As cloud and service-based IT become ubiquitous, how can XaaS adopters build and keep a competitive advantage? Our survey analysis identifies the frontrunners and uncovers four practices that set them apart.
Everything-as-a-service (XaaS)1 is dramatically reshaping the enterprise IT landscape. Organisations are adopting service-based IT to gain greater flexibility over what they consume and pay for and, ultimately, to boost their business agility and workforce efficiency.2 Responding to that demand, technology providers have been shifting to an as-a-service model for providing products, capabilities and tools. Notably, several major technology providers expect XaaS to fuel their future growth and have announced plans to shift the majority of their portfolios to service-based IT over the next few years.3
To better understand how companies are adopting XaaS—including their motivations, outcomes, challenges and practices—we conducted the 2021 edition of Deloitte’s Everything-as-a-Service (XaaS) Study, based on a Q4 2020 survey of 600 IT and line-of-business (LoB) professionals responsible for XaaS at large US organisations where at least 15% of enterprise IT is consumed as-a-service (see sidebar, “Methodology”).4 These adopters5 are leveraging XaaS to access cutting-edge features and technologies, accelerate innovation, and get products and services to market faster. The vast majority of adopters report that XaaS has helped them create new business processes, products and services, and business models—and has even changed how they sell to their customers.
However, a closer look reveals that these benefits are being realised unevenly. And while most adopters reported that as-a-service IT is giving their organisation a competitive advantage, they may have to work harder to gain and keep an edge as XaaS becomes ubiquitous.
Our analysis shows that some organisations—“Frontrunners”—are achieving better outcomes and greater competitive advantage by following four XaaS practices that distinguish them from competitors: sharpening their expertise, honing their strategy, mastering execution and building better relationships for customer success. By emulating the behaviours of the Frontrunners, other enterprises may be able to derive greater value from their XaaS adoption.
To obtain a cross-industry view of how organisations are adopting and benefiting from as-a-service enterprise IT, Deloitte conducted the Everything-as-a-Service (XaaS) Study, 2021 edition, surveying 600 IT and LoB professionals from US-based companies in Q4 2020. All respondents were chosen from organisations that consume 15% or more of their IT as a service (XaaS adopters) and were required to have responsibility for enterprise IT and specifically for XaaS—for example, spending, strategies, deployments and vendor selection and evaluation.
Respondents were evenly split between IT and LoB professionals. Eighty-nine percent were executives, with 63% representing the C-suite. In terms of company size, 46% had annual revenues under US$1 billion, 34% had revenues of US$1 billion to US$5 billion and 20% had revenues of US$5 billion or more. Six industries were represented: technology, media and telecom (25%); energy, resources and industrials (23%); consumer, retail and automotive (22%); financial services (16%); life sciences and health care (9%); and education (5%).
One thing our study revealed is the extent to which the COVID-19 pandemic accelerated the transition from traditional IT to XaaS, as organisations looked to new kinds of collaboration tools to support professionals who were working remotely. Our respondents reported that XaaS is helping them create new solutions or business models to thrive in the new normal—and they’re increasing their XaaS investment accordingly. The market for cloud—a critical as-a-service enabler—corroborates our findings: Despite a contraction of global IT spending in 2020, cloud-based services remained a top IT budget priority.6 Analysts have projected that global cloud services spending will grow 23% in 2021, reaching US$332 billion.7
As organisations across industries shift more and more of their IT to as-a-service, XaaS adopters may have to work harder to differentiate themselves. Indeed, more than eight in 10 of our respondents say their companies already use software-as-a-service, infrastructure-as-a-service and/or platform-as-a-service—and adoption is expected to be nearly universal within the next two years. On its own, shifting to XaaS is unlikely to be enough to gain and sustain an edge in the future.
Adopters view XaaS as an innovation catalyst: Eight in 10 agree that XaaS has led their organisation to reinvent business processes, develop new products and services, invent a new business model and even change how they sell to customers—and of those respondents, more than three in 10 “strongly agree.”
