Is it worth to STOP paying IT vendors based on the number of hours or materials consumed?
What if the customers hold their IT vendors accountable for the business value generated by the systems that are built and maintained by their vendors, and pay a percentage of the value instead of crafting watertight penalty clauses in the contracts?
Is the mantra — “No business value, No remuneration!”, realistic?
IT companies across the globe are primarily selling Time and Material (TNM) or Fixed Priced (FP) projects to their customers. TNM and FP projects focus on output, Ex: Charging the customers based on the number of hours of consultancy, and leaving them alone to worry about the business value that they get from those efforts.
Cost overruns and poor quality of deliverables are mostly due to lack of ownership and output driven mindset (e.g. minimum of 40 hours per week) from some of the IT consulting firms.
In some ways, such business models foster a culture in which employees are encouraged to work overtime. Furthermore, a few employees tend to sacrifice their personal life to satisfy undue expectations from the consultancy firms.
This hampers the quality of deliverables, resulting in lack of trust between customers and the consultants. An inevitable domino effect compels both the parties to revise the specifications and re-negotiate the terms & conditions in the contracts.
How can the consulting firms and customers break this vicious cycle that leads to poor quality of deliverables?
Consulting firms should stop paying sales bonuses to their employees for selling TNM and FP projects to their customers.
Customers should stop paying the consultants for the delivery of work, and start paying them for delivering the business value.
Until the project starts delivering business value, the customers should not pay even a penny to their consulting firms. If a project does not create value, then there is no hit to the IT budget for customers. Would this be fair deal for the consulting firms? Of course Not, its risky to build for free, before realizing the business value.
How would customers make it up for the risk that the next generation consulting firms would be willing to take?
Well, one of the ways could be sharing a mutually agreed percentage of business value that is generated through the IT systems that the consulting firm help build and maintain.
Can this percentage change over time during the life of the system?
Yes, of course. Afterall, it needs to be a win-win for both the parties.
Who owns the IP for the system?
It must be the consulting firm that took the risk and borne the cost all this while. However, the customer is entitled to ownership of the data and digital assets of their company, such as logo, trademarks etc.
Simon’s article describes the way he and his team used Worth-Based development to deliver value to their customer.
However, the question stands — Is IT ready for Worth Based Development?
Is it time for IT industry to think beyond Budgets and Outputs, and take a giant leap towards Worth, Outcome and Business Value?
At Worthum Business Solutions Pvt. Ltd., we help our customers realize meaningful business outcomes that positively impacts the end users and the society, by leveraging technology that complements humans, and not replace them completely. Our endeavor is to integrate technology with business processes that are focused on user needs. We build and operate software & IT systems that creates business value and ensures profitability for our customers.
We want our customers to be the winners in their digital transformation journey, and we are equally invested in them.
If you’d like to connect with to us regarding IT services for your awesome project, then write to us at email@example.com or visit https://www.worthum.com/contact
We are also hiring for a few positions. Do visit https://www.worthum.com/careers regularly to see if any of the roles excite you. If you do not find a role, but you think that you have the skill and attitude to work at Worthum, then share your resume, with your skills and work experience at firstname.lastname@example.org. Note that the number of years is not considered as an indicator of rich experience.
Visit https://www.worthum.com for more…
Thoughts and comments welcome!
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