Bundled Kaizen Services: An Advantage for Indian SaaS

Published April 25, 2024

1

A Lost Deal

One of the benefits of blogging for oneself without worrying about vanity metrics like likes and shares is that the mind can roam free with ideas. Over the past four years (since I restarted my blog after a gap of over seven years), I have done this in many essays. This is another such exercise.

The idea came recently after we had lost a deal for one of our products in the UK. The team had worked very hard for it for over a year given the potential size of the deal. From a long list of 15, we had made it to a shortlist of 3. Our competitors were both US-based. Our belief was that from a product standpoint we were the best. But in the end, we didn’t win. As I sat discussing with my disappointed colleagues, I asked a few questions. What can we do to change the game so that we never lose such deals again? What is a natural advantage that we can leverage which competition cannot match? How can we persuade the buyer that only we can deliver the outcomes they want?

One of my colleagues asked, “Can we price based on outcomes?” Another suggested we needed to develop features which others did not have. A third idea was to pitch our Gen AI capabilities. Another proposal was to combine product and service – the way some enterprise software sellers do by offering people to manage the platform. All were good options, but I did not think they would give us a disproportionate advantage in the market. We needed something better.

My mind wandered to a flight I had taken a few days ago. I normally choose Vistara Premium Economy. The fare difference is a few thousand rupees and the benefits are many. But on that flight, the price was substantially higher, and I chose to go with an Economy class ticket. As I narrated this incident, I said, “The fact that we were in the top 3 from a pool of 15 companies means that there was not a substantial difference in features. Can we increase the perceived price difference between us and the competition? Every buyer, even as they want the best product, also has a price threshold: there is a trade-off they are making at the end. What if we can show that by going with us they will not only save millions of dollars over time, but also get a superior outcome that a US-based competitor will never be able to match? What if we bundled a thin layer of service with high-quality dedicated resources based in India with the SaaS platform who could monitor the product and make it better everyday?”

Suddenly, the mood in the room changed. There was something different and exciting. This was not about adding a post-sale line item for Services but making Services part of the product. Our base in India would give us a substantial pricing advantage. Could it work? To start with, it needed a name. I suggested “Bundled Kaizen Services” – a team that ensures continuous improvement.

2

Kaizen

I was first introduced to Kaizen by a friend many years ago during my IndiaWorld days. It was one of India’s largest companies and we were doing the website for them. When I has gone to visit their head office, my friend explained how they use a Japanese technique called Kaizen for daily improvements. I came to the office, read about it, and was fascinated by the technique. It is something that can apply not just to business but to one’s own life. As the math puts it, a 1% improvement daily compounded over a year means one is 37 times better.

Investopedia writes: “Kaizen is a Japanese term meaning change for the better or continuous improvement. It is a Japanese business philosophy that concerns the processes that continuously improve operations and involve all employees. Kaizen sees improvement in productivity as a gradual and methodical process. The concept of kaizen encompasses a wide range of ideas. It involves making the work environment more efficient and effective by creating a team atmosphere, improving everyday procedures, ensuring employee engagement, and making a job more fulfilling, less tiring, and safer.”

More from Wikipedia: “By improving standardized programs and processes, kaizen aims to eliminate waste and redundancies (lean manufacturing). Kaizen was first practiced in Japanese businesses after World War II, influenced in part by American business and quality-management teachers, and most notably as part of The Toyota Way. It has since spread throughout the world and has been applied to environments outside of business and productivity.”

An explainer from Investopedia: “Kaizen involves five key principles: know your customer, let it flow, go to gemba (or the real place), empower people and be transparent. These five principles lead to three major outcomes: elimination of waste (also referred to as economic efficiency), good housekeeping, and standardization. Ideally, kaizen becomes so ingrained in a company’s culture that it eventually becomes natural to employees. The kaizen meaning posits that there is no perfect end and that everything can be improved upon. People must strive to evolve and innovate constantly.”

Gemini listed out the five steps of Kaizen:

  • Identify an area for improvement: This could be anything from a specific process in your work to a personal habit you want to refine.
  • Analyse the current situation: This involves thoroughly understanding how things are done currently. Look for bottlenecks, inefficiencies, or areas where waste is generated.
  • Develop a plan for change: Here, you brainstorm and design a new approach to address the inefficiencies identified.
  • Implement the change: Once you have a plan, put it into action. This might involve piloting the new approach on a small scale before full implementation.
  • Measure and evaluate: Track the results of the implemented change. See if it achieves the desired improvements and identify areas for further refinement.

