviously it’s an expansion of what we do.”
Rather than bundling its heavy equipment into a subscription, the
services are sold as an added subscription alongside the purchase
of the equipment, through Caterpillar’s established dealer channel.
Caterpillar has also developed new finance and rental packages to
support dealers that want to bundle up their own subscription offer-
ings, says Bucklar.
“We have dealers that work with customers to have more
outcome-based contracts … In digital, Cat Connect is what
we’re taking through the dealers because we want to enable that
dealership that really knows the customer better and lives with
them every day, to be able to have solutions to take to that
customer and that region.”
The Caterpillar story is a useful reality-check on the progress of
subscription business models and the XaaS effect. Digital connec-
tion is having a big impact on the value of its earth-moving equip-
ment to customers, but there’s little benefit in turning the capital
cost of these products into a subscription. In Caterpillar’s case, the
XaaS effect provides a supplement to, rather than a replacement
for, its traditional way of doing business.
Caterpillar: Welcome to
smart iron
PAGE 16
A practical XaaS survival guide
for CXOs
While technology is driving rapid change in the world of business,
it’s often difficult to get the measure of that change or its direction.
As tech writer Charles Babcock reminded us in a column last year,
software has been a driver of dizzying change for more than three
decades, long before tech industry luminary Marc Andreessen de-
clared in the Wall Street Journal that software is eating the world.
Some, such as Tod Nielsen, CEO of cloud financials software ven-
dor FinancialForce, argue that there’s an even bigger trend under
way, as businesses shift from owning assets to consuming services:
“I think we’re going to be at the point where some day in the
future balance sheets for companies are going to be very, very
sparse, because nobody’s going to own any assets. It’s all going
to be comprised of an aggregation of a whole set of services.”
Every business is a services business
While I wouldn’t disagree on the rise of services, I see this as an
extension of the rise of software and connected digital technologies.
You can’t have those services without software, and furthermore
the secret sauce of XaaS that makes both of them so disruptively
impactful is being connected.
Every type of product and service is first being transformed by soft-
ware, then supercharged by connections. The end result is XaaS.
Connected products, connected systems
In a traditional business model, whether it’s a product or a service
that’s delivered, the relationship is a simple transaction – money in
exchange for an item. In the XaaS model, the vendor engages with
the customer to help achieve an outcome. It’s no longer a one-off
transaction but instead it’s a continuing relationship. The effect
of that change in emphasis ripples back throughout the entire
business, requiring a fundamental change in how it operates – not
only its IT systems but also its processes and people – to deliver
results in a far more joined-up, responsive and iterative pattern.
Chapter 6
“With XaaS,
the vendor
engages with
the customer
to help achieve
an outcome.”
PAGE 17
For the CIO and CTO, that change demands a new joined-up
approach to IT systems, connecting data and workflows across
formerly discrete silos. For everyone else in the CXO suite, it
demands a more customer-centric mindset and a new joined-up
approach to helping the customer achieve their desired outcomes.
When the R&D team at energy management and industrial auto-
mation giant Schneider Electric embarked on a proof-of-concept
for connected products, it found it also had to connect into product
management, field service management and CRM systems. This
meant a lot of work on converging the data and the taxonomy so
that field engineers and product designers are both talking about
the same things when they communicate.
The result is that problems the engineers encounter on the cus-
tomer site can feed directly back to product designers, so they can
iterate on the product and enhance its reliability or performance.
But setting this up requires designers to think upfront about what
data needs to be collected, says Twila Osborn, Vice President of
Information Process Organisation (IPO) for R&D and Innovation
Efficiency:
“If we don’t have the characteristics and the attributes we can’t
build them in. If we don’t think about R&D we won’t design in
these attributes that are needed for these new business models.”
Electronics and healthcare giant Philips has made a huge
investment in building a converged repository for health data as
a first step in shifting the healthcare industry towards delivering
continuous care and wellbeing, instead of the traditional model
of simply responding when people become unwell. The converged
data provides the foundation for delivering better outcomes, as
Philips CTO Jeroen Tas explains:
“What you can see here is that we’re starting to connect these
dots which were never connected… It only works if you combine
that data and make it actionable.
