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Do outcome-based contracts exist? The investigation of power-by-the-hour and similar result-oriented cases

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  • Grubic, Tonci
  • Jennions, Ian

Abstract

Outcome-based contracts (OBCs) are claimed to be the new business model for manufacturers. They have attracted a lot of research that identifies two types of OBCs: outcomes based on availability (aOBCs) and outcomes based on economic results (eOBCs). The first involve the sale of the availability of a product whereas in the second the customer purchases the functional result of the product. This characterisation is identical to the distinction between the use-oriented and result-oriented Product-Service System type. However, there are studies that seem to challenge the prevalence and even the existence of eOBCs in practice. We have set out to investigate whether eOBCs exist. This was done by addressing the following research question: what are the differences between aOBCs and eOBCs? The study employed research design that consists of three steps: identification, selection, and analysis of OBC cases as reported in journal articles. In relation to the case studies identified, our preliminary analysis suggested that all the case studies in the literature are of the aOBC type. The only case identified as the possible case of eOBC, and subsequently selected for further analysis, is that of Power-by-the-hour (PBTH) by Rolls-Royce. The analysis of PBTH was conducted from the Remote Monitoring Technology perspective. Our key contributions are: (1) a new theoretical perspective on OBCs, (2) the articulation of differences between OBC types and of what constitutes an outcome, and (3) doubt in the existence of eOBCs in practice.

Suggested Citation

  • Grubic, Tonci & Jennions, Ian, 2018. "Do outcome-based contracts exist? The investigation of power-by-the-hour and similar result-oriented cases," International Journal of Production Economics, Elsevier, vol. 206(C), pages 209-219.
    • Handle: RePEc:eee:proeco:v:206:y:2018:i:c:p:209-219
    DOI: 10.1016/j.ijpe.2018.10.004
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    References listed on IDEAS

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    6. Rodríguez, Arturo Estrada & Pezzotta, Giuditta & Pinto, Roberto & Romero, David, 2020. "A comprehensive description of the Product-Service Systems’ cost estimation process: An integrative review," International Journal of Production Economics, Elsevier, vol. 221(C).

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