Outsourcing Leadership Blog

Non-Linear Revenue

on Monday, 27 July 2009 17:08

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Categories: Strategy

I recently spent a week meeting with eight outsourcing providers as part of one of our selection processes. Every single one mentioned their desire to achieve “non-linear revenue growth” by leveraging SaaS, value pricing, transaction pricing, service bundling (integrated IT and business process outsourcing) and a few other relatively new concepts in the industry. The argument here is pretty simple: most of the industry today is based on selling people and pricing in some risk. In this model, the only way to grow is by adding staff and paying them a salary. However, most of these providers were clearly worried about running out of people, and felt that their ability to recruit was artificially constraining their growth. Customers, the story goes, will derive more value from these pricing models.

There is no question in my mind that you get what you pay for: If you buy bodies, you will get bodies. If you buy services, you will get services. But this great deal where sellers make more money and customers get more value does raise some questions:

1.   Where has this new-found efficiency been hiding? Are all existing outsourcing deals by definition outdated and low value?
2.   Can buyers really be assured a fair deal if they lose transparency to the provider’s basic inputs?
3.   Is this simply a process automation play—replacing labor with technology—and if so, hasn’t this stuff been around forever?
4.   Why is it that the industry universally decided to talk about it, very openly with their customers, I might add, at this time?
5.   The benefits of non-linear revenue to the provider are quite clear, but what are the benefits to the customer?

I have my own answers to the questions above, but I am interested in hearing from you. Will this become the dominant pricing model in the industry? What other questions does it raise?

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