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Mastering Complex CPQ for Dynamic Businesses
11 Capabilities to Drive Sales Efficiency and Effectiveness with Complex Sales
Introduction
In response to challenges with globalization, market volatility and intensifying competition, enterprises are
striving to become more dynamic and agile in winning and servicing clients. Success in achieving profitable
growth increasingly depends on market differentiation based on continuous innovation of products, go-tomarket strategies and business processes.
However, a great deal of complexity has to be managed when marketing, selling and supporting sophisticated
products and high value services. In particular, configure, price, quote (CPQ) business processes must be able
to manage considerable levels of variation in products without sacrificing economies of scale. At the same
time process flexibility is needed to support different channels (i.e., partners and e-commerce) and
departmental functions.
Hence, complex CPQ practices are becoming more important to enterprises seeking decisive business
advantages. Moreover, interest in complex CPQ is extending beyond traditional manufacturing concerns with
customizing tangible goods to encompass services. Consequently, many organizations are seeking tools to
improve complex CPQ practices.
CPQ software applications help enterprises manage complexity by consolidating and rationalizing all the
knowledge and rules needed to tailor offerings to unique customer requirements. In addition, these
technologies eliminate manual steps in processes through automation and workflow while increasing visibility
into buying patterns and selling practices.
This white paper defines the concept of complex CPQ and summarizes the major trends that are driving
interest in such business practices and enabling technologies. A framework is provided on the three main
aspects of complex CPQ, and key capabilities of world-class CPQ software are also reviewed. Finally, guidance
is given on commencing CPQ technology projects.
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Are You Complex? 8 Conditions that Say Yes
What is complex CPQ? This is an important question because
enterprises may not fully grasp all the implications of complex CPQ
to their businesses models. As new strategies and tactics are
adopted, rising product and process complexity has often been
encountered. Enterprises need a better understanding of how
complex CPQ can be better managed within a business model and,
more importantly, effectively wielded as a competitive advantage.
Meanwhile, traditional definitions have become outdated. In the
past, complex CPQ was associated with manufacturing styles,
namely engineer-to-order (ETO) and highly componentized
configure-to-order (CTO) products. However, CPQ practices are
increasingly being applied to the marketing and selling of complex
services, such as financial services.
At a high level, complex CPQ encompasses the business practices
for varying how sophisticated products and services are marketed
and sold. These practices entail configuring complex, unique
combinations of offerings, applying the right pricing, generating
compelling sales documents (quotes and proposals) and producing
accurate contracts and orders for guiding fulfillment (including
generating bills of materials and routings).
How Businesses Are Complex
1. Many variations of components,
subassemblies, and options
2. Large numbers of items in an
offering
3. High value products and
services
4. Advanced technologies
5. Highly customized products
6. Sophisticated pricing
7. Many non-standard terms
8. Many non-standard deals
With complex CPQ, enterprises can accommodate changes at all levels of a product hierarchy on a regular
basis. Typically, variation is managed for highly componentized offerings with large sets of configurable items
and nested arrangements (components within components), but actual customization may also be required.
Plus, support for variation in processes is often important when different channels and customer segments are
addressed, such as project-based sales for machinery.
There are eight key conditions that, in combination, indicate if product lines and supporting processes fall
under complex CPQ:
1. Many variations of and changes to components, subassemblies, and options, at a granular level within a
product hierarchy
2. Very large numbers of items required in an offering, since quantity has a complexity all of its own
3. High-value products and services (like financial services) being marketed
4. Products involving advanced technology, craftsmanship and/or intricate terms and conditions
5. Outright customization performed with products
6. Sophisticated pricing methodologies, e.g., attribute and component based pricing involving many
variables, value-based pricing and/or dynamic pricing
7. Many non-standard terms
8. Many non-standard deals or transactions, requiring extensive approval processes
These conditions provide rules of thumb to help decision-makers refine the scope of CPQ initiatives and better
anticipate the level of complexity that a project may involve. Project planning is then significantly
strengthened, leading to much better defined technical and implementation requirements.
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Why Complex CPQ?
Necessity is often the mother of invention, and current headwinds in the economies around the world have
concentrated the minds of executives on innovating their businesses and acquiring competitive advantages.
Significant attention is being directed at evolving business models to improve differentiation in bellwether
markets and open up new market opportunities.
This often means conducting comprehensive reevaluations of existing Quote-to-Cash processes. Such
processes span managing product data, configuring products, assembling bids and proposals, generating
quotes and orders and securing contracts, through multiple channels (partner and online) and business
models.
