In a recent blog article, I wrote about the formula for growing ARR (Annual Recurring Revenue) and how it requires a repeatable framework with the unique role of Product Management steering the ship. Product Management crafts the solutions that impact the customer experience, sales and service effectiveness, revenue growth, delivery costs, operational scale, and margins.

In XaaS, every decision large and small that Product Management makes in the process of  discovering, designing, creating, and launching their solutions can have an acceleration or deceleration effect on these metrics. These metrics are the very ones that have a big impact on success of the XaaS business, and every decision counts.

A Data-Driven Operational Model for “As-a-Service” Businesses

On the face of it, this sounds obvious, however business management 101 reminds us that a strategy without a plan to execute it, is just a wish. To operationalize this strategy, a systematic framework is essential to drive repeatability of practice and decision-making. That framework is called the XaaS Value Stream Framework.

‍

The XaaS Value Stream Framework is designed to provide a predictive and prescriptive data-driven operational model for a XaaS organization, where the “X” can represent anything, from SaaS (software-as-a-service) to DaaS (device-as-a-service) and more. This framework demands a “system thinking” view on the entire XaaS Value Stream from Value Creation through full Value Realization (by the customers) and Value Capture (by the company).

In other words, it reflects the operational flow from concept to consumption. The systems thinking perspective recognizes that in XaaS, everything in the system is holistic, interconnected, and iterative with Product Management at the epicenter of impact for the success of the system.

Let’s break down the XaaS Value Stream Framework of into Value Creation, Value Capture, and Value Realization.

Value creation entails all the activities that increase the worth of a supplier’s products and services that customers are willing to pay for.

Value Creation

A quick Google search will reveal many definitions of business value creation, but perhaps the most common theme is that value creation entails all the activities that increase the worth of a supplier's products and services that customers are willing to pay for.

Value creation is a continuous process over the lifetime of a business. It starts with a single solution targeted to a single market, potentially evolving over time to a broad and complex product portfolio addressing a multitude of customer problems and use cases across a variety of markets.

Let’s example each of phases embodied in value creation:

• Discover: The process of identification and analysis of a market segment including personas, use cases in the “problem space”.
• Design: All the activities involved in designing the value proposition that solves for the identified customer problem and creating a compelling offer and customer experience to produce a business outcome for the target segment (i.e. achieve offer-market fit).
• Create: The activities involved in building out the complete customer experience.
• Launch: The activities involved in launching the solution to market via the effective channels to reach the customer (i.e. achieve offer-market-sales fit). TSIA members can probe deeper into the topic of offer-market-sales fit in the publication "Achieving Offer-Market-Sales fit in the XaaS Revolution".

Value realization is the value that the customer continually realizes by adopting the supplier’s solution.

Value Realization and Value Capture

Once the solutions are launched to the market, the customer journey really takes off. The de facto standard of TSIA’s LAER model becomes essential for companies to master to prescriptively and cost effectively drive sales, customer adoption, expansion, and renewal. There’s a technology industry-wide drive to do just that.

Value realization is the value that the customer continually realizes by adopting the supplier’s solution. For the customer, value is typically realized by achieving the business outcome of increased productivity, increased revenue or reduced risk in some quantifiable from.

Value capture is the monetary value that the supplier continually realizes in the form of revenue and profits from the sale of the solution over the lifetime of the customer contract.

Let’s example each of phases embodied in value creation:

• Land: All Sales and Marketing activities required to land the first sale of a solution to a new customer and the initial implementation of that solution.
• Adopt: All activities involved in making sure the customer is successfully adopting and expanding their use of the solution. This is the step where you help the customer that just bought your technology successfully use it to achieve their business outcomes.
• Expand: All activities required to cost-effectively help current customers expand their spending as usage increases, including both cross-selling and upselling. As you become more invested in the customer’s outcomes, it becomes easier to tie your technology to other projects and initiatives, encouraging your customers to buy more products and services from you the supplier.
• Renew: All activities required to ensure the customer renews their contract(s). Convincing your customer to renew their relationship with you when it comes time to repurchase the technology.

Value capture is the monetary value that the supplier continually realizes in the form of revenue and profits from the sale of the solution over the lifetime of the customer contract.

Value Creation Drives Value Capture and Value Realization

The impact of decisions made during the Value Creation phase cannot be overstated. Unlike the traditional world of make-sell-ship, the never-ending iterative cycle of creating and monetizing value has massive accelerators and decelerators. The compound results are a function of a multitude of practices in the Value Creation phase including the degree of market segmentation, how offers are designed to achieve the optimal market fit, how pricing is established to align with the customer value vectors, the approach to customer experience analytics, the degree to which adoption and upgrades are engineered into the customer experience and more.

Product Management is at the epicenter of impact in their organizations. No scalable ARR growth or business model transformation can happen without Product Management’s active leadership to drive the technology direction and engage cross organizationally to deliver the solutions to fuel sustainable business growth.

Regardless of whether the topic is strategic or tactical, practice or KPI, or where it lives along the XaaS value stream, product management leaders regularly inquire, "How are other companies handling these challenges?"

That is precisely why the TSIA’s XaaS Product Management research practice provides product management leadership with proven industry practices and identifies the patterns of success to accelerate the path to Saas system success.

The publication "The State of XaaS Product Management: 2019" reviews many of these challenges and offers an effective forward path for product management leaders. Read it and share your comments below.