Turning your organization into an annuity business

Written by Peter Olive, CEO, Vortex 6


Vortex 6 logo - blue and grey


In 2020 the pandemic fast-tracked a general technology drive and trend towards many vendors becoming more software rather than hardware-focused. This was already happening to some extent across the industry in the years prior, but COVID-19 certainly accelerated this movement.  You only have to look at how some of the big players have remodeled their businesses in the last few years to see how the hardware landscape has changed.  Take Cisco as an example. The transformation of its business to offering more software and subscriptions continues at pace, with the company achieving $3.6 billion in software revenue and with 76% of that revenue being generated via a subscription model.

Further evidence of this growth in software can be found if you look at the market values of publicly listed software businesses, which rocketed by almost $3tn during 2020, with vendors including Zoom, Adobe, and Splunk seeing their valuations spike the most. Additionally, research by global investment bank GCA Altium found that publicly listed software firms around the world collectively grew in value by 59% in total.

That is in part because businesses were forced to innovate and digitize almost every facet of their organization during the pandemic. Services that previously depended on in-person processes were forced to pivot to digital alternatives at an uncomfortable speed.  COVID-19 created unprecedented demand overnight for intuitive digital services, and whether they like it or not, organizations have been forced to adapt. As a result the pandemic has proved a catalyst for permanent change. For example, a McKinsey survey published in October 2020 found that companies are three times likelier than they were before the crisis to conduct at least 80 percent of their customer interactions digitally. Furthermore, analyst firm Gartner predicts the social software market will total $4.5bn in 2021 as a result of remote home working and social software integrations within other enterprise applications, which will drive double-digit growth through 2021 and 2022.

So, businesses have been and are continuing to transform. As organizations look to digitize various parts of their operations, how are they filling those gaps to automate previously manual tasks that aren’t deemed to be the big bang CRM or finance system transformations?  There is no end-to-end tool or solution that will digitally transform or automate every part of the business, especially those tasks that, on face value, might not be deemed a priority to automate.  What we have witnessed is a number of niche players, like Vortex 6, fulfilling this role, helping organizations to digitize or automate certain facets of the business in order to plug those gaps.  After all, there is no point having an amazing CRM system or finance system if you are also relying on manual workarounds to completely digitize all your processes.

As a result of this drive to digitize, companies are having to quickly make room for tech-driven innovation and changing business models.  What is important to note is that a software-led approach enables an annuity focus with an as-a-service model.  This, combined with digital transformation and increased automation, creates huge opportunity for both vendors and their partners. And today, in the great digital transformation race, customers are increasingly moving to software as a service (SaaS) and recurring offers, requiring them to work with trusted providers in order to achieve their goals.

Likewise, the benefits that such an approach creates for vendors should not just be looked at just from an external or customer-facing perspective. Transformations also create internal benefits such as greater productivity and enhanced operational efficiencies.  This is important for maintaining staff, being able to move employees onto more meaningful and higher value tasks, ones that are more motivating and rewarding for the individual.  In turn, this becomes a virtuous circle because this typically increases employee retention, which improves productivity, quality and operational efficiency, which increases customer satisfaction and enhances the customer experience, which ultimately leads to competitive advantage and revenue.  And the reverse can be equally powerful, those organizations who develop robust customer success and customer experience practices perform better, in fact according to analyst firm, Forrester, companies that lead in customer experience outperform those that do not by nearly 80%.

Therefore, any annuity-based business should also home in on customer experience (CX) and customer satisfaction as well as increasing productivity, employee motivation and retention.

I say this because vendors are already rewarding businesses that demonstrate good CX.  After all, a focus on customer experience presents opportunities to deliver value-added services after the initial purchase. Therefore, partners need to transform from their traditional product resell business model to a value-added annuity-based lifecycle growth model.

For example, Cisco’s Lifecycle Incentives Program is designed to encourage partners to drive software activation and adoption.  It recognizes a partner’s investments in customer experience and rewards them for ensuring customers realize the full value of the software they have invested in.  To support this, we have developed our V6 Lifecycle Incentives which is an advisory-led reporting service that enables partners to understand what they must do to maximize the rebates available through Cisco’s Lifecycle Incentives program. In effect it eliminates the costly time required to interpret complex data, boosting an organizations profitability.

Moving forward, as organizations move to annuity-based software businesses, ensuring customer success will be paramount, vendors recognize this which is why they are rewarding partners that are focused on evolving their customer success teams to improve customer experience.