How Outcome-based Pricing Models are Reshaping the BPO Industry

Imagine doing the work of ten people with efficient output and getting paid the same as the one employee who gives average output. For a long time, this was how the BPO industry worked. Irrespective of the value added, the prices were fixed. While this was a safe game to play, it stagnated progress and left no incentive for growth. However, the advent of outcome-based pricing revolutionized how outsourcing service operators functioned. This permitted both parties to simultaneously walk away as the victors.

Digitization has changed the world rapidly as we know it. The potential it offers businesses and consumers is endless. This increased exposure has made a lot of parties price-conscious. And this, in turn is pressuring service providers to remain competitive and provide value for reduced prices. This dynamic is leading to a shift in revenue models and has birthed outcome-based models. Here, we explore the various ways it is bringing value to the outsourcer and outsourcee.

Risk Sharing

The primary advantage of this model is the distribution of risk between the client and the service provider. Tying the compensation to KPIs, both parties have a vested interest in achieving success. This shared risk dynamic promotes a collaborative environment, and are driven to be creative in making their processes more efficient while meeting or exceeding the client’s objectives.

Cerner Corporation, a leading health information technology company, uses outcome-based pricing models with hospitals and healthcare providers. They tie their compensation to the achievement of specific health outcomes and improvements in patient care, sharing the risks and rewards with their clients.

"It is evident that the outcome-oriented models have the potential to provide realized benefits to the buyer, which in turn results in gains for the service provider. This is a win-win approach for both parties in the long term," Jasvinder Singh, India Head of Wipro’s Airport, Engineering and Construction

Value Creation Centric

This pricing strategy encourages strategic approaches to BPO conversations, focusing on creating tangible values for the client instead of merely completing tasks. The service providers are incentivised to drive meaningful business outcomes, such as increased efficiency, cost optimization or customer satisfaction. Accenture, a global professional services firm, often employs outcome-based pricing in its business process outsourcing services. For instance, when assisting a client in optimizing their supply chain, Accenture's compensation may be linked to the reduction in procurement costs or the improvement of overall supply chain efficiency, ensuring a focus on tangible value creation.

"While this model has great potential for both the buyer and the service provider, it should be based on mutual trust, collaboration, transparent governance, and communication. When approached in the right manner, it will give a competitive edge and result in long-term gains for both parties in this extremely competitive business world," Jasvinder Singh, India Head of Wipro’s Airport, Engineering and Construction.

Flexibility and Adaptability

Traditional pricing models, more often than not, lack the flexibility to rise up to the challenges posed by changing business dynamics. Outcome-based pricing models, on the other hand, show varying degrees of flexibility, permitting adjustments based on evolving project requirements or shifting organizational priorities. This adaptability is particularly priceless in industries which are subject to rapid changes and innovations.

Wipro, an Indian multinational corporation providing information technology services, has embraced outcome-based pricing in its digital transformation services. They offer flexible pricing structures that allow clients to adapt to changing project requirements. This flexibility enables Wipro to tailor solutions to evolving business needs in real-time.

"Finance functions must remain adaptable and responsive to sudden changes while also considering long-term challenges," Carlos Martin Young, Finance and Corporate Development Director.

Continuous Improvement

In this adaptable framework, the pursuit of continuous improvement becomes instilled in the service provider’s approach. Constant assessment and development of their processes to enhance results, which benefits themselves and their clientele, will be at the helm of the decisions they make.

IBM applies outcome-based pricing in its business process outsourcing engagements. By tying compensation to key performance indicators (KPIs), such as enhanced operational efficiency or reduced error rates, IBM promotes a culture of continuous improvement, ensuring that their BPO services evolve to meet changing client expectations. "Organizations need to be flexible, open-minded, and agile when it comes to meeting the ever-growing needs of their customers, and timely evaluate those needs which can provide strong indications of how brands need to adapt to survive," Kapil Lad, Head of Marketing, Azeus Systems Limited.

As businesses seek to improve efficiency, drive innovation, and achieve strategic goals, adopting outcome-based pricing models in the BPO industry represents a significant step forward. This approach not only aligns clients' and service providers' interests but also lays the groundwork for collaborative, value-driven partnerships. Businesses can unlock new levels of efficiency, drive innovation, and position themselves for long-term success in an increasingly competitive global marketplace by focusing on outcomes rather than inputs. As the BPO landscape evolves, businesses that want to thrive in the digital age must embrace outcome-based pricing models.