It takes a delicate balance to set up a sourcing partnership that is mutually beneficial to buyers and providers of IT services. Lasting win-win partnerships flourish only when both sides are satisfied: Buyers see consistently strong results from their investments that positively influence business outcomes, and providers are empowered with a sense of ownership and incentivized to think big, innovate and outperform in their own right.
For far too long, buyers and providers have engaged in traditional sourcing models that are safe but suboptimal (e.g., arrangements based on staff augmentation and commercial constructs, such as time and materials or fixed capacity service delivery). Historically, buyers approached sourcing as a way to access the right skills at the right price at the right time, without exploring the possibilities that lie beneath the surface. Meanwhile, providers have tended to play it safe by sticking to manpower-linked linear growth models that, though predictable, do not necessarily maximize value.
This deep-seated reluctance to change prevalent sourcing models has resulted in several significant drawbacks for both buyers and sellers of IT services. Buyers are generally unable to link the benefits of procuring IT services from third-party providers to the realization of business objectives and pay for results delivered. And providers command limited ownership, accountability, and “mindshare,” relegating them to the role of a vendor, not trusted partner.
However, all of this is changing. A new breed of “next-generation” buyers and “best-in-class” providers are now emerging and vigorously challenging the status quo. Many of these players are seeking sourcing arrangements that align buyer and provider incentives and foster collaborative co-creation. Riding this wave, managed services agreements using output- and outcome-based commercial pricing constructs are gaining traction as the sourcing paradigm of the future.
This whitepaper explores different variants of this model, their relative merits and limitations, situations suitable for their adoption, and how they can and should be governed. We conclude with a case study illustrating how one IT organization has broken the mold by adopting such models on a large scale through multi-year contracts with its providers.
I’ve heard it many times: “I don’t care how you do it – but we need the job done.” This can be a dangerous mindset if seeking to embark on an outcome-based project. If the customer is stating this, they have missed the point of an outcome-based agreement and should re-think their approach.
If a service provider is on the other side of the table hearing that statement, they should challenge the customer’s strategy and determine whether the customer has fully comprehended the level of work and commitment associated with the outcome-based approach.
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. It is an operational model that requires a strong customer and service provider relationship, trust, and a genuine sharing of risk and reward.
If a customer misunderstands what outcome-based contracting is (and perhaps confuses it with output-based contracting as this statement suggests), the customer’s expectations are already misaligned with the service provider’s and what each party should be committing to.
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. We see a resurgence in customers demanding greater innovation and more cost-effective service, particularly in process-driven services such as finance and accounting.
But with the potential for misunderstanding and customers confusing output for an outcome, will we start to see an increase in issues arising from outcome-based contracts?
For a long time, the Businesses have suffered by the Time based billable project engagement models. While it might be appropriate for many types of project needs, it is highly unproductive, costly, and destructive in most engagements. Unfortunately, many vendors and suppliers take advantage of the customer relationship and involve in unfair practices in the time-based model.
menschForce’s outcome-based or hybrid Time & Material project engagement models are the best of the breed business model where you pay for the outcome rather than the time. With the digital transformation of the business and the AI-driven technology ecosystem, every client is suffering a threat of getting disrupted by new generation start-ups and competitors’ cutting-edge innovative advantage. Clients are realizing more and more that their existing project engagement partners and system integrators are failing them by not sourcing the right resources for the project engagements, use inferior products/tools, and apply poor methodologies & lifecycles. While the existing relationships might help in traditional IT projects, menschForce shall stand out clearly as the platform for these modern technology project needs like IoT, AI, Machine Learning, Blockchain, etc., Menschforce being a for-profit cooperative society of consultant members with a global engagement model, brings a competitive advantage to our clients and customers.
MenschForce also provides a clear-cut alternative to freelancers’ engagement by mitigating the risks associated with such a model. Menschforce consultants are part of a closely-knit society of consultants who share the values, knowledge, and wisdom amongst their peers and the provenance and trust is established through Distributed Ledger. Moreover, menschForce consortium brings in clients as participating members in the society (and the blockchain trading platform), there are full transparency and trust between Clients MenschForce and Consultants. So, the clients can engage in risk-free with menschForce. We have established various centers of excellence within menschForce so that your specific project needs are handled by the specialists having the right experience, tools, and technology experience to handle and deliver results.
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