by Michael Wooden, CEO, OnProcess Technology

I’ve always been a huge fan of change.  Maybe it’s because of my short attention span or my yearning to fix problems, going from one to the next.  Once a problem is fixed, I quickly get bored…maintenance has never been my thing. That’s why I’m encouraged by the change that is taking place in the industry toward the concepts described in the great book B4B, by J.B. Wood, Todd Hewlin and Thomas Lah.  I’ve always believed that the standard contracting method between managed service providers and their clients have missed the most critical element of mutually aligned interests.  Contracts based upon Full-Time Employee (FTE) count, transactions, or even worse…hours/minutes, are inherently designed to disconnect the interest of the provider from that of the buyer.  If I’m being paid by the FTE, it’s in my best interest to have as many FTEs as possible working on the project to maximize my revenue. My client, of course, wants to minimize the number of FTEs that I use so, they have to construct an elaborate governance model that includes KPIs, SLAs, a costly vendor management organization, penalty structure and inflexible procurement departments to ensure that I’m being as efficient as possible.  This model makes it very difficult for managed services companies to introduce innovation because improvements that drive more efficiency only hurt the top and bottom lines.

Moving to a true outcome-based model can fully align the interests of the managed service provider and the client, encourage innovation and significantly speed up the evolution to a truly digital business. The best element of an outcome-based model for the client is that it shifts the risks to the managed services provider. That’s OK for the provider as long as the client agrees to forgo traditional approaches of managing by KPI and give the provider control of the key elements they need to be successful.  As a managed service provider, I embrace this model because it encourages me to implement deeper analytics, provide a more robust technology and help clients transform their supply chains into a digital business.

Will organizations of F100 companies be able to adapt to this change, a governance-lite, minimally managed, outcome-based approach, or will they stay behind with their established models of highly managed, KPI-driven and unaligned approaches? One way is the path to success; the other is the path of dinosaurs.  Has your organization made the change?