My realisation was that the product we were selling also needed continuous improvement. Actions done yesterday by consumers could provide a feedback loop to make it better today. While automation and AI can drive significant enhancements in real-time, the understanding and adaptability of human intervention could elevate the product’s efficacy to new heights. By integrating a Kaizen-inspired layer of continuous and deliberate refinement, we could not only anticipate and adapt to the evolving needs of our customers but also carve out a distinct competitive edge. The Kaizen approach would transcend the conventional boundaries of SaaS offerings, transforming our product into a dynamic, ever-improving solution uniquely attuned to deliver unparalleled value and performance to our customers.

3

Services

SaaS platforms focus primarily on the software that is delivered via the cloud. Services delivered via people are an anathema. And yet, a thin 10% services layer can work wonders to ensuring better outcomes. In a previous essay, I discussed the “SaaS + Service Synergy” in the context of Netcore’s martech platform:

At its core, progency challenges and transcends the traditional service model of an agency. It isn’t just another offshoot of the martech realm but is a pioneering creation created by a martech SaaS entity…Imagine a product-centric company, deeply rooted in the intricacies of software development, deciding to venture beyond its comfort zone. Instead of solely focusing on product innovation, it chooses to layer its offerings with a curated suite of services. This strategic move is not just about diversification; it’s about recognising and addressing a palpable void in the market. It is about delivering full value from the product.

… It emerges as the “third way” in martech, carving a niche that straddles the two extremes of software and services. It’s neither purely a product nor just a service; it’s a harmonious blend of both. This hybrid model offers a fresh perspective, challenging established norms and promising unparalleled value. It addresses the prevalent challenge of product feature underutilisation, a concern that often sees a mere 30-40% adoption rate across numerous martech platforms.

… Being an offspring of a martech entity, the progency enjoys several inherent advantages. It has unfettered access to a reservoir of specialised talent. Data scientists who can decipher intricate patterns from vast data pools, campaign strategists (drawn from customer success teams) who can craft compelling narratives, and tech developers who can turn visions into tangible product extensions—all these experts converge under the progency umbrella. Such a confluence of diverse skills is rare and offers a depth of expertise that’s challenging for traditional agencies to replicate.

The belief in SaaS providers is to eschew services entirely. It could give the impression that the software platform is somehow inadequate on a standalone basis. It is not easily scalable since it adds people to the mix. And yet, the ability to bring in a people-driven services layer for Kaizen can be very powerful for making decisions – at least until AI is good enough to do it for us. By deliberately weaving human expertise into the fabric of the offering, SaaS platforms not only enhance the intrinsic value of the product but also redefine the paradigm of customer engagement and satisfaction. In doing so, they can not only bridge the gap between product potential and practical application but also pave the way for a new era of SaaS solutions, where the synergy between software and service elevates the efficiency and impact.

4

Bundled

The third leg of the idea is to integrate the Kaizen services offering into the product pricing rather than offering it as an add-on. This is where the India advantage comes in.

Let’s say the Indian SaaS platform is priced at $25,000 MRR. Assume a competing US platform is 40% higher – at $35,000. The $10,000 MRR gap ($120,000 annually) may not be enough to persuade the buyer to go with the Indian platform even though they are matched on features. After all, as the saying goes, no one got fired for buying IBM (or in the SaaS world, Salesforce).

Now, lets bundle in the service cost. A good resource in India for data science / data engineering / AI modelling could cost about $2,500 per month. The same resource in the US would cost about $10-15,000 per month. For the Indian SaaS company, bundling the person cost means a reduction of gross margin by 10%. But for the US-based SaaS company, the cost simply cannot be absorbed – it will need to be an extra charge. This means the product pricing would go up to $45,000-$50,000 MRR – almost double that of the Indian SaaS company. Annual difference: $250,000-$300,000. Over a 3-4 years lifecycle, this comes to a million dollars.

For every $25,000 MRR in price, the buyer would now be shelling out a million dollars extra over 3-4 years. Just as I baulked at the delta for Vistara’s Premium Economy ticket, there is now a very strong likelihood that the CFO would question the additional spend – given the challenging macro environment. This could then tilt the balance in favour of the Indian SaaS company.