Key challenges that are catalyzing changes in business strategies and related Quote-to-Cash and CPQ
practices include:
Globalization: The world economy is far more integrated today than two decades ago, permitting new
companies, innovations and products to appear in markets with sudden speed from unexpected quarters.
Creative destruction of products can increasingly originate from outside of domestic markets.
Market Volatility: Changes in demand and pricing in many sectors have been increasingly abrupt and
erratic, leading to less predictability. Increases in demand can outpace capacity, while decreases can quickly
erode margins. Moreover, the introduction of new products and services can quickly lead to the creative
destruction of established offerings.
Competition: Many sectors are experiencing an excess number of suppliers, while partner channels have
become more mercenary in marketing competing products. Both winning new business and retaining
longstanding clients is a very difficult exercise for many in the face of rising competition.
Commoditization: Product differentiation, intellectual property advantages and margins are increasingly
vulnerable to the rapid emergence of alternatives. More and more, pricing dominates purchasing decisions at
the expense of value propositions or brand loyalty.
Costs: Higher costs around the world are forcing serious reassessments of sourcing strategies. More
specifically, wages are on the rise in countries like China that play major roles as export platforms. In
addition, there have been increases in energy prices and other costs of inputs in many markets (e.g.,
materials, land, etc.).
Market Sophistication: Customers have better access to information, while enterprise clients are acquiring
greater control over supplier relationships. Corporate procurement departments are constantly refining
practices for issuing bids, negotiating contracts and managing vendors to raise buying power.
Enterprises need to devise strategies and processes that help differentiate themselves in their markets.
Simply put, their product lines will stand out and resonate better with target markets and buying centers. In
this vein, the management of product portfolios needs to be carefully reassessed and refined to support
evolving preferences of buyers, reduced product lifecycles and innovative marketing strategies.
Often initiatives must drive new ways of doing business, like mass customization, value-based selling,
solution-selling and multi-channels sales. Successful differentiation then translates into a stronger capacity to
confront business challenges, increase pricing power, reduce friction in sales cycles and generate more
mindshare and opportunities with buying audiences.
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The 3 Pillars of Complex CPQ
The concept of complex CPQ is undergoing a redefinition, really an expansion of concerns that need to be
addressed by enterprises. As mentioned before, complex CPQ encompasses much more than sophisticated
manufacturing styles, like ETO and advanced CTO.
In today’s fast paced and sophisticated business world, enterprises need to account for three major
dimensions when gauging the complexity of processes and requirements for supporting CPQ technology:
1. Customer engagement models: How prospects and customers are reached, won over and managed on
an ongoing basis
2. Solutions packaging: How offerings of products and services are packaged, priced and marketed
3. Fulfillment methodologies: How an enterprise fulfills its promises to its clients and partners
Figure 1. Three perspectives that enterprises should use to assess their sales complexity
Customer Engagement Models: The following sets of concerns focus on buying and selling experiences,
market coverage, channel strategies and strategies for nurturing customer lifetime value for a business.
Enterprises need to coordinate marketing and selling efforts across direct sales, online sales and partner
channels, to ensure consistency in messaging and buying experiences, and to avoid cannibalization of sales.
Go-to-market strategies can also get complex depending on how companies attempt to penetrate different
regions, industry verticals and customer segments.
Collaboration may be required, either with partners or within an organization. Typical sales cycles may
require team selling methodologies to be used or the assistance of engineering or subject matter experts.
Then relationships need to be sustained, especially since most sales in a typical firm usually come from
existing customers or repeat business. Hence, customer relationship management, renewal, upselling and
cross-selling strategies are critical for margin and revenue growth.
One example would be an insurer that markets a range of products through multiple channels. A commercial
buyer can then explore offerings online and later get matched up with the most suitable broker, without
disruption to the buying experience. The insurance products are then renewed annually. Another example
would be the sale of heavy equipment like tractors, where buyers can go online to explore offerings and
specifications, get directed to a suitable dealer, and then configure products and execute purchases at a
dealer site.
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Solutions Packaging: Here, enterprises are concerned with how
products are organized, priced, promoted and sold in target
markets, either directly or indirectly.
The big issue is managing ever more sophisticated products, like
tangible goods within advanced manufacturing that are
accompanied by complex services, leasing agreements,
subscription based pricing and the outsourcing of services, like
maintenance. Moreover, CPQ tools are being applied to pure
services, as in insurance, where items in agreements don’t
necessarily represent specific stock keeping units, but instead are
more conceptual, comprising definitions of obligations and
conditions.
With strategies like solution-selling, complex matrices of
components and pricing may need to be managed in addition to
