On the journey of servitization, services provided are moving from basic services to advanced services where capabilities are delivered. In this circumstance, outcome-based contracts (OBC) are increasingly used. Two important issues in OBC are risk and relationship (social capital).
An outcome-based contract refers to an agreement between the supplier and the customer that the supplier gets paid based on the outcomes of total solutions or the outcomes of customer value in a continual use situation.
Two approaches to deliver outcome-based contracts are first, the supplier-customer binary approach and second, the alliance / joint venture approach.
In the supplier-customer binary approach, two major risk categories are commercial risk regarding the contracting of OBC, and operational risk regarding the implementation of OBC. Eighteen risk factors in six categories are identified to be the influencing factors. Social capital can prevent and mitigate risks to a certain extent.
In the alliance or joint venture approach, three major risk categories are commercial risk regarding the commercial solutions among partners, operational risk regarding the operations of the alliance, and social capital risk regarding the construction of social capital in the alliance. The three risks mutually influence each other.
- Joint Briefing Report with IBM - 'Supplying Innovation-Unlocking innovative behaviours in the supply chain.'
- Blog on 'Supplying Innovation-Unlocking innovative behaviours in the supply chain' - April 2016
- Podcast Interview with Jingchen Hou on 'Supplying Innovation-Unlocking innovative behaviours in the supply chain.' - April 2016
- EuOMA 2014 Paper - 'Case studies: analysing the effects of social capital on risks taken by suppliers in outcome-based contracts'