Automate now, pay later! An outcome-based pricing model for automation makes great sense
September 18, 2020 5:40 AM
Covid-19 has spurred greater uptake of automation. An outcome-based pricing model for automation makes great sense
Last but not the least, there are no surprises or hidden expenses, unlike those encountered in the traditional models.
By Swapnil Pitale
The post-pandemic era is beginning to take shape and is bringing about a massive disruption in the way businesses operate. While everyone expects the world economy to slow down, there is also an acceleration in the shift towards automation. Enterprises today are being compelled to take the edge off of humans and instead employ Intelligent Automation to get work done more efficiently, effectively and swiftly while their employees work remotely.
The pandemic has totally changed the way businesses imagine their continuity plans, forcing them to rethink and redesign their operating models. It has made them see automation in a different light—a stark contrast, from the resistance or scepticism toward automation in the pre-pandemic era to being very open to adoption. However, given the sky-high stakes in the current scenario, organisations would like their automation partner(s) to have more skin in the game as opposed to merely playing a detached consultative or spec-based implementation role. This has given rise to emphasis on “Automate Now, Pay Later”, best represented by the outcome-based model.
While the outcome-based model has been around across industries for a long time, due to a better understanding of business functions and digital technologies at the customer-side, there is a greater demand for more innovation and cost-effective service, resulting in higher consideration now.
What’s an outcome-based model? An outcome-based is a model where the pricing is based on the “outcome” in terms of the measurable cost or revenue impact delivered to the customer. Unlike other models, the outcome-based model doesn’t lay out detailed technical specifications or tasks performed; rather, it stresses on the ultimate business outcome. The outcome here could have different connotations as per the stakeholder involved, e.g. the outcome for a CEO might be the percent revenue generated, but for a CMO, it could be the change in the customer’s buying behaviour, growth in market-share or client/market penetration.
Why is it so lucrative now? The outcome-based model means more skin in the game on the part of the automation partner, which naturally puts a lot of pressure on them to do their best, thereby ensuring more value for the customer. Another aspect of the outcome-based model that lures organisations is that they pay for the final result and not for the digital technologies leveraged in the automation process. Unlike traditional models, the business won’t continue to bear the brunt if the desired impact isn’t achieved. This also means minimised risk for the customer. Moreover, since the success of the partner substantially depends on the overall success of the engagement, there is more sincere effort, more transparency and better trust amongst both the parties. Last but not the least, there are no surprises or hidden expenses, unlike those encountered in the traditional models. Overall, it is a win-win situation!
While the outcome-based model may seem very bankable, there are some factors to ponder before considering this approach to make sure it is the right one. One needs to be equipped with better understanding/expertise of digital technologies and have dedicated time and resources at hand. Clarity of what’s qualified as an “outcome” is of utmost importance. If there’s slightest of misunderstanding about the definition of the outcome, this misalignment can lead to a lot of chaos in the automation timeline.
Another vital factor to consider is that the outcome should be quantifiable. Clear communication is yet another mandate for this type of model. Not only is it essential to have a clarity of the desired outcome, but it is equally important to communicate this clearly to the automation partner so that both parties are on the same page. This will help the automation partner validate expected value/benefits being realised within specified timelines. God is in the detail in this case, so it makes perfect sense to plan all the milestones in greater detail to set up a fair foundation and, at the same time, ensure accountability.
Robust governance is the key to an outcome-based relationship as it ensures adherence to the agreed milestones and overall structure.
We all know now that the outcome-based model is not optimal for situations where people are most likely to shift blame, avoid governance or avoid accountability. It becomes a success only if the relationship between the customer and the automation partner is collaborative, trustworthy and genuine. This is definitely not a model that runs like clockwork from day one—rather, it will evolve over time with concerted efforts from both parties. As times get more competitive in the post-pandemic era, it’ll be interesting to see how the outcome-based model evolves into a joint endeavour between the customer and the automation partner to achieve stupendous results in their automation expedition.
The author is Global head, Intelligent Automation, Consulting Practice, LTI Views are personal