TCS takes the lead in result-based pricing
The Financial Express — September 28, 2006

Tata Consultancy Services (TCS), the largest software services company in the country, is changing the rules of the outsourcing game yet again. In an effort to move closer to the pricing model used by global consulting firms like IBM and Accenture, TCS has begun using a new success-based pricing in some of its total outsourcing contracts like the ones it signed with Pearl Insurance in UK, Tata Teleservices and Chilean TranSantiAgo in the last 7-8 months. This could set the tone for the rest of the industry which still charges its clients on effort rather than outcome.

Most of the Indian software industry operates on the basis of a fixed hourly rate, referred to in industry parlance as time and material pricing. In contrast, in a typical outsourcing contract, consulting firms like Accenture tend to promise clients a specific quantum of process improvement, cost reduction and revenue enhancement. If these outcomes are reached, the software firm gets to share a part of the upside.

Explaining the rationale, S Ramadorai, CEO and MD, TCS, said, "Computer hardware and auto are two large industries where the customer pays for the outcome. We think in the future, software makers will have to move to this sort of guaranteed levels of performance and successful outcome."