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The disruption of COVID-19 has prompted business leaders to rethink many assumptions and practices. Buying enterprise software – rather than buying the outcomes the software can deliver – is one long-standing practice that many are reevaluating.
Industry analysts are tracking many fundamental changes in the business landscape since the pandemic’s onset, including a radical change in business philosophy: Having just experienced the high cost of disruption, many businesses are shifting their cost-risk calculations to give equal weight to actions that can lower their risks – even when those options cost more.
One significant way for businesses to lower their risks and increase their success is to share responsibility with their software partners for achieving concrete benefits from business-critical, enterprise-level software. The goal: to ensure that the software provider will be fully committed to achieving the client’s business goals for the project. The incentive: compensating the software company based on the benefits it generates for the client’s business.
This approach, which focuses on business results and shares both risks and reward, is the basis of software-benefit models known as Outcome-Based Engagement (OBE) and Outcome-Based Services.
With OBE, the software provider and client agree at the outset on the business goals the software must achieve for the client and how that achievement will be measured. The software provider takes responsibility for the software and for achieving its benefits for the client, with compensation based on actual deliverables and results.
Yes, OBE costs more than purchasing software licenses and paying annual renewal fees. But it virtually eliminates the client’s risk of failing to achieve the business benefits that the software can deliver. If the software does not deliver the expected results and value, the client pays nothing. If it succeeds, the software provider is compensated based on the value it has actually created for the client.
“For those who want to minimize their risks, accelerate their successes and de-stress their work lives, Outcome-Based Services and Outcome-Based Engagement can be game-changers.”
While OBE envisions a long-term relationship between client and provider, Outcome-Based Services generally have a shorter duration. In this context, the software provider does not deliver the software to the client at all; instead, it uses the software to perform work on the client’s behalf. Such services also reduce or eliminate the cost of training the client’s team to use the software, and it shortens the time-to-benefit.
Outcome-Based Services are especially helpful when a client lacks the time to implement, or when they have a one-time need. For example, when officials in Wuhan, China, needed to build the Leishenshan Hospital in 14 days to handle a surge in COVID-19 patients, they wanted to predict and prevent virus dispersal via the hospital’s ventilation system. They did not have time to acquire, implement and learn how to use 3D modeling and simulation software, so they hired the software provider to do the work for them. The hospital paid the software company a set price for the results and insights.
In another healthcare example, a pharmaceutical manufacturer needed to qualify a complex syringe-filling machine and all of the systems and processes used to operate it. The project also involved validating the formulation process and robotized control stations in an atmosphere-controlled area.
The client needed assurance that the system could go into production without incident. Their software partner used “hardware-in-the-loop” modeling and simulation to pre-test and pre-validate the entire system and develop needed training and operating materials.
For some clients, Outcome-Based Services is a one-time experience. For others, it becomes a preferred model. Either way, these services deliver a taste of the software’s benefits. The client may subsequently decide to purchase the software via a classic, license-based business model. Or, once they have experienced the shared-goal, low-stress reality of an Outcome-Based approach, they may want the benefits without shouldering the full responsibility of getting them. Such clients then move forward with their software partner in a full OBE model.
Clients with large, sophisticated IT staffs may always prefer to implement and maintain their software, so the traditional license model will not disappear any time soon. For those who want to minimize their risks, accelerate their successes and de-stress their work lives, however, Outcome-Based Services and Outcome-Based Engagement can be game-changers.
Lionel Burgaud is WW Outcome-Based Services VP at Dassault Systèmes