Outcome Based

  • Business Process Outsourcing - is it an expense or there is a profit? - Part 2

    In the previous article, we've discussed very typical cases of Business Process Outsourcing. You can check them here: BUSINESS PROCESS OUTSOURCING OF SOFTWARE DEVELOPMENT AND RELATED SERVICES - IS IT AN EXPENSE OR THERE IS A PROFIT?

    We've already checked what are the benefits of Fixed Price, Cost Plus, Subscription, and Dedicated Team models. However, there are some more for the consideration: Hybrid Models.

    • There can be a certain, notable discount
    • A vendor's team is already motivated and aiming at a positive business impact
    • There is no need to check the day-to-day performance of the team
    • The business should negotiate a percentage of revenue or equities to be dedicated to the vendor
    • Risks are mitigated to all parties
    • Business Process Outsourcing can turn into a long-term profitable partnership

     

    Outcome-Based Model

    It can be a sort of a Fixed Price Model, however, normally, it is related to a Dedicated Team Model. In this case, the Business Process Outsourcer takes the whole process from the very top to the bottom. This makes things a little bit less transparent, but lets this team focuses on what's valuable, unleash their innovative potential and all above for a very good discount on their services in exchange of bonuses for a good job done by the team, basing on the real business value created. In some cases, like Digital Marketing, there is a set of standard ways to calculate an Outsourcer efficiency. For other cases, for instance, the product development, it's more complicated, despite a very clear number related to self-cost and profit margin. There is still a wide range of negotiation.

    Concluding this

    • There can be a certain, notable discount
    • A vendor's team is already motivated to achieve a positive business impact
    • There is no need to check the day-to-day performance of the team
    • The business should negotiate a percentage of revenue to be dedicated to the BPO vendor in case of positive business impact

    Shared Risk-n-Reward

    This model is a sort of Outcome-Based Model, just it's normally more specific to startups. In exchange for a discount flat-rate the business for an agreed portion of equities. Indeed, in this case, Business Process Outsourcing turns to Partnership, however, that's a great definition, how Fixed Price risks can be mitigated to both sides with a win-win solution.

    Well, benefits are generally the same as in case of an Outcome-Based Model. Besides this, a startup or business can get a considerably big advantage:

    • The one single reliable technical or operational partner instead of a well-known endless story of many vendors one-after-another.
    • Risks mitigated for both Business and Vendor
    • A possibility to make a long-term partnership of Business-Operate-Transfer
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