Tech Companies moving towards revenue sharing
Technology services firms are moving to a revenue/gain share model where they get a chunk of the client’s revenues or gains made due to increased productivity or reduction in processing time. Companies belive this ’slice of action’ strategy could not only be the next differentiator but also boost revenues. for HCL Technologies, which adopted the revenue/gain share model in 2005, less than 5% of revenue currently comes from such contracts.
Part of the company’s “if we share the vision, we must share the risk” strategy, the move towards outcome-based pricing is expected to fetch returns soon. “Most of these contracts are under implementation currently. We expect ti see the impact on revenue in another 18 months”, says HCL Technologies president Vineet Nair.
While engineering services and infrastructure management clients have more readily adopted this model, those in the applications space are yet to move, Mr.Nair adds. HCL has a revenue sharing management with Cisco and an output based pricing arrangement to develop software for Boeing’s 787 Dreamliner.
Infosys has alsobegun rolling out this model but the company says it has to be used selectively. “This is a good model for some of the relationships and projects we are executing and not all. It is very small since we have just started roling this out”, says Infosys MD and CEO S.Gopalakrishnan. The country’s second largest IT services firm finds client relationships in the areas of development, R&D and consulting work in IT services as more amenable to such contracts.
Wipro uses revenue sharing mostly in its engineering services business where it helps clients with new product development, says enterprice solutions president Sudip Banerjee. “These usually form a part of our end-to-end services delivery for our customers and only certain components of the entire services pie are on the flexi-pricing model”, he added.
For Accenture, business-outcome-related contracts is one of its 3B strategy, the others being building assets and building BPO and IT services. “We see fair number of clients moving to the risk reward model, especially in areas like accounting transactions and cross selling improvement”, says PG.Raghuraman, lead executinve for Accenture delivery centres for BPO in India.
