IT firms prefer outcome-based pricing model
By siliconindia   |   Monday, 05 January 2009, 22:17 IST   |    19 Comments
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Bangalore: Indian IT firms are now in a transition stage as they are seeking to adopt outcome-based price contracts rather than headcount-based contracts, with a strong focus on improving the delivery mechanism. Unlike the past, IT service companies now want to secure the right to decide the number of people to be deployed in a project both onsite and offshore locations, reported Business Standard. Suresh Vaswani, Joint CEO, Wipro's IT business said, "As per the traditional model, if we have 50 people working with the clients onsite, another 300 people work in offshore locations. Now we are asking the clients to let us decide the number of people to be deployed for the project. They will explain the kind of services and levels they require. Based on which we will decide our approach. We may thus deploy 10 people onsite, 20 people near-offshore and 300 people offshore. And the persons deployed offshore need not be at one delivery center, but at multiple locations." Many big Indian companies such as TCS, Infosys and Wipro are now seeking to sign more contracts based on outcome-based model as against the earlier model, based on the number of people deployed in a project. TCS sees outcome-based pricing as part of its non-linear growth strategy rather than headcount-based pricing. Similarly, Wipro is also following this model of pricing to sign new contracts. Major portion of the company's contracts worth $500 million following its acquisition of Citigroup's captive IT arm in India was based on outcome-based model. By focusing on consulting and IP based services with its major revenue generating sections such as application development and maintenance, Infosys is also looking to adopt outcome-based model. According to analysts, outcome-based pricing rewards both the client and the service provider almost equally. "Outcome-based contracts are better from the customer's point of view because it gives more accountability to the service provider. It is better from a service provider's point of view because he constantly looks at innovating to deliver better services at a better cost," said Sabyasachi Satpathy, Director and Co-Founder, Mindplex Consulting.

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