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Solution Business - Advantages of a New Business Model

Former Member
‎06-19-2015 9:18 PM

Birth of a New Business Model

Beginning in the mid-90s, when IBM's CEO Lou Gerstner introduced the slogan, "solutions for a small planet," companies of all sizes aimed to become "solution-based" businesses.

To be successful in running a solution business, it helps to start by realizing that solution-based business is more than another product category or an extension of the old product business model, rather it is a new business model.

Early Adopters

Many High Tech companies are natural early adopters and have accepted the need to move to a new business model. These Solution Businesses integrate hardware, software and services into one solution that allows unprecedented levels of customization for meeting today’s demanding customers’ needs.

Providing innovative, turnkey solutions, sets solution businesses apart from competitors who simply offer products leaving it up to their customers to assemble all the pieces for a needed solution from different vendors.

Tradeoffs Inherent to a Solution Business

Running a Solution Business provides advantages like increased customer loyalty or bigger share of wallet. Additionally, solution businesses open opportunities like up- and cross-selling. From the beginning SAP has worked hand-in-hand with its customers to support their changing business models.

However, running a solution business also introduces new challenges that must be considered including the following:

  • Configure, Price & Quote (CPQ)
    Complexity rises when configuring, pricing and quoting an entire solution as hardware, software and services - like installation, implementation, training, maintenance and financing - must work together holistically in all aspects.
  • Billing & Invoicing
    Invoices for a Solution Business can contain one-time charges, recurring charges, usage based charges and more. This makes it challenging for a Solution Business to generate an invoice that consolidates all charges and presents them in an understandable format to the end customer.
  • Revenue Recognition
    A Solution Business faces new challenges in allocating revenue and in dealing with deferred revenue.

Does a Solution-Based Business make Sense?

Solution-based businesses don't always make sense to pursue; however, for many companies the promise of customer loyalty and the opportunity to upsell and cross-sell are enough to make it an attractive business model. Inherent in the recurring revenue included, solution businesses allow for more time in front of the customer, shifting the sales mechanism from a single large transaction to a frequent, on-going conversation.

SAP has addressed many of the above mentioned challenges to enable its customers to run their business as a Solution Business.

Want to Learn More?

SAP has recently launched a Solution Business Education Series coupling short 1-2 min animated videos walking through different challenges and how they have been addressed through joint efforts between the customers and SAP. In the series you will hear from IBM (who birthed the idea of solution business), EMC, Lexmark and Varian Medical, who share their stories and learnings.Take a tour of the Solution Business Education Series and learn how you can run your business as a Solution Business. For further questions about Solution Business contact Manfred.kopisch@sap.com

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