traditional product hierarchies to support ever more differentiated
product bundles. And coordination with third parties is often
required. Subcontracting components of bundles to partners is not
unusual, even with services.
For instance, an advanced manufacturer of industrial machinery
can offer an array of CTO permutations with alternative
components at a very granular level. In addition, different software
packages for reprogrammable, numerically controlled equipment
may be provided, as well as services for monitoring machine health
to mitigate downtime. Or packaging and pricing could be dictated
by outcomes, like a medical imaging firm committing to support
over 1,500 scans per year.
Fulfillment Methodologies: Finally, enterprises have to
understand how best to deliver on promises and obligations to
customers. Effective execution leads to improved customer
retention, stronger loyalty and brands, further sales opportunities
and more efficient management resources and margins.
There are deep-rooted concerns with ensuring that the necessary
products contracted out could be made, especially with ETO and
outright customizations. However, availability of necessary parts
and materials for highly componentized CTO assemblies must also
be carefully managed. The issue of lead times can be very
important, notably with built-to-order (BTO) manufacturing in
supporting just-in-time production and lean inventories.
Complex CPQ is much
more than complex
manufacturing.
Supply chains need to be closely monitored, particularly if many
functions are outsourced to partners from a logistical perspective,
including warehouses and transportation networks. Other services
may also be outsourced to partners, like field service in
telecommunications or implementation work in high technology.
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One example would be a communications firm fulfilling orders for
commercial clients. Core products would be manufactured
internally, or drawn from inventory in outsourced warehouses, with
allied products from third parties included as part of a solution, and
actual installation services executed by outsourced teams of
technicians.
Better Complex CPQ through Technology
At the end of the day, the executive suite is concerned with
revenues, margins and business predictability. As a result,
enterprises need to balance initiatives to market unique products
and services while ensuring that economies of scale are in place to
support profitable growth of complex offerings. Effective use of
CPQ technologies to manage the complexity of Quote-to-Cash
processes significantly helps advance the realization of such goals.
Notably, CPQ dramatically impacts sales effectiveness by helping
organizations raise deal size and profitability, as well as sales
efficiency by accelerating sales cycles and buying cycles across
multiple channels.
With world-class implementation of CPQ technologies, complex
product lines become rationalized while important practices around
pricing, guided selling, value-selling and solution-selling get
institutionalized. An organized system of engagement then is in
place, with the CPQ solution representing a record of relationships
for mid- and late-stage buying cycles, as well as the record of
reference for future sales (subscriptions, leases, renewals and reordering).
Once the appropriate process definition and end-to-end process
automation are in place, enterprises now have a foundation for
exercising agility. Process visibility is significantly elevated, and
decision-makers can quickly act on trends with product sales,
promotions and pricing. Speed of business change gets
accelerated, with CPQ solutions allowing rapid changes to be made
to data, workflows, policies and guidance on selling and pricing.
Moreover, organization and guardrails are in place, codified in the
CPQ inventory of rules, to prevent errors or inappropriate
behaviors, particularly with rogue discounting. Costs and risks are
reduced substantially due to improved visibility and control over
processes. As a result, firms are better positioned to enforce
prescribed behaviors across multiple channels, with both ecommerce and partner commerce models.
With the speed, visibility, control and versatility offered by a CPQ
system, enterprises gain a strong technical foundation for driving
growth with new and existing customers, commercial clients and
consumers. Managing the sales of sophisticated products through
multiple channels to reach a constellation of different customer
segments now becomes a practical, scalable endeavor.
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Significant opportunities for achieving differentiation within existing
markets will then result, as well as the ability to capitalize on new
markets. Prospects for securing a profitable return on product
portfolios and services become much more favorable, even in the
face of larger economic headwinds.
11 Key Components of CPQ Software
Fundamentally, a world-class CPQ solution will 1) improve
management of data, rules and content; 2) automate end-to-end
processes in buying and sales cycles; and 3) considerably increase
visibility into operations. The technology and functional footprint of
an effective CPQ solution needs to be mature, broad and flexible,
though, in order to handle complex CPQ issues in today’s changing
business world.
Eleven key capabilities merit attention when scoping technical
solutions for complex CPQ to improve Quote-to-Cash processes
across an enterprise:
1. Modeling and Configuration Management: A central
console to define and manage relationships, rules and
constraints that drive unique combinations of products,
components and services. Declarative point-and-click modeling
should be used based on open standards, not proprietary
languages, to effectively capture and express business
concerns. To curtail rules proliferation, the administrative
environment should make it easy to define, test, deploy and
update configuration models, as well as audit rules and
encourage reuse of rules.
Critical CPQ Components

