03 Jul How a company moves from a pre- to post-configuration world
by Randy West
The first time your business implements a CPQ solution is an intensive and, oftentimes, intimidating process. As an executive, you have to make sure you are prepared to tackle the business’ transition from pre-configuration to post-configuration, from spreadsheet processes to a system-automated solution. You already know your company is outgrowing the old ways: online documents, excel spreadsheets, and simple lists of product/service prices. It’s clear to you and the rest of the executive team that supporting an intricate pre-configuration system like this is overly complicated; every time your business has a new variation, you have to create a new line on the list for an entirely new product. You’ve also noticed that quote errors and compliance problems have been increasing.
But as an executive, you’re not just tasked with plugging in a new platform. You also have to change the way your company thinks about their processes and products. Right now, you have a flat product structure, and—for convenience—an SKU represents a base product configured in a specific way. For example, a software company might sell a certain platform with bronze, silver, or gold support. And each of those supports have the option to be a one-, two-, or three-year term. A company in the pre-configuration world would create a separate product for each of the possible combinations, such as one-year bronze support, two-year bronze support, etc. This doesn’t matter when you’re small and don’t have many products. But as the number of products and options grow, the data set gets very large and increasingly harder to manage. New product introduction is suddenly a chore.
The power of configuration software has the ability to change that paradigm in your business. Configurators allow you to think less about the finished offerings you have to provide and what it took to get to each offering. Instead, you can think more about the individual goods and services and how they can be combined with each other. You can allow things to be combined on the fly. This simple sentence can make your business more streamlined today and more nimble tomorrow.
So, how can an executive facing the company’s first CPQ implementation manage the transition gracefully? With nimble product management, smaller data sets, and easily added features.
You can be more nimble
By embracing the paradigm shift of configuration, businesses can be more nimble in the way they manage product. Updating or changing product prices, discounts, and other details can be done swiftly and simply (and not become a time-consuming ordeal).
Let’s look at the same software example: If you offer software with either gold or silver support, that’s two different products under pre-configuration thinking. If you wanted to change how much the software as a whole costs, then you have to change both products. However, if you’re a post-configuration thinker, then the software and support are separate entities. This means you only have to change the software pricing and it will affect all relevant combinations, regardless of their support add-ons or other features. This is a very small-scale example, and obviously, the larger the price book, the bigger the advantage of that nimbleness is for product management.
Take the real world example of a company that makes air compressors. In their pre-configuration world, every combination was a distinct SKU. They had 12 different air-end sizes, 15 motor powers ratings, two frequencies, multiple motor voltages at each frequency, three different motor duties (normal, extreme, and hazardous), and this is just a subset of their options. Every valid combination of these things required a separate part number. It’s left as an exercise for the user and their calculator to determine how many part numbers they need. Enter configuration, and this is reduced to 12 part numbers (one for each air-end size). The amount of data that had to be maintained just collapsed, and the quote-to-cash and new product introduction cycle times in the business just collapsed. This is a fairly typical story and it is reflective of why companies continue to find CPQ software and the associated services to be a good investment.
You have a smaller data set to work with
Configuration also drastically reduces the data set size you have to work with. CPQ for manufacturers got started selling this particular benefit: imagine all the possible combinations a single car manufacturer has: model A, B, and C, which can come in red paint, blue paint, black paint, or white paint, and then the car can have leather, vinyl, or polyester upholstery… those options alone are already getting unwieldy, and most manufacturers offer much more variations. Clearly, the data set gets very large very fast.
But if you think about your offerings in terms of cascading, building-block features and the ways they can be combined, rather than just a list of final, individual products fully customized according to the options, you end up with a much smaller data set that’s easier for sales employees to manage. In fact, 83% of sales professionals are using configuration tools, and it’s no wonder why: companies with configuration software are seeing a 105% larger than average deal size.
You can add features easily
As your business grows, you’ll naturally want to start adding new products, or, more likely, new features available for purchase upon existing products. With the proper configuration tools in place, if you have a new feature to add, all you have to do is define the new feature and the rules that govern how it is combined with the other products you sell.
This too shapes the nature of post-configuration thinking: you’re considering the feature price instead of a finished product price when you make this new feature. It’s a lot easier to add $200 to an existing computer product offering when a larger hard drive feature is added by the customer than it is to create a whole new product listing for a computer with a larger hard drive—you have to debate the price of an entirely new product rather than just adding to what you already have.
Moving business processes and pricing from the pre-configuration mentality to the post-configuration can be a difficult process. Here are some potential questions and challenges a lot of companies should be prepared to work through as they make the big move:
What are the blocks into which I want to break product down?
What are the rules around how they are combined?
How does this shift from predefined products to rules-governed feature combinations affect all of my downstream systems?
How am I going to manage both ongoing business maintenance and new product production with configuration? How will I organize a new data set that probably doesn’t exist as controlled master data?
The opportunities of the post-configuration world and its thinking are wide open, and the benefits of changing the paradigm far outweigh the challenges. Call Simplus today for help with custom configuration and CPQ implementation.
Randy West is the Director of Quote-to-Cash here at Simplus. A leader in the CPQ space, Randy brings over 17 years of CPQ experience to his management of the Simplus Quote-to-Cash practice. As the former CPQ practice manager for Deloitte, Randy is the premier talent for managing CPQ resources, project delivery, and customer satisfaction.