The problem with many traditional outsourcing arrangements is that they focus on input rather than output. Just as U.S. health care reform advocates criticize a system that incents doctors to perform tests and procedures with few rewards for the ultimate goal--a healthy patient, some outsourcing reformers say too many IT services deals are myopically focused on tasks or man-hours rather than business results.

Outcome-based contracts--at least, in theory--can change that. "Paying for outcomes is the idea of paying for success toward a desired result instead of paying for individual items like servers or programming hours," says Adam Strichman, an independent outsourcing consultant based in Mechanicsville, Va. "Nobody really wants servers, or switches or a mainframe. They generally want a business outcome, such as faster access to information or an automated delivery system."

[ For more stories on outsourcing pricing models, see Offshore Outsourcing: Introducing a New, Hybrid Pricing Model. ]

But devising outcome-based outsourcing deals that satisfy both the customer and the vendor has proven difficult. Time-and-materials contracts remain the most common outsourcing model in the industry, particularly offshore, says Sandeep Karoor, managing director of outsourcing consultancy Neo Advisory. Fixed-price contracts run a distant second. Outcome-based contracts account for, at most, 15 percent of new deals, says Strichman, and they may only apply to part of the outsourced work.

Who's Outcome Is It Anyway

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