Non-traditional pricing models for traditional IT engagement models

Traditional IT outsourcing pricing models is based on vendors providing a service and being paid for it – at a fixed price, cost plus model, or on time and materials basis. But as today’s global customers expect more value from their vendors, IT service vendors are innovating different ways to provide value and get paid for it. Some of these newer pricing models include:

Gain-sharing agreements – apt for customers wanting drastic improvements in business and true alliances with their IT vendors

Here the pricing is based on the value (and the profits) that the vendor contributes beyond distinct IT related responsibilities. Cost focused customers may ignore this model. Ross Tisnovsky, Vice President of Everest Group outsourcing consultancy, says that this model will encourage creative problem solving and collaboration as there is common business goals for both the parties.

• Shared risk-reward arrangements – a joint venture for product/service development

Both the client and the vendor share the rewards for a predetermined time/period. According to Gartner, both the parties should be willing to share responsibility for the ups and downs in the business.

• Incentive-based contracts – bonuses for a task well done

If the performance levels of the enterprise rise above the service level agreements in the Contract, the vendors are paid bonus amounts. Pace Harmon’s Martin says that “the key is to ensure that the delivered outcome creates incremental business value for the customer”. These are best suited for those customers who can identify the vendor’s investments and help them deliver at their highest performance levels.

• Demand-based pricing – pay for the resources and the productivity you get

With this model, the costs are distributed on grounds of actual usage (e.g. the amount of disk space used, hours worked etc.).

As an IT technology company, we firmly believe in the value of outsourcing. But we also know that businesses need flexibility, lower risk, and more options when outsourcing their IT work. Suyati offers traditional as well as customized, unique models of engagement that ensures every business does extend their IT profitably when they choose us as their IT outsourcing partner.


Author : mkrishna Date : 25 Apr 2012