Traditional outsourcing is not aimed at smaller concerns that do not have the resources to manage the template approach that large outsourcing firms impose on their clients. Risk-based billing provides smaller companies with the opportunity to outsource their IT at a reasonable, fixed cost and focus on becoming large companies.
The SaaS centrally hosted model is of particular benefit where economies of scale help smaller companies to collaborate with each other to provide a world-class system.
The risk-based services model is unique in its flexibility. A large enterprise may derive value from a host of applications and customisations, but a small company will only need a few applications and tweaks to make the system fit its unique business model - perfect for a services approach to software provision. IT spend is controlled and the returns are measurable.
Economies of scale
This model can be an expensive undertaking when implemented for the first customer. However, economies of scale kick in as more customers are signed. Even though each company runs its system's on-site, the centralised support and development costs are minimised as the model expands.
Corporate governance:
With legislation demanding better reporting and accountability from corporate leaders the world over, the risk-based model of outsourcing caters for the corporate governance requirements companies must adhere to.
The risk-based model has no additional cost surprises over the lifetime of the application.
Richard Firth is CEO and chairman of MIP Holdings.
As any business with a computer is reliant on that PC, ensuring the systems are available and secure has become the CEO's job as well. The services model allows corporations to know exactly what their IT costs - and there is no large cash outlay.
Additionally, contrary to existing IT sales where existing customers make the easiest sales every year because they are over a barrel - in terms of databases and proprietary software - the risk-based model has no additional cost surprises over the lifetime of the application.
Standard in its uniqueness:
What place is there for entrepreneurial thinking in standardised business software? Very little, if one subscribes to the ERP vendors' recommendations of not changing their software. While the services model also provides standard software to companies, it also includes the flexibility that allows entrepreneurs to perform out of the box and establish their unique approach to the market.
Removing the consultant from the equation:
Most large companies let consultants make IT decisions for them to ensure employees are not held accountable for bad decisions. This model makes everyone accountable for all decisions and removes the requirement to use consultants. The cost savings from this act alone are enormous.
Over-zealous hardware salesmen:
The implementation of hardware is normally based on the revenue earned and the number of frills the salesman can convince the customer are necessary. In this scenario, the hardware is normally outdated when it comes time for the client to use the extra space, memory or frills.
However, the risk-based billing model requires that the correct hardware be implemented for running the applications or users specified. Sometimes, the hardware agreement is moved outside of the risk-based billing model as hardware vendors have a fixed cost up-front. The hardware can be bought with capital expenditure in conjunction with the risk-based billing partner to ensure right-sizing, effective product and value for money is maintained. Rental options are freely available in the market and then expenditure is smoothed over the period of the risk-based billing contract.
The barriers to entry in the IT industry have been fairly low over recent years, because of technology commoditisation. Anyone with a PC and a good idea could start an IT company and sell their wares - of course, they rarely lasted very long once competing in the real world. Risk-based services will once again raise the barrier to entry.
Waiting for the big payout when a customer signs a deal is not going to work anymore, as this model does not demand an up-front payment. In other words, only companies willing to take a risk on their own competencies and with the resources to back up their rhetoric and deliver will be able to survive and grow.
Risk-based billing is set to change the image of the entire IT industry, and the software industry in particular. The IT giants of the future will be those who can deliver a product according to customer needs and are willing to bet their product delivers, not those with the best sales and marketing teams selling snake oil to customers desperate for an IT solution that meets their business needs.
The IT mantra as industry moves further into the 21st century will not be upgrade, patch, bug fixes and pay annual licence fees with no guarantees; IT will deliver business services and guarantee performance to specification, or your money back.
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