Participant Insights: Building Value Using a Recurring Business Model

In the first of a two-part series, Executive MBA participant and SaaS (Software as a Service) marketing expert Geoffroy de Lestrange discusses the game-changing entrepreneurial possibilities when the transformational power of digitalization is brought to bear. In this installment, he delves into large firms adopting recurring business models. With a median age of 40, most HEC Paris Executive MBA participants are typically among the top echelon of their chosen profession.

A change is coming.

Many companies, used to selling one-time projects, products, and services, realize they can analyze data gathered from clients’ use of their products, and offer a range of new, recurring services.

HEC Paris Executive MBA participant Geoffroy de Lestrange

Geoffroy de Lestrange is International Product Marketing & Communications Director at Cornerstone OnDemand

When one is used to selling one-time projects or products, though, setting up new recurring business models may engender the following challenges:

  • In company culture: how does the company adapt or move from one-time project management to recurring services?
  • In the organization, how can one understand and anticipate the long-term impact that new business models can have on the company in terms of revenue streams, job description, client relations, etc.?

Using the world of SaaS as a prism, we can offer suggestions on how the organization should evolve. We can discern which new roles – armed with which skills — have to be created in order to sustain the development of the new recurring business models, in addition to which tasks require extra attention. Setting up such business models will generate new streams of recurring revenue and improve company results.

New business models

A transformational business model is as follows: it offers a more personalized product or service, it works as a closed-loop process, it shares assets, the pricing is usage-based, it enables a more collaborative ecosystem, and it is built upon an agile and adaptive organization. The aim is to ensure innovation responds to the key market trends that focus on a mix of regulatory and cost pressure, coupled with a greater demand for personalized service, while companies need to rationalize their own product lines to remain profitable.

Now the main challenge for product- or project-driven organizations is to move from traditional project-based business models to a recurring model. There is necessarily massive cultural change involved. Project-based business is linear, clearly defined with a beginning and an end, and potentially followed by a series of one-time services such as spare parts or maintenance. With a recurring service, customer engagement is constantly fed by a regular stream of product/service upgrades, ongoing communication with clients to ensure they are seeing the benefits of the innovation, a focus on client success, and a high level of automation in the service delivery.

New business models, new beginnings

Since new digital projects require new business models, it becomes necessary to analyze their value by looking at their value proposition, value architecture and profit equation (see Odyssey 3.14 model, accessible here).

In terms of value proposition, the main areas would be to reduce the price for clients, reduce clients’ hassle, anticipate trends, and to modify revenue streams.

  • Focusing on recurring services, cost reduction for clients will focus on post-sales costs such as maintenance, repairs, running costs such as energy or raw material consumption, or training costs when applicable. This applies to the objective or reducing client’s constraints: how does the technology interface with other solutions, and are there any ways an ongoing service could reduce the client’s challenges?
  • Anticipating trends will be another priority for your company. Which future technology could disrupt your industry? Which competitor (even a small one) is offering a brand-new type of product or service based on new business models that you don’t?
  • Modifying revenue streams should be among the main goals of your whole project. The general concept is to develop recurring services that will increase client retention and avoid being too dependent on one-time projects. This is obviously linked to the new services in the pipeline, based on the elements previously mentioned like reducing costs and hassle for clients, in addition to creating new services.

With regards to value architecture, the focus is the introduction of your new technology or service. You should take other elements into account as well, such as associating with a new partner and the optimization of the value chain.

  • New technology introduction is the core element of the whole project, which needs to target data-driven innovation. This may be achieved through the analysis of existing data available in pre-existing systems, but it can also relate to data that aren’t collected yet – but could be – like with the installation of sensors. Generating information is one thing but gathering it in a secure way that satisfies the strictest security and privacy requirements is another. This cannot be neglected.
  • Bringing a partner on board is critical if you want to expand the sale of your solution beyond your own R&D capabilities.
  • Optimization of the value chain is critical to growth, both technically and geographically, to serve more clients.

Bringing a partner on board is critical if you want to expand the sale of your solution beyond your own R&D capabilities.

Your focus should then be to think about your new business model as a way to bring in new intelligence to your clients, helping them be more efficient with your products and services, while ensuring the ongoing quality of the relationship.

Geoffroy de Lestrange is a member of the English Modular class of 2021. He is a B2B Marketing expert, specializing in talent management, digital transformation, and product messaging and communication in an international setting.

More CEOs of Fortune Global 500 companies have graduated from HEC Paris than any other university in Europe, and nearly 4,000 graduates are currently CEOs, CFOs, or have founded their own companies. According to the Financial Times, the HEC Paris Executive MBA is ranked #1 in Europe and #3 in the world; click here to learn more about this world-class program.