“We want to make sure that everybody in that journey under-
stands what the ultimate outcomes have to be and how you can
guide every participant to understand how we can optimise to
get a better result for the patient.”
“For everyone
else in the
CXO suite, it
demands a more
customer-centric
mindset and a
new joined-up
approach.”
Jeroen Tas, Philips
PAGE 18
Philips Lighting, now a separate business after spinning out
from its parent in 2016, has transformed the humble lightbulb
by making it part of a connected infrastructure, as George Yianni,
Head of Technology, Connecting Lighting, explains:
“In a lot of cases, the reasons we’re winning the projects is
not because of the light we’re selling. It’s because of what we do
with the lighting infrastructure. It’s totally transformed the way
we conduct our business.”
Changing culture and processes
Services businesses are being transformed as much as product
businesses, again by data convergence that allows them to deliver
outcomes in the context of a continuous engagement. As Andrew
Brem, Chief Digital Officer at UK-headquartered insurance giant
Aviva, explains, this means constantly analysing the data to become
more responsive to changing circumstances:
“I think our whole industry will gradually be transformed by
services that help people make smart choices and reward them
for that, and I genuinely think it’s in everyone’s best interest.”
Once the systems start going into place, line-of-business executives
must lead change in the culture and business processes across
functions such as sales, customer service, and operations.
At Lifesize, which has transformed itself from an HD videoconf-
erencing product business to a cloud-based Conferencing-as-a-
Service business, refocusing around customer outcomes rather
than product sales has meant re-educating everyone in the busi-
ness. Everyone now puts the customer first, says Amy Downs,
Chief Customer Success Officer:
“Customer success teams are becoming more prevalent. It’s their
job to bring the voice of the customer back into the business and
to connect the rest of the business to the customer. We do that
throughout the lifetime of the customer.”
To get this culture right, staff need to feel that they’re more than
just another cog in the machine. At IT giant Oracle, that has meant
a new emphasis on employee engagement throughout the global
organisation, says Chief of Staff Doug Kehring. >>
Amy Downs, Lifesize
George Yianni, Philips Lighting
PAGE 19
“We’re not in the technology business any more, we’re in the service
business. If you’re in the service business, how your people feel every
day, and wake up, and how they [conduct] themselves in front of the
customer will determine how the customer feels.”
Suite spot: Surviving the shift to XaaS
Properly harnessing the XaaS effect demands attention from every
member of the C-suite:
• CEOs must take a lead in encouraging innovation and collabo-
ration across the enterprise to drive continuous engagement with
customers, helping them achieve better experiences and outcomes.
• CIOs have a big job ahead of them – the next chapter is dedicated
to Outlining a technology roadmap to XaaS.
• CTOs must work to align product development with customer
outcomes, instrumenting and connecting products to ensure the
company collects the data it needs to optimise performance and
deliver experiences of value to customers.
• CMOs must build feedback mechanisms and customer success
strategies to maximise customer engagement and value delivery.
• CFOs must get ready to support rapid innovation in recurring-
revenue models.
• CHROs have to find ways to maximise employee engagement
with company goals and foster an outcomes-focused mindset
across the organisation.
• COOs must co-ordinate digital connections to support
responsive, adaptable business processes.
“CEOs must
take the lead
in encouraging
innovation and
collaboration
across the
enterprise.”
PAGE 20
Outlining a technology roadmap
to XaaS
Harnessing the XaaS effect goes hand-in-hand with achieving
digital transformation across an enterprise. Documenting a
complete roadmap would require an entire diginomica d·book all
to itself, but at least we can outline some of the essential ingredi-
ents in the technology roadmap on the journey to XaaS.
These six building blocks ensure the business has the technology in-
frastructure to connect to its customers to ensure it can foster engage-
ment, monitor performance and deliver continuous improvement.
• Engagement layer
The business must be responsive to customers, employees and
other stakeholders. Therefore it needs a flexible engagement layer
that allows for as much self-service access as possible to informa-
tion and resources. Today, that means both web-based and mobile.