Modeling and configuration
management

Product catalog

Pricing management

Quoting

Workflow

Contract management

Renewals management

Analytics

Usability and mobility

Cloud platform

Multi-channel support
2. Product Catalog: Precisely defined and managed product data
and relevant content. Catalog functionality helps improve
processes for new product introductions and end-of-life actions.
Catalog functionality should ease the setup of multiple catalogs,
maintain complex product hierarchies, handle effectivity dates
and share product data across lines of businesses, to improve
manageability and navigation for both administrators and users
alike. Search features, comparison functionality and
visualization should help users quickly find items of interest and
explore renderings of products, like three-dimensional images
and schematics.
3. Pricing Management: Automation of pricing analyses, price
setting, price administration, price execution and
communications across divisions, channels and regions. Pricing
structures, conditions, policies, promotions and discounts can
be easily defined and maintained for multiple price lists,
marketing campaigns and sales channels. Different pricing
methodologies, such as subscription-based and value-based
pricing, can be quickly adopted, while results can be easily
monitored and analyzed.
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4. Quoting: Automate the assembly and revision of key sales
documents like bids, quotes and proposals, to bring sales cycles
to closure with greater speed and qualitative impact on sales
experiences. Guided selling and recommendations enable crossselling and upselling. For partners and e-commerce, self-service
quoting and ordering is key, with shopping cart functionality
and a smooth checkout process. All data should be accessible to
generate orders and contracts to eliminate duplicate entry.
5. Workflow: Reduce manual tasks and prevent undesirable
actions by ensuring that sequences of tasks are correctly
defined, automated and executed. Enterprise-wide guardrails
then make it possible to increase deal velocity as well as
eliminate risks. Support for multiple rules, conditions and paths
is important. Automated approval processes eliminate
bottlenecks and increase control over quotes, proposals, bids
and contracts. Deal management workflows improve how
quotes and proposals are created, and they should also deliver
guidance on options, pricing and discounting.
6. Contract Management: Capture and consolidate all terms,
conditions and clauses that define commercial relationships,
including creating, updating and analyzing multiple contract
types. Authoring tools, clause libraries, redlining and tracked
changes features eliminate bottlenecks and reduce risk.
Automated contract requests, approvals and e-signature
expedite contract signings. Robust systems handle third party
contracts of counterparties.
7. Renewals Management: Raise the predictability, repeatability
and growth of recurring revenue. Renewals are seminal
moments in a vendor/client relationship, and proper
preparation can lead to increased share of wallet and lifetime
value of customers. Alerts and notifications, self-service and
automatic renewals advance efforts to reduce account
expirations. Asset-based sales and re-ordering provide visibility
into installed products, services and upgrade options.
Recommendation functionality supports upselling, replacements
and cross-selling based on policies on swaps, pricing updates,
end-of-life schedules, co-terminations and contract pricing.
8. Analytics: Real-time visibility into incoming business for
specific products, realized prices and discounting activities,
including the progress of quotes, proposals, contracts and
orders. Predictive and prescriptive analytics identify, assess and
propose actions based on key trends like sales cycle times, win
rates and average value of orders. Drill-down features allow
revenue teams to home in on buying patterns, while alerts give
early warning on revenues and profits at risk. Renewal rates
and revenue uplifts from accounts should also be easily
tracked.
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9. Usability and Mobility: User adoption is vital for successful
CPQ projects. Systems must follow popular web design
principles to collapse learning curves and deliver intuitive, high
quality user experiences. Responsive designs for user interfaces
ensure features and data are intuitively arranged and presented
clearly within the screen real estate of any device. Mobility is
important, to encourage prompt completion of tasks, like a
sales person reviewing pricing via smartphones.
10. Cloud Platform: A multi-tenant cloud platform enables rapid
implementations that can be easily scaled and administered on
an ongoing basis. With multi-tenancy, enterprises benefit from
efficient upgrades and better access to new functionality and
innovations that are driven by a cloud platform community. The
cloud model has gained considerable momentum, in allowing
enterprises to subscribe to applications, platforms and
infrastructure housed outside the four walls of the firm. Cloud
platforms like Salesforce1 have established a track record of
high security, scalability and system availability that will
continue to reassure businesses.
11. Multi-Channel Support: The right administrative tools,
functionality and user interfaces to deliver consistent
