Transform Order-to-Revenue for Immediate Impact

The Urgency of Modernizing Order-to-Revenue Processes

CFOs and business leaders appreciate how much has changed in the business landscape over the past decade. The growth of multiple buyer channels, the increasing adoption of different pricing models and rising customer expectations create a sense of urgency to escalate technology transformation. Business customers now expect the flexibility and innovation found in their personal consumer experiences, such as near real-time billing updates and consolidated invoices. Delivering a customer-centric experience requires systems that support changes quickly without reliance on technical staff.

Agility that keeps pace with the speed of business is required to maintain competitiveness, especially for order-to-revenue technology. Many enterprises use homegrown custom applications or rely on the capabilities of an ERP system for pricing and billing.

This white paper examines the effectiveness of traditional ERP and back-office applications to manage today’s order-to-revenue needs. By 2027, over one-half of all enterprises will deploy a mixed revenue model that includes subscriptions and usage pricing in addition to one-time sales as enterprises innovate pricing models to remain competitive. As enterprises deploy these alternative pricing and monetization options, technology decisions must consider today’s requirements plus the flexibility to experiment and innovate with products, services and monetization models. Compliance with revenue recognition rules is more challenging with newer pricing models, as is the ability to include more customer-centric pricing models as part of an enterprise’s branding and value proposition.

Legacy and Custom Systems Mean Less Agility

To better position an enterprise to adopt pricing that reflects customer needs and better position an organization in an increasingly competitive market, modern technology stacks offer capabilities to address modernization and transformation as well as accommodate future needs. There are two key drivers here, both of which can operate against each other if not addressed holistically.

55% of enterprises are looking to migrate mainframe applications to the cloud.

On the one hand, many enterprises reliant on commercial or custom-developed legacy systems are looking to move from on-premises solutions to the cloud for good economic and technical reasons. In our research, a survey of 200 executives from Forbes Global 2000 enterprises shows that 55% of enterprises are looking to migrate mainframe applications to the cloud. Cost reduction was cited by 22% of executives as one of the top two reasons, while 19% said retiring legacy applications was in their top two. But to address the needs of the modern enterprise, just moving systems from mainframe to the cloud will not, in itself, enable the agility and flexibility needed. In addition to the cost and support benefits of moving from on-premises legacy to the cloud, there is also a need to address what types of systems are needed. “Lift-and-shift,” or reimplementing the same technology stack in the cloud and migrating data, will not achieve what is really needed.

In our research, we find that many enterprises use a finance lens to assess requirements for today’s monetization technology and evaluate how best to address system needs. Without broader input, the perspective defaults to billing. By taking a step back and considering the continuum of monetization and the order-to-cash process, the customer experience and how it affects sustained engagement and customer profitability will dominate decisions.

Deriving billing amounts is the result of several preceding steps. To bill accurately, you also need to access all the contracted products and services stored by the customer with the relevant price negotiated as part of the sale. Amendments must be processed as recorded so billing accurately reflects the changes to existing or additional new orders. For product and service pricing that is usage-based or contingent upon achieving a milestone, incoming events and usage data need to be managed, normalized and aggregated as necessary.

While creating a bill seems straightforward, new business models increase the complexity. Generating accurate bills when a customer is buying multiple products and services priced with a variety of models requires a computation quite distinct from ERP-based capabilities. With subscription models and bundled offerings, buyers will typically amend the original order as circumstances change. The customer will expect near real-time updates for these modifications, which is difficult to achieve in traditional systems.

Many enterprises have products and services organized into different business units, often because of mergers and acquisitions. An independent monetization platform that is source-neutral can provide customers with consolidated invoices rather than multiple bills.

Billing for pricing models based on achieving tiered cumulative volume targets or multiple attributes dependent on who is buying when and where require calculations of potentially large volumes of complex data within exacting timeframes. For the chief financial officer, performing these steps accurately and on time is of vital importance for both cash flow and audit purposes. Research shows that billing inquiries can constitute up to 15% of all call center interactions, increasing the urgency for accurate information.

Often, existing ERP applications or in-house systems are architected for simple pricing models and infrequent item and list changes. Selecting a point solution to address a singular need limits scalability and extensibility as requirements change. A stopgap solution, such as a spreadsheet, opens the door to mismatched data or multiple invoices, shifting billing issues from the provider to the customer at the risk of poor satisfaction. With more complex pricing models, such as tiered pricing based on achieving volume targets, computations can be challenging for typical ERP architecture. This is accentuated for enterprises with short billing cycles. And finally, enterprises must consider challenges added to the revenue recognition process with such monetization models. Complying with external regulatory requirements and internal controls related to revenue recognition is paramount.