With these widespread benefits, it’s not surprising that six in 10 adopters feel they’re gaining some competitive edge through their use of XaaS. However, only 25% report “significant” competitive advantage from their efforts and the rest are catching or keeping up, or at best gaining a “slight” edge (figure 1).8 In other words, for three-quarters of adopters, there’s still room for improvement.
To gain greater competitive advantage from XaaS, many enterprises will need to improve how they’re adopting and using it. What behaviours can lead to better as-a-service outcomes? To find out, we analysed our survey data and identified a group of leading adopters that are getting superior value and competitive advantage from their use of cloud and XaaS. We segmented organisations based on their strategic view of XaaS and the level of competitive advantage they’re achieving with it (figure 2):
What is different about the Frontrunners? They’re more invested in XaaS—and demonstrating more successful outcomes. That’s no accident: They’ve honed their expertise in a variety of XaaS-related activities and are intentionally pursuing best practices. Let’s look at the details.
Two-thirds of Frontrunners believe XaaS will have critical strategic importance to their business within two years—a perspective almost matched by the Chaser group (figure 3). Remarkably, 55% of Frontrunners strongly believe XaaS is critical to their organisation’s digital transformation.
It may come as no surprise, then, that Frontrunners already run more of their enterprise IT as-a-service than others. Forty-three percent of Frontrunners reported their organisation consumes three-quarters or more of their enterprise IT as as-a-service—with the remainder being traditional, nonservice–based IT (figure 4).9 The shift to XaaS is expected to continue, with 56% of Frontrunners (and about as many Chasers) expecting to run three-quarters or more of their IT as-a-service within five years. The Followers expect to dramatically increase their XaaS proportion over the next five years, but are still projected to be playing catch-up.
Our survey analysis also shows that Frontrunners are investing more aggressively: They report spending US$22.2 million on average on XaaS in the current fiscal year (versus US$20.1 million for Chasers and US$18.2 million for Followers). What’s more, 56% of Frontrunners plan to increase their XaaS investment by 15% or more in the next fiscal year, versus just 34% of Chasers and 30% of Followers.
Focussing on XaaS appears to be paying off: Frontrunners credit their as-a-service efforts for success in multiple areas, which may well explain why they indicate they’re achieving greater competitive advantage (figure 5). XaaS has helped them improve decision-making and collaboration, accelerate experimentation (by allowing them to rapidly try out new solutions and evaluate outcomes) and reinvent business processes. XaaS is also having a notable effect on how Frontrunners develop and sell their offerings: They report that XaaS has led them to develop new products and services, invent new business models and ultimately grow their revenue. XaaS has even changed how they sell to their customers.
What secret sauce enables the Frontrunners to achieve better outcomes from their XaaS initiatives and, ultimately, more competitive advantage? Our survey analysis reveals several distinctions. Compared with the other segments, these companies are more likely to:
Given the large XaaS leaps that Chasers and Followers expect to make over the next five years (figure 4), they would do well to emulate Frontrunner behaviors. If they don’t, they risk falling further behind in converting as-a-service adoption into competitive advantage.
Whether they’ve been XaaS-first from the start or have shifted to XaaS from traditional IT solutions over time, Frontrunners now run substantial amounts of their enterprise IT as-a-service. Along the way, they’ve honed their capabilities across a wide range of XaaS-related activities (figure 6).
As organisations adopt XaaS, it’s important for them to pinpoint areas of their business where XaaS could provide the most value. And it’s also essential to identify the right solutions and providers, and to ensure they have staff with the right skills. Frontrunners have generally built up more expertise than the other groups in each of these pursuits. After they’ve chosen solutions, adopters turn their attention to integrating them with existing systems—for example, determining how customer and product data can flow from one system to another. Another critical element is ensuring data security. Frontrunners typically indicate greater mastery in both areas.