experiences for direct sales, e-commerce and partner
commerce. Resources like catalogs, pricing and product data
need to be centrally managed and auditable to support
coordination of selling and buying experiences for different
channels. Similarly, user interfaces and “look and feel” need to
be carefully handled to deliver quality online experiences (even
on partner sites) and give strong backing to marketing
programs.
CPQ dramatically
impacts sales
effectiveness and
sales efficiency.
9 Tips to Tackling Complex CPQ Today
When there is significant concern about the complexity of CPQ
practices and business processes, enterprises should immediately
commence a nine-step review and planning process for improving
tools, processes and competencies. These actions are especially
urgent when there is considerable executive interest in business
transformation, which is increasingly the new normal today.
Below are nine tips for the initial preparation and pursuit of
complex CPQ optimization initiatives that aim to support broader
Quote-to-Cash process improvements:
1. Process rationalization: Avoid automating broken processes
or recreating existing problems, like SKU proliferation or poor
reuse of models. Instead define best practices, and consolidate
and update processes that CPQ software can then optimize.
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2. Confirm complexity: Take a hard look at how complicated
current processes really are for configuring and pricing products
within sales channels and for fulfillment functions.
9 Steps to CPQ Success
3. Identify gaps: Pinpoint key areas where manual effort is
required, or where delays or diseconomies of scale are regularly
encountered.
1. Rationalize processes
4. Review strategies: Confirm the key strategies to help the
enterprise achieve differentiation and competitive advantages,
and identify areas where CPQ can play a role.
4. Review strategies
5. Prioritize initiatives: Rank the CPQ projects based on the
Quote-to-Cash business impact, taking into account existing
gaps as well as leading strategies for acquiring competitive
advantages.
7. Identify delivery models
2. Confirm complexity
3. Identify gaps
5. Prioritize initiatives
6. Define functional footprint
8. Establish selection methods
9. Draft project plan
6. Define functional footprint: Nail down the breadth of
capabilities needed for high impact initiatives, including
contracting, renewals, revenue management, analytics and
workflow functionality.
7. Identify delivery models: Assess best approaches to acquire
rapid speed-to-value and superior ongoing management of
instances. Cloud technologies have now overshadowed other
models, so explore opportunities with leading cloud platforms
and associated CPQ solutions.
8. Establish vendor selection methodology: Confirm the
evaluation processes and criteria for sourcing CPQ
technologies; follow guidelines of research houses (e.g.,
Gartner) and consider product functionality, technology, costs,
services and usability, as well as viability and vision of vendor
organizations.
9. Draft project plan(s): Lay out initial blueprints for generating
value with complex CPQ solutions for high priority Quote-toCash business processes within twelve months.
Speed is a critical business imperative in today’s economy, so
thorough preparation around planning complex CPQ initiatives and
applying appropriate technical solutions will yield dividends. Use
the nine tips above to organize corporate planning processes,
identify opportunities for revamping practices as well as to
implement CPQ software solutions that can exert a decisive impact
on the business.
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Conclusion
Businesses are becoming more complex and dynamic to confront increasing competition and volatility in
bellwether markets. Superior agility and market differentiation are sought to generate sustained rates of
growth and profits. Major economic trends like globalization, competition, commoditization and costs are
compelling organizations to reconsider how to bring to market higher value products that are more compelling
to customers and profitable.
As a result, many enterprises are investing time and effort on complex CPQ business practices, defining best
practices for marketing and selling complex products and services, and identifying opportunities for
automation. These efforts extend to enabling flexible processes that service different customer segments
through multiple channels. Mastery of complex CPQ translates into immediate business benefits, including
higher rates of profitable growth and economies of scale.
However, the three pillars of CPQ complexity must be mastered to achieve efficient and effective packaging of
complex solutions, agile customer engagement models and robust fulfillment methodologies. In addition,
automation plays a central role in enabling enterprises to fully realize the benefits of implementing complex
CPQ business practices.
CPQ applications are needed to manage product data, configuration models, workflows and analytics on a
scale that helps enterprises achieve objectives with complex CPQ. The resulting end-to-end process
automation, visibility and controls mitigate diseconomies of scale and make possible strategies like mass
customization, value-selling and solution selling, which differentiate leaders from runner-ups.
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