Outsourcing with an outcome approach? How familiar does it sound?

Outcome-based approaches have been definitely gaining ground over the last two years. We are still on the path to becoming a mature player in it. But this has relevance to our business too and we are in discussions with several of our customers to structure engagements on lines of these models.

How did this genre shape up?

About one-and-half to two years back, discussions around this approach started originally. Still rudimentary, not deeper, but this approach, as we gradually realized, needed introspection and serious thought. A year back we started developing the outcome-based model.

Is it really a radical approach for a vendor?

The Indian big four names in IT may be already advanced on this, and measurement-based payments have been woven in deals for some time. SLAs (Service Level Agreements) were the first face of this outcome flavour of models. Specially maintenance-based work, which has been around for years now, is a good example. But yes, specific outcome-based approach is still fairly recent.

What are the drivers?

Conventionally, people-and-revenue correlation format used to work well. The only way to grow linear was by growing headcount, so the industry has figured out more non-linear ways of revenue growth. That’s where a vendor takes additional risk on accountability. And with that comes freedom to structure the agreements and projects your way.

Doesn’t the risk factor inhibit or daunt in some way?

Risk is surely more, but if one is good at his job, the risk-to-reward ratio is high enough.

What about the legal implications that this model brings along?

Legality is one big reason why not everyone has not jumped on to the result-based bandwagon right away. The comfort level relates a lot to legal ramifications and unless that detailing is clearly defined, or till both the sides feel sufficiently covered, there’s still a distance to cover. As vendors, we can commit to only whatever we have good control over.

When it comes to accountability, control and defining metrics; where does the balance tip towards – vendor or client?

At the end of the day, it can’t be vendor-driven. Customer has to buy in and both the sides are still accountable and it is people on each side that can make or mar the success of a project. It also needs a stronger requirement management which is where more maturity, and more control management is required. Scope-creep issues, like they used to be in earlier models, get a different scenario here and their effects can be very high. Defining approach metrics to govern the outcome-based relationship is important.

Any other challenges?

It’s a paradigm shift for the whole team, for a service provider. It has to have a stronger stakeholder role, which is surely very high. Because project control is a customer pattern, and when it comes to a traditional customer manager or project sponsor, people still want to control people, in most organizations, which are a culture issue. Now loss of control needs to be addressed.