Once solutions are running and integrated, adopters shift their focus to managing and maintaining them, effectively keeping XaaS costs in check and measuring business returns. Again, the Frontrunners lead the pack in their command of these activities. However, it’s worth noting that, for each activity, fewer than six in 10 Frontrunners report “high expertise.” And when it comes to hiring and managing the right employees, fewer than half of Frontrunners profess to be experts. Even among the leaders, there’s still room to improve
When it comes to strategies for their XaaS adoption, organisations employ a variety of approaches. Some handle XaaS adoption at the departmental level—on an ad hoc, case-by-case basis or through departmental strategies. Others have developed an enterprisewide strategy or have a blend of departmental and enterprisewide strategies. Frontrunners are more likely than other groups to have established a comprehensive, enterprisewide strategy for their XaaS adoption—or to be headed in that direction—while Chasers and Followers still indicate a greater departmental focus (figure 7).
There are multiple advantages to approaching an organisation’s XaaS and cloud solutions holistically: Treating solutions as part of a broader strategic platform opens up the possibility of managing them through a “single pane of glass,” creating a comprehensive security system that is centrally managed, and establishing a governance system that covers all solutions and can communicate effectively with security and ops.10
Frontrunners’ more mature approach is also frequently evident in the strategy-related activities they practice. They’re more likely than other groups to establish clear executive responsibility for XaaS adoption (whether in business units or companywide), develop a road map for migrating to XaaS from traditional IT and commit to an XaaS-first IT strategy (figure 8). They’re also more likely to adopt an organisationwide data strategy (for example, to help enable data sharing among solutions) and even create a centre of excellence for XaaS. On many of these strategy-related activities, Chasers tend to behave much like the Followers, suggesting that they both have their work cut out.
It’s worth noting that slightly fewer than half of Frontrunners say they involve business units in the selection of IT solutions that best meet their needs. While Frontrunners outpace the other groups, all adopters likely need to make this a regular practice. Disconnects between the business and IT can breed “shadow IT,” which not only raises the risks of data breaches and regulatory noncompliance but can lead to difficulties managing costs.11
Despite enthusiastically embracing the XaaS model, nine in 10 adopters report challenges scaling up their XaaS efforts. Chief among them are concerns around data security and privacy, inadequate IT skills to deploy and manage XaaS, unpredictable costs and difficulty integrating with other systems.12
Frontrunners appear to be making headway in surmounting these challenges: As noted earlier, they report greater expertise in integrating and securing XaaS solutions, hiring the right staff, managing XaaS solutions, and tracking costs and returns. Their greater execution proficiency likely stems from best practices they implement more than other adopters (figure 9). Two-thirds of Frontrunners say their organisation continually monitors the security of XaaS applications and data, and six in 10 say they view and manage their XaaS portfolio in a comprehensive dashboard. The same number say they have established processes and policies to address both data security and regulatory compliance. On all these practices, the Frontrunners resoundingly outpace the other groups. Frontrunners also tend to lead on tracking XaaS utilisation (for instance, to optimise costs and avoid cost leakage) and forecasting utilisation costs, as well as on training staff to use XaaS solutions.
Many Frontrunners are heavily invested in XaaS and want to ensure they’re getting the best value from their solutions. They tend to be every bit as savvy about their solution choices and vendor relationships as they are about XaaS strategy and execution. A majority (53%) consider their organisation to be expert at selecting XaaS providers and solutions (figure 6). And at least six in 10 regularly13 reassess their choices, evaluating their vendors on data security and regulatory compliance, reviewing providers’ success in meeting their needs and monitoring the market for new solutions (figure 10). For an example of an enterprise that exhibited best practices relating to strategy, execution and vendor relationships as it migrated to XaaS, see the sidebar, “A media firm’s digital transformation journey: Migration to the cloud.”