For Indian SaaS companies, the talent advantage has only been used for the core business functions. This has allowed many to undercut US competitors to get a strong foothold in SMB and mid-market customers. For the enterprise segment, I think the pitch will need the power of the Bundled Kaizen Services to create a competitive wedge and unbeatable edge. Of course, US companies could set up a services base in India but that will take time – enough for Indian companies to get reference customers and prove their mettle.

**

This was the pitch I made to my colleagues: can we persuade buyers on the important of Kaizen (continuous improvement), the need for a thin services layer to make Kaizen a reality and maximise the potential of the product, and an unmatchable bundled price? Instead of winning 1 in 10, could this help us win 1 in 3? While I don’t have the answer yet, what I can say is that this changed the mood in the room. Suddenly, people could sense a winning pathway and see a blue ocean in the red ocean. Bundled Kaizen Services could be a model for us and other Indian SaaS companies wanting to win consistently in the US-UK enterprise space.

5

Summary, Critique, Enhancements

As I normally do with my writings now, I asked ChatGPT, Claude, and Gemini for their views.

ChatGPT

Summary

The essay discusses a strategic approach termed “Bundled Kaizen Services” aimed at providing Indian SaaS companies a competitive edge in international markets, specifically in the US-UK enterprise space. The concept emerged from the author’s introspection following a lost deal, leading to the idea of integrating a services layer with their SaaS offering, leveraging India’s cost advantage and the Kaizen philosophy of continuous improvement. This hybrid model combines product innovation with a services component, addressing the gap between product features and their utilization while enhancing customer engagement and satisfaction. The proposition is to embed the services cost into the product pricing, making it more attractive compared to US-based competitors, potentially leading to significant savings for clients and a stronger competitive position for Indian SaaS companies.

Critique

The essay presents a compelling and innovative approach to blending SaaS with service to create a unique value proposition. However, it might benefit from addressing a few considerations:

  1. Scalability Concerns: The model suggests adding a human element to the SaaS offering, which may raise questions about scalability and consistency in service quality as the customer base grows.
  2. Cultural and Communication Barriers: Integrating services from India with global clients might introduce challenges related to cultural differences and communication, which could impact the effectiveness of the service layer.
  3. Dependency on Human Intervention: While the human element is a strength, over-reliance on it might become a weakness, especially as AI and automation technologies advance.
  4. Potential Resistance: There might be resistance from clients accustomed to traditional SaaS models without an integrated service component, fearing it could complicate the offering.

Possible Enhancements

To further strengthen the Bundled Kaizen Services model, the following enhancements could be considered:

  1. Hybrid AI-Human Model: Gradually introduce AI and automation to handle routine tasks within the service layer, reserving human expertise for complex, high-value interventions. This could improve scalability and efficiency.
  2. Cross-Cultural Training: Invest in cross-cultural communication training for the service team to minimize misunderstandings and enhance client relationships.
  3. Customizable Service Layers: Offer customizable service levels to cater to different client needs and preferences, allowing them to choose how much human intervention they require.
  4. Transparent Communication: Ensure clear, ongoing communication with clients about the role of the services layer and how it adds value, helping to manage expectations and foster trust.
  5. Feedback Loops and Continuous Improvement: Implement robust mechanisms for client feedback on the service layer, using this input to drive continuous improvement in both the service and product offerings.

By addressing these considerations and incorporating the suggested enhancements, the Bundled Kaizen Services model could present a more robust and scalable approach, potentially setting a new standard for integrating services with SaaS platforms.

Claude

Summary:

The essay proposes a novel business model called “Bundled Kaizen Services” for Indian SaaS companies to gain a competitive advantage in the enterprise market, particularly against US-based competitors. The key elements of this model are:

  1. Kaizen: Continuous improvement of the SaaS product by incorporating customer feedback and real-time data insights, going beyond just software updates.
  2. Services: Integrating a thin layer of human expertise, such as data scientists and engineers, to drive the Kaizen process and maximize product potential.
  3. Bundled: Instead of offering services as an add-on, bundling the service cost into the core SaaS pricing, leveraging India’s cost advantage for skilled labor.

The underlying rationale is that while Indian SaaS products may match their US counterparts in features, bundling in the lower-cost Indian services can create a significant pricing differential over the product’s lifecycle, making it an attractive value proposition for enterprises.

