I just finished reading B4b: How Technology and Big Data Are Reinventing the Customer-Supplier Relationship and it helped me understand the company I’ve been working for and others in the industry.
One of the models the book puts forth is one of 4 levels of companies. A company can stay at one level or try and progress to next levels. The authors put emphasis on the need for adding levels with AND, instead of OR.
The four levels are organized by the complexity of the offer and the result the customer is expecting.
- Level 1: Simple Offer
- This is like a simple product company, where the manufacturer distributes product to re-sellers that distribute to end users. An example might be a company that sells toasters.
- Level 2: Complex Offer
- This is like an IT or enterprise software company that sells a complex system. This offer requires someone to manage the system after purchase. This level of company will sell the product to a customer, like a hospital, and then leave and let the hospital engineers maintain the system.
- Level 3: Optimize
- This level of company offers complex products, but adds additional services. An example might be a software vendor that sells a product with an annual maintenance contract. This vendor might remotely monitor the software or perform routine maintenance or other programs to make sure the customer is able to use the product.
- Level 4: Outcome
- This level of company offers customers outcomes. An example is a copier machine company that does not sell copiers, but puts copiers in office buildings and sells per page. People are not buying copiers, not buying maintence contracts, but are buying a copy. Another example is Amazon Web Services offering servers by the minute.
The book takes these categorizations of companies and spells out useful advice for each. The Level 4 companies require more automation and not just per-outcome pricing. The authors warn that if a Level 4 company tries to sell using Software-as-a-Service (SaaS) pricing without the necessary level of automation, then it will cost the company a lot more. This is because the company will have guaranteed an outcome, but without automation, the delivery of each unit will vary. We know this in IT because depending on the employee and depending on different factors, the time required to set up a server can vary.
A lot of small and medium size traditional IT and software vendors are doing Level 2 and Level 3 offers, where they offer complex products and selling annual maintenance contracts. The book makes the argument that because customers are getting introduced to Level 4 companies in the consumer space, that they will increasingly expect Level 4 companies, like Salesforce and Amazon in the commercial space.
B4B makes the case that many software vendors products offer way more features than are actually used by any individual customer. This gap between the customer’s usage and available capabilities is something that software vendors should take notice of. What ratio of your developers work is going to adding new features, that might not actually contribute to value-add for the customer? With this feature/usage gap, those developers have cover to use an increasingly larger portion of their work time to implement the underlying platform needs, to bring their company to Level 4 automated offers. This requires deep instrumentation and understanding how customers use the product.