What do XaaS adopters want most from their vendors? They’re looking for providers that can guarantee reliability and performance (for example, uptime and responsiveness), offer integration with other XaaS solutions, help them optimise utilisation and provide strong data security and privacy safeguards.14 They’d also like providers to offer easy-to-access innovation services. Frontrunners report greater satisfaction than other groups with their current vendors’ ability to provide these attributes (figure 11). A majority (55%) of Frontrunners strongly agree XaaS has improved their customer experience, while only about a third of Chasers and Followers say the same.
As a global media company executed its digital transformation strategy, leaders undertook a migration of the data center (and 50 services comprising their website) from on-premise to the cloud.15 Along the way, the company demonstrated several characteristics that we associate with Frontrunners. For example, leaders selected a cloud provider only after undertaking proofs of concept with several vendors to determine which platform would best meet the organisation’s needs. They carefully mapped out a migration road map and structured the company’s cloud projects to be secure and easy to manage. A chief focus was to establish the right policies for data security in the cloud—for example, appropriately locking down access to applications. Along the way, the company invested in retraining its ops team on new technologies and practices.
Leaders cite significant benefits from this migration, including the ability to scale IT up or down as the company’s needs change, launch new environments on the fly, create and review prototypes faster, and ultimately get new features to market more quickly. They also mention one cautionary tale of inadvertently incurring skyrocketing costs, which led them to set up granular cost tracking.
Despite the higher levels of satisfaction, Frontrunners have very high vendor expectations. Indeed, nine in 10 Frontrunners agree their organisation could achieve better outcomes if XaaS providers behaved more as consultative partners (45% strongly agree). Frontrunners are keeping their options open: About seven in 10 indicate they’re at least somewhat willing to explore new vendor relationships—and nearly four in 10 say they’re definitely willing (versus three in 10 Followers).
XaaS providers clearly have their work cut out to keep these discerning customers satisfied. We asked organisations what percentage of the capabilities of their purchased XaaS solutions they typically use. Remarkably, 36% of Frontrunners report they typically use less than half of the capabilities of a “purchased package” (41% of Chasers and 52% of Followers say the same). Yet only 44% of Frontrunners strongly agree that their XaaS providers regularly advise them on how to improve the use of their services. Providers have an opportunity to proactively demonstrate how customers can get more value from their solutions. Alternatively, adopters may be paying for capabilities they will never need and providers could tailor solution packages and costs more appropriately. The increased scrutiny by Frontrunners may have a silver lining: Regular evaluations may mean more opportunities for providers to have touchpoints with clients and improve the customer experience.
As enterprises continue to shift from traditional IT to as-a-service, XaaS adopters may have to work harder to gain and sustain a competitive edge. At the same time, with more technology companies offering XaaS solutions, providers may need to up their game to keep their customers’ high expectations satisfied.
The XaaS future looks bright for the Frontrunners, but what if your organisation behaves more like a Chaser or Follower? What can you do to achieve better outcomes from your XaaS adoption and even establish a competitive edge? Emulating best practices of the Frontrunners may increase your chances for success.
Our Frontrunner analysis also suggests ways XaaS providers may be able to boost their chances for success. With XaaS, customers can switch vendors if they feel they’re not getting optimal value. Therefore, it’s essential for technology companies to foster deeper engagement and help their customers achieve the best outcomes.
Over the next few years, adopters will likely continue to shift their IT to XaaS to increase both business agility and efficiency. And in a quest for growth, technology providers have pledged to offer more service-based solutions. In light of XaaS’s expanding popularity, both adopters and providers will need to find ways to stand out from their competition. Following the lessons learned from the Frontrunners can serve as a good starting point.
Deloitte has guided myriad companies through the transformation to XaaS models. We have deep knowledge of consumption-based business models and their challenges, and we can help you think through the implications of the business decisions you will need to make as you transition to a pay-per-use model. At the same time, a holistic customer success strategy enables organisations to shift to a customer-centric mindset for succeeding in the XaaS world, resulting in satisfied customers who drive long-term growth and profitability. Deloitte’s approach is focused on helping clients think through the model, capabilities, metrics, customer insights and tools required to operate a successful customer success strategy.