Innovation in today’s products, services, bundles and pricing happens much faster than with physical products. The ability to innovate enables enterprises to rapidly respond to competitive pressure or adjust offerings to achieve revenue targets. ERP and custom systems are not architected to respond to this speed of change and require development efforts to support new offers. The delay can put enterprises at a competitive disadvantage.

Assuring Value Against Inevitable Change

There also exists a business imperative to transform and evolve both the business model and processes symbiotically with the supporting technology stack.

It is not enough to think of the driver for transformation as solely a function of system support costs. There also exists a business imperative to transform and evolve both the business model and processes symbiotically with the supporting technology stack. Even accepting this to be true, an approach that views this as a single, waterfall-style project requiring the introduction of completely new cloud-based systems for all aspects of back and front office before results can be seen is also not necessarily the best route forward. These large-scale projects can take a long time both to implement successfully and to see a positive return on the inevitable large investment.

There may be a temptation to delay renovating monetization support systems pending a comprehensive digital transformation or to plan for a “lift and shift” of existing systems to the cloud. These approaches prolong the status quo and can be costly in terms of competitive advantage and customer satisfaction.

Asking customers to wait is obviously not the right response, and they will naturally start to look for other providers. Given this challenge, another temptation for the enterprise may be to look to point solutions to handle new pricing models such as subscription or usage as “add-ons” to existing systems. This has the danger of creating new issues around how to present this inevitable patchwork of systems as a unified experience to customers. Customers will not want to receive separate invoices from different business units depending on whether the product or service is priced on a legacy one-time system or a newer subscription pricing model. And from an internal operations point of view, addressing customer issues via multiple systems will lead to errors and diminished customer satisfaction.

A point solution will not be scalable nd may not offer aspects such as configure, price, quote capabilities, revenue recognition, or data management for use-based pricing or analytics.

For enterprises with heterogeneous systems, a point solution may seem an expedient choice. However, the system will not be scalable and may not offer aspects such as configure, price, quote capabilities, revenue recognition, or data management for usage-based pricing or analytics. For many enterprises, the manual deal desk process is open to automation which moves the approval processes closer to the point of sale. While giving flexibility to sales teams is important for decision autonomy and expedience, it should also include guardrails and compliance with corporate and finance policy. An integrated process that combines CPQ with margin and revenue recognition protection improves sales velocity without compromising compliance. Capabilities such as CPQ and revenue recognition may not be well integrated into a point solution.

For many subscription management and billing point solutions, data for usage pricing is managed outside of the system. Usage data management, sometimes referred to as data mediation from its telco roots, almost always requires aggregation, accumulation, normalization and other transformations to enable more variable pricing methods, such as tiered pricing based on usage volume targets. For operational reasons, incremental processing is more performant when linked to pricing computation. In addition to avoiding spikes in computation resources at the end of billing periods, incremental processing helps with the all-important forward visibility in forecasting revenues, helping to minimize surprises later. And this provides information on how a customer is progressing toward discounts for hitting volume and other tiered targets.

Identifying billing errors in usage data is easier when directly linked to the subscription management and billing system. Whereas flat-fee subscription pricing can be known upfront, it’s harder to deduce a plausible value for any pricing dependent on more complex pricing rules such as usage billing. For usage, estimating future consumption and tracking actual results helps identify and explain anomalies and errors.

The above are all good tactical reasons to avoid bolting on point solutions to existing legacy systems, but there are significant strategic reasons as well. One of the most significant values to enterprises and their customers from a digital transformation is in the word “digital.” This could equally be termed a “data” transformation inasmuch as deriving insights from the data generated in itself is key to sustaining business growth.

With increased domestic and global competition, every enterprise in every industry must be able to react to market changes, customer needs and competitive pressure to sustain business growth. Introducing new products or extending existing product lines for physical products can be a lengthy process. Digital products and services often require less lead time. Once tested and evaluated, they must be operationalized with minimal latency to ensure the opportunity for market impact is not lost. Testing and evaluating new products, prices or offers on a platform will reduce the reliance on ad hoc tools such as spreadsheets and the subsequent challenges of operationalizing them quickly.

