By: Peter Getchell, Navint Director, Subscription Revenue

Exiting the Item-Based Economy: 4 Take-A-Ways from Monetize7

Last week I attended and presented with my colleague Stephen Terry at MGI Research’s Monetization Summit in San Francisco. Monetize7 showcases the top monetization experts, forward-thinking leaders and compelling case studies focused on how businesses can embrace the frictionless economy. The fascinating aspect of where we are now is we are exiting one economy and entering another.

Having spent 25+ years in optimizing Supply Chain Management, I’ve used methodologies like Lean, Six Sigma and TQM to help optimize businesses in a very linear fashion. We started with customers who purchased an item which then pulled the strings needed to produce, procure, provision, account for and forecast revenue and costs.

Over the last few years, the pace at which the principles that drive an item-based economy are being disrupted by the digital transformation and the move to recurring revenue is accelerating. That disruption was reiterated in every presentation throughout the day from companies with digital consumers, technology vendors, financial analysts and monetization service providers.

Here are 4 take-a-ways from the summit that every company needs to know.

1. View everything from the continuous customer optic
The world today is different in a very fundamental way. We can’t succeed by compartmentalizing our relationship with the customer into sales orders. Customers are buying the entire experience of how we sell, how we serve and how we monetize. The customer is “always on” and interacting with us in ways other than ordering.

Customers are buying outcomes (readily available transportation or a readily available fresh razor) as opposed to items. Those expectations for seamless outcomes are inclusive (even if not front-of-mind) of legacy hassles like charging and payment. My favorite example is Uber; once I arrive, I pay simply by closing the car door – seamless.

Therefore, no longer can there be a “back office” and a “front office” as every piece of our business is now customer-facing in a recurring revenue business. Every department and every employee is involved in the customer relationship in a circular, inner-connected series of interactions serving the Continuous Customer.

2. Focus on customer stories, not internal use cases
Traditional businesses are optimized around efficiency for the supply chain, driven by a set of internal requirements and use cases driving speed and elimination of waste in delivering an item. One of the fundamental flaws in taking this approach for the Continuous Customer model is the fact that it relies upon a sales order not a subscription.

Subscriptions are the container for customer expectations including the amount they will consume, frequency of when they consume, for how long they will consume, what they will pay for, how they will pay and what they can change. In the legacy economy, fulfilling each combination of these expectations required creating an item that could be bought, then delivered, then accounted for and inventory replenished by triggering the supply chain to produce more items.

Any success in making steps towards the subscription economy must start with customer stories first. We must put the entire customer experience at the top of every story and be especially diligent about this when talking about technology and requirements. What the customer experiences at every touchpoint such as the product is being bought, served and paid for must be considered, not just how the systems will work in a SCM lens.

3. Turn traditional Supply Chain Management (SCM) optimization by 90-degrees
We are masters at drawing as much efficiency as possible based upon a discrete event where a “thing” is sold. The good news is we don’t have to throw out the principles of SCM optimization but rather turn them 90-degrees on their side. Instead of SCM being the linear backbone of the operating model, SCM becomes an encapsulated service within the company responsible for producing and delivering items based on directions from a subscription (not a sales plan).

For physical goods providers, this SCM service will remain extremely prominent, but receive inputs at a different cadence and level of precision. For services and electronically distributed products (such as software), the SCM service will still serve a purpose, but drop in prominence. Either way, the service of producing and then delivering items will no longer necessarily trigger the service of billing which then triggers accounting and so on. Billing within a company should still happen in an optimized fashion, but it needs to be fed new inputs related to usage, permitted consumption thresholds and other metrics of a subscription.

Everything starts with the relationship with the customer, which is much more circular and perpetual than ever before.

4. Form new habits
We’ve spent years forming habits, and these habits have suited us well in the item-based economy. In fact, for non-native digital companies, there is a need to preserve, care and feed the legacy business. However, the systems and processes can’t be stretched to incorporate the needs of the Continuous Customer??the legacy thinking and habits needs to evolve.

Barriers to adopting innovation (new mindsets, new technologies, new methods) in the subscription market are rooted in old-school thinking, creating a ton of friction both internally and with customers. Companies who are stuck with old habits in the subscription economy are suffering from exploding product identifiers (SKUs), burgeoning sales organizations and manual processes. They are figurately stuffing square pegs from subscription into round holes of internal organizational structure (legacy departments), linear processes and MRP/ERP geared technology. To them, every transaction stemming from a subscription customer is an exception in their optimized supply chain model that needs hand-holding through poor fit-for-purpose processes and technologies. New habits need to be formed through the customer optic.

Parting Thoughts
While a pure definition of a “digital company” is still forming, there are major tenants including zero latency in meeting customer demand and zero friction in delivering customer expectations. This is about business transformation to catch, keep, and grow continuous customers, not about technology implementations to optimize a linear, supply-chain view of operations.

To succeed in the transformation to continuous customer excellence, a company must have a galvanizing definition of success when operating. That definition of success is a vision shared by the entire company. Customer stories must always come first and justify all operational design based upon improvement to customer retention, growth, and delight.

To learn more about Navint’s Subscription & Monetization service offerings, please visit our Subscription Services section.