Critique:

  1. The model’s success hinges on effectively communicating the value proposition of continuous improvement and human-driven optimization to enterprises, which may be challenging for a pure software offering.
  2. Integrating and managing the services layer alongside the product development could introduce complexities and potentially slow down the overall agility of the SaaS company.
  3. The cost advantage of Indian services may diminish over time as US companies establish offshore service centers or leverage automation and AI to reduce human dependency.

Possible Enhancements:

  1. Develop a structured framework and metrics to quantify the impact of Kaizen services on product performance, customer satisfaction, and bottom-line outcomes for enterprises.
  2. Explore partnerships with domain experts, industry leaders, and academia to augment the services layer with cutting-edge expertise and research insights.
  3. Invest in training and upskilling the services team to stay ahead of emerging technologies and industry trends, ensuring continuous value addition to the product.
  4. Implement robust processes and tools for seamless collaboration between the product and services teams, enabling real-time feedback loops and rapid iterations.
  5. Offer tiered service levels or modular services to cater to diverse enterprise needs and budgets, allowing for more flexibility and customization.

Overall, the “Bundled Kaizen Services” model presents an innovative approach for Indian SaaS companies to differentiate themselves in the highly competitive enterprise market. However, successful execution would require careful planning, effective communication, and continuous adaptation to changing market dynamics.

Gemini

Summary

Your essay proposes a new model for Indian SaaS companies, called “Bundled Kaizen Services,” to gain a competitive edge in the US-UK enterprise space. It combines three elements:

  1. Kaizen: The philosophy of continuous improvement, ensuring the product constantly adapts to customer needs.
  2. Thin Services Layer: A dedicated team in India focused on Kaizen for the specific client, leveraging lower talent costs.
  3. Bundled Pricing: Including the cost of the services team within the SaaS product pricing, creating a significant price advantage compared to US competitors who would need to offer services as an add-on.

Critique

The essay offers a creative solution and highlights potential benefits:

  • Strong Value Proposition: Customers get a continuously improving product with dedicated support at a lower price.
  • Indian Cost Advantage: Lower talent costs in India allow for bundled services without significantly impacting margins.
  • Differentiation: This model sets Indian companies apart from US competitors solely focused on software.

However, there are also aspects to consider:

  • Scalability: Managing dedicated services teams for many clients might be challenging.
  • Client Buy-in: Customers may need convincing about the value of bundled services and the expertise of an Indian team.
  • Technical Expertise: Ensuring the Indian services team has the technical competence for complex enterprise needs.

Possible Enhancements

  • Pilot Program: Test the model with a limited number of clients before full implementation.
  • Client Onboarding: Develop a clear onboarding process to integrate the services team seamlessly with the client’s workflow.
  • Metrics & Reporting: Demonstrate the impact of Kaizen through clear metrics and reports for clients.
  • Highlight Success Stories: Showcase case studies of successful implementations to build trust in the model.

Postscript

I ended up asking ChatGPT, Claude, and Gemini for five alternative names to “Bundled Kaizen Services”. Here are the options I got.

ChatGPT

  • Integrated Growth Solutions
  • Continuous Advantage Program
  • Innovative Value Integration
  • Dynamic Enhancement Suite
  • Progressive Synergy Services

Claude

  • Continuous Optimization Solutions (COS)
  • Integrated Value Enhancement (IVE)
  • Product Augmentation for Perpetual Excellence (PAPE)
  • SaaS Optimization and Enhancement Services (SOES)
  • Sustained Value Maximization (SVM)

Gemini

  • Continual Value Services (CVS): This emphasizes the ongoing value delivered through the service layer.
  • Client-Centric Kaizen (CCK): This focuses on the customer-centric approach to continuous improvement.
  • Thrive by Design (TBD): This name is short, catchy, and highlights the idea of the service being a key factor in the product’s success.
  • Proactive Improvement Program (PIP): This emphasizes the proactive nature of the service in driving improvements.
  • SaaS+ (SaaSPlus): This is a simpler option that builds on the existing SaaS model but implies additional value. You can add a tagline to further explain what the “plus” represents, such as “SaaS+ : Continuous Improvement as a Service”.

Published by

Rajesh Jain

An Entrepreneur based in Mumbai, India.