By Raja Sekhar
Quote-to-cash (Q2C) is an information technology term for the integration and automated management of end-to-end business processes, where sales and finance work side-by-side to close a deal and recognize revenue. In this blog, I’ll explain why Q2C has become increasingly important for technology companies and increasingly complex.
Virtually every industry has its own vocabulary for describing Q2C and its own process models, which, in turn, vary by company. But the following is a good generally applicable process flow:
- Lead to Opportunity
- Opportunity to Quote
- Configure, Price, Quote
- Contract Lifecycle Management
- Quote to Order
- Order to Fulfillment
- Revenue Recognition
Business Model and Pricing Variety Drives the Need for Q2C Efficiency
The proliferation of business models in software and hardware businesses have made pricing and quoting far more complex. In the past, if you were selling hardware, your customer purchased the product. The contract may have contained licensing restrictions on how the product could be used and service provisions, but each product had a price. And the customer owned the asset. A similar business model governed software, especially when the norm was big, monolithic on-premises applications.
But software as a service (SaaS) upset that apple cart in a big way — for both hardware and software. SaaS easily supports a subscription-based business model, with pricing linked to the number of users. Essentially, with a subscription model, you’re renting the product or service.
There are also several variations on the basic subscription model, which include:
- Usage- or consumption-based — how much of the product or service is the customer using within a defined time period. This can apply to hardware, as well as software. 3D printing is a common example.
- Outcome based — Pricing is based on achieving certain agreed upon metrics.
- API-call based — An interesting variation of the basic usage model for software, the API-call based model prices based on the number of API calls made to the product. Different call volume tiers set the pricing scheme, but this could just as easily be the amount of storage required or the size of data packets exchanged.
Of course, the business model and the pricing it supports must be defined in the contract, which can be quite complex. It’s still manageable, but renewals, add-ons, cancellations, modifications, swaps, warranties, repairs, and upgrades can the process quite challenging. That’s why contract lifecycle management (CLM) has emerged as a critical sub-process of Q2C.
Evolving Business Models and Variable Pricing Require a Flexible Back End
Evolving business models and variable pricing require a back end that can accommodate that without too much change or disruption. In a nutshell, that’s the integration and business process challenge. IT back ends are control points for companies to some extent. They’re a company’s nervous system. You need to find a way to orchestrate processes so that when your front end changes, it causes minimal disruption on the back end.
This seemingly magical combination of stability and flexibility, speed and control is provided by the reference architecture on which the Q2C process rests. Different business models require different reference architectures. That’s where we begin our discussions with customers.
Reference Architectures Define the Terms of Engagement for Q2C Integration
Jade has three Q2C reference architectures: One for network devices, one for software companies (consumer and enterprise), and one for social media (also referred to as internet companies). Professional services pay a role in all three. These architectures are a great starting point, where you get 70 to 80 percent of what you need right out of the gate, but you still have to make sure the individual components fit your ecosystem.
The primary integration in all three is between CRM and ERP. With our clients, that’s typically Salesforce and Oracle, but it could also be SAP. In my last blog, I talked about how there used to be one “mothership” application — usually ERP — where everything happened and it was customized to accommodate company-specific process anomalies.
The move to best-of-breed has changed that. For financials and supply chain, ERP still dominates. But few companies use the CRM module of a cloud-based ERP suite. And for HR, marketing automation, CLM, warehouse management, and other specialties, the best-of-breed market is crowded with entries.
Most companies want best-of-breed to be part of their reference architecture, which means integration. A decade ago, there was quite a bit of anxiety around this — but this is no longer the case. All best-of-breed apps come with APIs that can be plugged into an integration platform as a service (iPaaS) like the Boomi AtomSphere Platform. In a matter of days, not weeks or months, you can integrate two applications, and within a week deploy it into production. The whole mindset for reference architectures and integration has changed.
A reference architecture for Q2C may have hundreds of integrations, so it needs a solid integration layer, where little time is spent on manual tasks. Everything that can be automated, should be. And the key “reference” in a reference architecture is how master data is conceived, configured, and integrated with other systems.
Automating Q2C Doesn’t Have to Be a “Big Bang” Effort
In our practice, we work with companies that have different levels of maturity when it comes to automating the Q2C process. Some high-growth companies constantly work on refining their Q2C, adding more automation. They want a zero-touch and frictionless process. This is easier said than done, but that’s the goal.
A greater percentage of our clients, usually larger companies, have well-defined, mature processes, some of which are still manual. But they are starting to ask why certain legacy systems need to be kept; why can’t they be changed? Modernizing Q2C is part of a broader digital transformation initiative. But cultural limitations hamper these efforts and complex change management sometimes overwhelms them.
Nevertheless, modernizing and automating Q2C is not binary. There are phases. Most companies have some degree of automation because the complexities of quoting and calculating revenue schedules is simply too complex to do manually. You must have systems do it, which then integrate with other systems to make it happen.
Occasionally I come across companies that still haven’t integrated their CRM and ERP systems, but they are outliers. They’re quickly realizing that if they don’t integrate those basic systems, they’ll be overwhelmed by market demand. The more automated the Q2C process, the more demand companies can handle at a lower cost.
The Jade Approach to Automating and Simplifying the Q2C Process
We’ve helped many of our clients simplify their Q2C process, and have seen many variations. Often an existing process has complexities designed into it, but no one remembers the reasons why. Or companies did not have the internal capabilities to do it differently. The size of the company is also an important factor, as well as its rate of growth.
Regardless of the initial conditions, we start with an assessment from which we generate a road map to get companies from where they are to where they want to be — the desired end state. We can also address some of the “low hanging fruit” during assessment, which accelerates desired outcomes. We use our reference architectures as starting points and then identify the gaps clients face now and are likely to face in the future.
Our capabilities across CRM, ERP, and integration allow us to offer an authentic and effective end-to-end solution. We have more than 150 clients in the high tech space. So, our track record with projects like Q2C modernization is based on a great deal of experience.
Read the solution brief “Jade Global’s High Tech Solutions” to learn more about Jade Global’s solution for high tech companies.