In the future it will also have to incorporate conversational inter-
faces via messaging tools, voice assistants and chatbots.
• Connected products
There are two reasons for connecting products. The first is to keep
them up-to-date with upgraded capabilities, which may vary from
security fixes to performance enhancements or functional up-
grades. The second is to collect data which can be used for moni-
toring, maintenance and support.
• Subscription flexibility
The ability to support different types of customer contract and
billing relationship is crucial for providing the flexibility to try out
different forms of customer engagement in a XaaS relationship.
• Converged data and processes
The old days when separate enterprise functions each maintained
separate datasets and functional silos won’t support the connect-
ivity and responsiveness that the XaaS effect demands. Data
and processes have to be standardised as much as possible across
the organisation to allow for cross-functional collaboration and
information exchange.
Chapter 7
“Harnessing
XaaS goes hand
in hand with
achieving digital
transformation
across the
enterprise.”
PAGE 21
• API-led connections
Having the flexibility to do things differently requires an IT infra-
structure that lends itself to rapid reconfiguration of resources and
processes. This means moving beyond old-fashioned integration to
adopt modern API connectivity. This is especially important in
organisations that have to modernise a legacy IT infrastructure,
where individual resources or functions can be made available as
APIs on a project-by-project basis.
• AI-ready infrastructure
Properly managed data and an API-centric infrastructure are both
crucial ingredients in preparing to take advantage of artificial intel-
ligence to help automate and refine operations.
PAGE 22
Final words
As the case studies we’ve pointed to throughout this diginomica
d·book demonstrate, XaaS sets in train a fundamental transforma-
tion of the enterprise, encompassing internal operations and
culture as well as the underlying technology, business models,
product lifecycle and customer engagement patterns.
Our aim has been to shed light on the nature of the XaaS effect
and how to survive it. But this isn’t the end of the story.
We continue to track this continuing theme in our day-to-day
coverage online at diginomica. That will inform future revisions
to this d·book, which will be available to download subscribers.
While we have touched on the organisational impact, we believe
there is much more to be learned from those businesses and organ-
isations that are embarking on this people, process and technology
journey. As seasoned managers know, the journey of change man-
agement holds many surprises.
Meanwhile, technology is becoming ever more accessible and
affordable. The opportunity to test out new ideas is expanding
exponentially. Much of what emerges will fail, making it a serious
challenge to pick out the long-term winners. By staying close to
real-world stories from the cutting edge of enterprise digital adop-
tion, we’ll aim to provide guard rails for the informed buyer.
With this in mind, we have a whole series of future diginomica
d·book titles in the works, on topics such as digital collaboration,
frictionless enterprise and many others.
As a diginomica subscriber, we’ll keep you informed as we publish new
titles and meanwhile we look forward to welcoming you as a frequent
visitor to our ongoing coverage at diginomica.com.
Chapter 8
PAGE 23
About the author
Phil Wainewright has been a recognised authority on cloud
computing and its impact on business since 1998. As a writer,
analyst, speaker and consultant, he advises enterprise leaders
on the transformation of 21st century business through digital
technology to create frictionless enterprise. He is best known for
his online writing as a co-founder of influential tech media site
diginomica, and as an independent analyst at strategic consulting
group Procullux Ventures.
Twitter: @philww
About diginomica
diginomica is the go-to tech media site for enterprise leaders who
buy or specify technology to transform how their organisations
work and go to market in the digital era.
We believe that today’s informed buyers demand real insight,
not buzzwords. diginomica captures their attention by delivering
authoritative, thoughtful reporting and analysis that separates
signal from noise, with no interruptions from advertising.
Our experienced team of writers, analysts and consultants provides
rich, informed reportage and opinion based upon our daily contact
with buyers and practitioners.
diginomica d·books provide in-depth insight and guidance on
emerging topics in our coverage of the 21st-century digital
enterprise.
Twitter: @diginomica
LinkedIn: www.linkedin.com/company/diginomica
Web: https://diginomica.com
Credits
© diginomica Limited, 2018. All rights reserved.
Images from public domain sources.
Layout Chris Middleton.
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