IT outsourcing Ménage à trois will support pay for results

I have had many meetings recently about how IT outsourcing contracts will increasingly be structured in a way that the customer pays for results and passes the risk to others.

When you buy something from John Lewis for example and something is wrong you get your money back. If you are inconvenienced they might even give you something extra. But outsourcing contracts that go wrong always seem to cost the customer. Unless you are prepared to go to court like BskyB did to get money back from EDS.

Something always goes wrong between signing the contract and the project being completed. The risk should be shared between suppliers, consultants and the customer.

Even consultancies are changing. Bryan Cruickshank, partner at KPMG, told me that contracts need to be benefits driven and consultancies need to change as a result.

Burnt-Oak Partners was set up at the height of the recession by industry veterans in the form of Morgan Chambers founder Robert Morgan and former EDS global head off financial services Jean-Louis Bravard.

Perhaps the recessionary backdrop of when it was launched inspired its new sourcing consultancy model.

So the difference between Burnt-Oak Partners and many sourcing consultants is that it does not disappear once the deal has been singed. As only a Frenchman (Jean-Louis) could put it “we stay in the bedroom after the marriage to make sure it is consummated.”

Burnt-Oak negates 40% of its fees if the targets are not met and gets a 20% bonus if they are.

So the consultant is absorbing significant risk.

The company is growing quickly. It already has 19 consultants and operates in three European regions. Benelux, Nordics and the UK.

Another good example of passing on the risk, this time to a supplier, is a deal between airline SAS and CSC.

Nigel Hughes, director at business and IT consultancy Compass Mangement Consulting, told me earlier this year that the deal segmented a business process. It saw the supplier run all the systems involved in putting passengers on board aircraft. CSC was paid a fixed price per passenger. “This left CSC to drive more efficiency,” adds Hughes.

Yet another example I was recently given of payments for results, this time from KPMG, is for a contract the government’s Work Programme. This is a programme that will help people back into work. The suppliers will be paid when people are put into sustainable work.

KPMG told me that the likes of Accenture, Atos Origin and Capgemini are bidding for this work so it shows being paid for results is attractive to suppliers.

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