BPM companies increasingly moving towards outcome-based deals

Typically, the outcome-based ‘at-risk’ component of the pricing constitutes from 10-20 per cent of the total fees, says a research study
Business process management (BPM) firms say they are increasingly moving towards outcome-based deals, or tying sourcing strategy to business results, in keeping with clients’ requirements and changing efficiencies brought on by automation and adoption of digital.

As more and more businesses move towards digital technology-enabled solutions such as chatbots to increase interaction with their own customers, BPM companies have seen a significant chunk of their revenue proceeds shifting towards business outcomes.

In a 2015 whitepaper, research firm ISG defined outcome-based pricing as one that ties service provider fees to a metric directly relevant to the business for clients. For example, it could be linking of fees to factors such as customer churn rate reduction, customer satisfaction, incremental revenues earned and cost savings.

Typically, the outcome-based “at-risk” component of the pricing represents no more than 10-20 per cent of the total fees, it said.

“Many of our clients are consumer-facing brands and leaders in their respective markets. Our clients have a heightened focus on the customer experience and are making strategic investments in omni-channel engagement, digitisation and the customer journey. Outcome-based partnerships are far more customer-centric than contracts based on operational KPIs and help us and our clients better manage complexity and business outcomes,” said Lance Rosenzweig, Global CEO of BPM firm Startek & Aegis, which was earlier owned by Essar.

The promise of outcome-based pricing is also more for BPM players as it promises a longer term relationship with their clients.

Mumbai-based WNS said 36 per cent of its revenue comes from non-fixed price-based models. “WNS...has been...offering innovative revenue models and the company has a flexible approach to suit the diverse needs of clients. As a result, we may cannibalise our short-term revenues, it gives a much bigger bank for a buck to the client. It allows us to ask for a wing to wing process. For us, it means that customers and we are engaging on a strategic level," said Keshav Murugesh, Group CEO of WNS.

Bengaluru-based Hinduja Global Solutions said customers have now realised the data they have from clients can be analysed better to provide greater efficiency. BPM providers embracing analytics have helped in this area.

“Earlier, customers traditionally used to look at 5-10 per cent year-on-year benefit. So, if they sign a contract and say I do it at a certain cost this year, they will be able to do the task 10 per cent cheaper next year. Whereas the numbers are 30-40 per cent more efficient now with outcome-based pricing," said Ram Mohan Natarajan, senior vice-president (business transformation and innovation), HGS.

Industry experts, however, are skeptical about the success of outcome-based pricing models.

Peter Bendor-Samuel, CEO of research firm Everest Group, said the progress claims made in outcome-based pricing by BPM firms are often exaggerated, as the contracts are difficult to negotiate and often leave one of the parties feeling like they have been taken advantage of.

“Having said that, pricing has evolved with most clients preferring to move to some form of usage or “as a service” model, where the client pays a fee on the usage it makes of the service. This can take the form of number of seats, or number of transactions or some other usage measure. Clearly the old FTE model is giving way to this more “as a service construct with clients eager to drive adoption," he added.

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