Outcome-based billing in sourcing sights

Successful selective sourcers of the future could bill by actual business outcomes as customers strive to better align cost reduction with innovation, an analyst has suggested.

Speaking at a business briefing on hosting, IDC services research manager Phil Allen said that future IT hosting models must aim to reduce costs and maximise innovation for businesses. Currently, many in Australia were cutting costs while letting innovation slide.

"The average percentage of the IT budget spent on innovation is 20 percent, with 80 percent spent on cost reductions," he said.

"It's just not a big enough share. We just haven't got the balance right."

Allen said too much money was still being spent on doing the same things better, rather than doing better things in the first place.

To help businesses do better things, outsourcers needed to work towards, among other things, more flexible sourcing and cost models.

"That's something for the future really. It would be great if you could have a relationship with an external service provider, and bill it by business outcomes," Allen said.

Allen said outsourcers could eventually be paid by the number of new customer acquisitions or the increased share of wallet, for example.

Customers could bill by something that really mattered to them and drew a clearer line between selective sourcing and a resultant business benefit, he said.

"But for that to happen, a whole lot of things needs to happen first. You need to know how much technology you're using and start sharing all that information," he said.

"These are ideas about the direction of change and the things you should be doing to move forward."

Businesses -- and by extension, service providers -- needed to learn to ask better questions about IT infrastructure and its relationship to the business, he said.

Improved analysis of IT and customer needs should be used to fine tune service offerings in the direction of greater flexibility, Allen suggested.

Peter Goldrick, managing director at corporate learning and development outsourcer -- and user of a managed IT service -- BizEd Services, said Service Level Agreements (SLAs) were already becoming redundant.

If the contract and related SLAs had to be pulled out and examined once the deal was up and running, something had already gone wrong, he said.

"Metrics and contracts are only useful when all else fails," Goldrick said.

Glen Noble, general manager of hosting at managed services provider Macquarie Telecom, said SLAs were already being replaced by Service Level Guarantees (SLGs), that tied the outsourcer's role much more tightly to business outcomes.