Consider the example of a South African property and casualty enterprise where new products and services were continually introduced in small-scale regional test markets. Once the new service was found to have potential, the product and go-to-market teams were keen to launch countrywide. However, because of the nature of the billing systems, IT needed at least six months to operationalize, defeating the first-mover advantage and losing market momentum. As a result, competitors were able to take market share.

Understanding how customers use a product—when they make the decision to buy and what caused those decisions—are analyses that can be driven in whole or in part from data from the subscription management and billing process.

Understanding how customers use a product—when they make the decision to buy and what caused those decisions—are analyses that can be driven in whole or in part from data from the subscription management and billing process. More robust applications typically use analytic data stores to facilitate inquiries rather than transactional operational data. Analytic data stores transform data to optimize for tasks such as identifying key trends over time, supporting analytics to identify top and bottom performers and identifying possible areas for new products and services.

Data generated from usage collection through the financial accounting and fulfillment systems can also be used to understand operational bottlenecks and inefficiencies. Developing intelligent handling of errors and anomalies using historical data will enable more continuous and thorough processing. Enterprises should look to automate as much of the fulfillment process as possible, with the aim of touchless, accurate pricing and billing for purchases initiated by customers using self-service capabilities.

The Advantages of Independent Order-to-Revenue Platforms

The negative impacts of delaying order-to-revenue process modernization or trying to extend existing ERP systems using point solutions are apparent. A better option for enterprises is to consider specialist cloud subscription and billing systems, sometimes referred to as revenue lifecycle platforms. These will enable an enterprise to modernize business processes before the need to move existing systems to the cloud forces urgency, and they can also potentially allow the enterprise to make these changes without requiring in-house technical experts.

A better option for enterprises is to consider specialist cloud subscription and billing systems, sometimes referred to as revenue lifecycle platforms.

The imperative of modernization is to support customer needs, and not just to reduce costs. A specialist platform will also hedge against the need for future changes and become an invaluable data repository for identifying customer behavior and spotting opportunities for upselling, cross-selling and identifying potential new products and services.

While there are obvious surface differences between one-time sales and newer subscription, usage and milestone business models, these differences fundamentally alter the way businesses need to think about what processes and underlying systems ensure long-term growth and longevity. Such fundamental shifts towards a revenue lifecycle way of thinking mean that supporting systems cannot be the sole responsibility of the CIO but must also involve the CFO and front office teams. Their goals must be aligned, and they must work toward a shared outcome together. As the primary driver should be business transformation, enterprises must understand that this does not need to be viewed as a daunting, wholesale, disruptive process requiring many years to see a return.

Independent source-neutral platforms will give far faster results as they allow for the connection of front- and back-office systems, enable integrated processes that allow for a unified approach to billing and support customers while coordinating and marshalling the necessary data flows to accommodate order fulfillment as well as revenue recognition and financial accounting reporting.

An independent revenue platform also contains a valuable source of data on customer behavior and product and service performance. This is an important part of the value that can be delivered by such systems, not just from lowering the overall cost of supporting customers per transaction as part of typical ROI considerations but also from expanding the return part of the equation through utilization of the data generated by such a platform.

By focusing fully on all potential sources of value, a truer picture emerges, one that focuses on the impact on the business rather than a narrower cost savings discussion.

By providing a platform on which customers can be understood across all products and services that they purchase and how these change over time, other opportunities can be identified for upselling and cross-selling by comparing customers with similar profiles and propensities. This is invaluable information for marketing, product and revenue teams. Another use of this data is to more accurately reflect customers’ and product profitability.

When considering the value derived as part of ROI considerations, look to see all potential sources of value beyond the more typical cost savings, as this approach can often distort technology decisions. By focusing fully on all potential sources of value, a truer picture emerges, one that focuses on the impact on the business rather than a narrower cost savings discussion. The data can also be used to better understand potential process adjustments aimed at improving overall customer experience in service of sustaining engagement with customers.

Key Takeaways

• Enterprises using or considering alternative revenue models will achieve significant benefits from transforming the revenue lifecycle operations stack.
• Traditional ERP and back-office systems do not naturally support rapid innovation nor are they easily extensible to future business models.
• “Lifting and shifting” may not deliver the desired effectiveness. Evaluate and assess software providers with platforms that meet today’s needs and provide flexibility for the future.
• Undertaking a subscription management and billing system modernization independent of other large-scale transformation projects will establish a competitive advantage and deliver value sooner.