Outcome based pricing adoption in Finance, Accounting & Insurance BP0 2013

Outcome-based pricing is a BPO pricing model in which the service provider is paid by the buyer when a specific business outcome is achieved, which is totally different when compared with the traditional BPO wherein billing is done for the number of hours worked and number of people employed on a project. Outcome based pricing model is based on standardizing the processes, incentivizing and rewarding the BPO vendor for increasing the business outcomes for the client beyond the contractual expectations and agreements. This model becomes relevant when the objective of the outsourcing relationship goes beyond cost, both the client and BPO vendor interests are aligned, outcome is process-oriented, rather than business-oriented, and when the outcome is based on meeting SLAs, deliveries, and deadlines. Some of the prerequisites for this model are accurate baselines, well-defined, trust between the vendor and client, measurable service levels, clear costs, risks involved and performance goals and implementation of the BPO Vendor technologies and integrating them with the overall client organizational policy and strategy. The model is perfect for use in BPOs where payment is based on number of calls successfully converted, mortgage loan originations and insurance policies back office administration will be priced per policy or loan. According iGate CEO, outcome-based pricing works best for operational type work not IT tasks. The CEO adds outcome-based pricing works best when the service provider controls the process end-to-end such as: mortgage application process, insurance policy administration process, Reference data and Procure-to-pay.

Most of the BPO contracts start initially on Full Time Employee (FTE) pricing as there will not be clear picture of costs involved and their impact but over period of time when both the BPO vendor and clients understand the processes and cost involved they may take a decision of moving to the outcome based pricing model. Dennis Winkler, head of the BPO practice for Alsbridge says today’s new contracts often include a conversion clause to allow the buyer to move from FTE-based to outcome-based pricing at a later date. “This allows the client time enough time to determine their internal cost per policy and then they can compare costs to see if outcome-based pricing is indeed a good deal,” he says. He also says process automation and internal technology platforms allow the service providers to bear the additional risk of outcome-based pricing and still remain profitable. Outcome based pricing model is costly requiring significant investments both financial and human and when compared to traditional FTE based pricing but this model is highly beneficial for those clients who are looking for applications and offerings to increase revenue or customer stickiness and also improve customer satisfaction according to iGate CEO. This model encourages and empowers BPO vendors to engage in collaborative and creative problem solving as they work with the client organization towards achieving mutually beneficial business goals. Particularly this model is best suited for Finance and Insurance companies that outsource their processes to third party vendors as they have a clear picture of costs involved and since vendors too actively commit themselves to further reduce cost without impacting the quality of services and customer satisfaction, they can lower their costs and offer services at competitive prices to their customers which will be a big competitive advantage.