Procurement and Supply Chain Bring the power of digital at the macro and micro level of every element of your process. In many cases, an engagement will cover business consulting as well, which further complicates the tracking of outcomes. Download PDF. Both parties will need their project teams to invest time and effort in deal structuring and seeking to exclude external factors that may impact the measurable outcomes that the service provider is remunerated upon. About The Author Megan Paul.
Outages can therefore cost a supplier dearly if the client has been wise enough to negotiate this upfront. Karina Swette.
Megan is admitted to practice in England and Wales. Outcome-based models are by no means new to the sourcing world but now with a greater understanding and implementation of Artificial Intelligence AI at the customer side, they have grown again in popularity as we see a resurgence in customers demanding greater innovation and more cost-effective service, particularly in process-driven services such as finance and accounting.
Addressing value, timing, and ownership arbitrage: Hear from industry experts and thought leaders for insights on how to realize potential. This should be done in a controlled and respectful manner, sharing only the information that will benefit the relationship, with the requisite protections in place. Each measurement should be capable of being objectively monitored rather than an internal metric understood by only one of the parties. Outcome-based contracting is not a tool by which customers can shift responsibility to their service providers and seek to avoid the effort and time associated with good governance and performance delivery.
Skip to main content. However, the model is currently limited to very specific areas of applicability. Outcome-based contracting is not suitable for all services but for business processes the model is a joint endeavour that rests on the strength of the relationship and an honest and open sharing of information and risk and reward.
Indeed, true outcome-based pricing accounts for less than 10 percent of deals involving ADM, even among top-tier service providers who manage large end-to-end projects.
Commercial models between buyers and providers of transformation and managed services are finally beginning to shift, following years of speculation with limited adoption. Establishing attribution: The time spent in the early stages of development of core principles, agreed measures and conducting due diligence means that there is a significant level of work done before the parties reach contractual negotiation. While the model holds promise, challenges abound and success remains elusive.
In turn, the service provider has to want to align its business with the customer and trust that the customer will commit to a true risk and reward model.
However, this flow of information will need to go both ways as the parties will need to determine whether they share the same business values and approach on which to base the relationship. Figure 1: