In the traditional IT outsourcing deal, the vendor provides a service managing servers, monitoring networks and developing applications and the customer pays for it, whether at a fixed price, on a time-and-materials basis or a cost-plus model.
However, as customers have grown to expect more value from their information technology service providers and vendors have become more aggressive in trying to win higher value, potentially higher-margin work, new pricing models have emerged that could affect people in IT jobs, IT Business Canada reported.
“More creative fee structure attempt to better align the parties’ incentives,” Shawn Helms, partner in the outsourcing practice of law firm K&L Gates, told the news outlet.
Among the new pricing structures rising in popularity are gain-sharing agreements, shared risk-reward arrangements, incentive-based contracts and demand-based pricing.
“The better contracts aspire to satisfy the customer across prioritized business objectives that were either unable to be converted to traditional service level agreements or reduced to a performance specification,” Steve Martin, partner with outsourcing consultancy Pace Harmon, told the news source.
IT Business Canada notes that companies that adopt early to one of these practices may find that the new models may not work for their business. The proposed solutions often convey real benefits from encouraging innovation to increased control over IT costs.
Gain-sharing pricing helps customers who are seeking dramatic business improvements who want to create an alliance with suppliers of IT services, according to the news outlet.
Incentive-based pricing is ideal for customers who are able to identify specific investments that the vendor could make, as this could help to deliver a higher level of performance.
IT Business Canada reported that a consumption-based pricing model works best for buyers who are concerned about the productivity of their service provider or those dealing with variable demand. Cloud computing engagements will be benefited by this approach, as it is ideal for situations where the fixed costs of the services are shared across multiple customers.
Outsourcing Center reported that the shared risk-reward models are ideal for customers who are willing to put some profit on the line in a quest for potential large savings.
According to the news outlet, this type of method can help to incentivize both the buyer and provider to handle themselves well in the scenario, as both will suffer if the service is not delivered in an efficient way.