incentive based it outsourcing

Incentive-based Pricing Model for your next IT Outsourcing (1/5)

Steve Martin, partner at Pace Harmon LLC, an outsourcing advisory ser-vices firm based in Tysons Corner, Va.

LOW Level of Strategic Partnership between vendor and client over Time HIGH

Gain SharingRevenue SharingOutcome based Pricing

Difficulties over proving ‘cause & effect’ and require vendor to have full control

Difficulties over having con-tractual terms in $ generated

and proving such

Well planned proposals to yield projected gains for both

Have pricing built into con-tract where defined IT or

Business outcomes achieved

Allowing the share of rev-enue created from addi-

tional $ generated from IT service

Have vendor to take strate-gic initiatives that generate mutual benefits and share

them



Challenges & Success FactorsApplicationsOutcome based Pricing

It is based on delivering a particular result or "out-come," rather than on

headcount or the volume of services provided (for

example, tickets handled; servers managed).

IT outcomes: - reducing IT costs, - increasing IT asset utiliza-

tion,- improving overall IT opera-

tions

Business results:- improving product distri-

bution- optimizing inventory

“IT vendor should be able to prove that its work has di-rectly caused the desirable

effect.”

“complete control over the full IT infra and application development and mainte-nance, so they can accu-rately show cause and ef-

fect”



Challenges & Success FactorsApplicationsRevenue Sharing

Service Provider's fees are linked either directly or

partially to an increase in the client's revenue that can be traced back to the provider's performance.

Apply where the IT service be-ing provided is the primary enabler of the revenue in-crease.

- Developing an e-com-merce portal

- Deploying an interactive voice response system in-tegrated with an order en-try system

“sorting out the revenue generated by an IT function

that is part of a business process.”

Establishing the co-relation with IT service and the rev-

enue related factors



Challenges & Success FactorsApplicationsGain Sharing

Service provider offers to find new ways to reduce IT costs over and above the IT services commissioned in the contract - and the

client and vendor share in the savings

Vendor proposed project to get mutual monetary gains:- Virtualized IT workloads- Cloud platform- IT asset utilization

Clients have cost savings and vendor gets share of the achieved savings, while ven-dor also gain improved pro-ductivity & their margin

“Difficult to hard-wire these benefits into a contract”

“Stipulate that every year the vendor has to come in

with two or three proposals that could lead to mutual

benefits”



http://searchcio.techtarget.com/tip/Incentive-based-pricing-models-for-your-next-IT-outsourcing-contract

Steve Martin, partner at Pace Harmon LLC, an outsourcing advisory services firm based in Tysons Corner, Va.

Reference:

incentive based it outsourcing

Technology