MUMBAI – A former Infosys executive is challenging the IT outsourcing industry’s billing model by charging for results instead of basing fees on time and labour put in by the armies of staff working for India’s big firms.
Outcomes-based billing, growing as a share of revenue across the industry and pursued most aggressively by iGate CEO Phaneesh Murthy, is meant to appeal to clients with less-certain budgets in a tough economy.
If the services don’t deliver an agreed-upon result, such as reducing the cost of processing a loan or cutting the reject rate in an auto parts factory, the customer pays less. But the strategy also boosts profit margins for IT companies, raising questions about which model is better for customers.
Murthy has been an outspoken critic of the industry’s traditional billing model, known as time-and-material. In a marketing campaign, iGate dismissed the model as a “criminal” practice that has “swindled” billions from large companies.
IGate took out an advertisement in The Economist magazine in January that read, “If this ad does not deliver results, we’re not paying The Economist”, marking a rare foray into mainstream media for an outsourcer.
