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Outcome based Services

Value Based Services: A Choice for Long Term Strategic Advantage not Short Term profitability. Examples from the Healthcare Industry

Within the general servitization buzz the talk is a lot about transitions to outcome or performance based services, where a supplier contracts with a customer for outcomes -not activities- and gets paid accordingly. OEMs often bundle products and services into solutions (product-service systems) to produce the outcome, Rolls Royce’s “power-by-the-hour” […]
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23 Important Lessons Learned the Hard Way in Asset management

Great Asset Management is not just about physics models and analytics. It is a way of thinking involving all parts of the organisation and businesses. Here is a brief summary of some of the key lessons I have learned in my career with leading companies in Asset Management such as Rolls-Royce […]
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Are ‘Solutions’ the right way to compete

The concept of competing through “solutions” has been around for at least 30 years. Numerous “tier 1” manufacturers / OEMs (power, plant and process machinery, aircraft and engines, earth moving equipment) created solutions businesses to better target vertical markets, particular customer segments and/or large strategic accounts. For example industrial automation […]
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Competing successfully in “solutions” businesses (a strategic perspective)

A successful solutions business is hard to implement. Whether or not it is the right competitive approach depends on a company’s strength in the market, how well it knows its customers and to what extent it is willing to invest in the necessary capabilities and see through the required operational […]
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Outcome & Performance based services and contracting

Outcome based services and performance contracting are increasingly gaining traction, though the practice in some industries goes back a really long time. The concept can have significant benefits for customers, even an entire industry or the economy by aligning incentives and creating “win / wins”, however things are less clear […]
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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.

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