We help our clients design and execute strategies for Outcome based Services and Performance Contracting. Establish methods to appraise and manage risks; Develop targeted offerings and contracts; Implement value based pricing; And design the appropriate delivery systems and scale the business.
A business about risk, pricing and scale
Outcome based Services and Performance Contracting are increasingly gaining traction in diverse industries, from energy and infrastructure, to aerospace and defense and, more recently, in manufacturing, process industries, even in healthcare. The concepts can produce significant benefits for customers, bending cost curves or improving performance by aligning incentives and creating “win / wins”. Things, however, are less clear for suppliers. In order to be successful a company must accept transformation risk (inputs into outputs) and change its business model and delivery system and, therefore, undertake substantial initial investment and incur permanently higher overhead. To be justified the model needs to scale. Customers however require choice -an adequate number of suppliers providing services under the new model- before they change what and how they buy. A “chicken-and-egg” problem ensues. So in industries without “facilitators” (organisations with oversized influence), suppliers need to proceed carefully, so that on the one hand they don’t overextend and on the other they don’t fall behind when their industry transitions. To achieve this they must prioritize systematically and target their efforts initially at those markets, industries and customers that offer the best chance for quickly reaching critical mass.
But a correct strategy is a necessary, not sufficient condition for success. Suppliers must get other things right as well, including how to design offerings and contracts, assess and manage risks and determine appropriate (value based) pricing. They must engage and influence customer behavior throughout contract duration, achieve buy-in from customer personnel and stakeholders and, of course, design and scale the service delivery system and optimize operations.