Pay Cloud Vendors Based On What They Save You

I was talking with a friend about a large financial institution that has done a lot of IT outsourcing with plans to embrace cloud computing.

He works with a large outsourcing vendor, which gets a resounding F when it comes to customer support. He complains everything must have a work order and when there’s a problem, they “play dumb.” Why would any enterprise accept this level of non-performance?  

One wonders if such unfortunate circumstances, assuming they are common, will slow down cloud adoption. Maybe not: Google “cloud adoption rates” and it’s still full-speed ahead with spectacular forecasts (that’s when I get suspicious).  

But who wants to pay millions to a balky outsourcer behaving like a government bureaucracy? Indeed, outsourcing has never been know for innovation and cloud computing is clearly sourcing (the ECF’s most discussed blog post remains “The cost of innovation and outsourcing” by Doug Goddard).

Helen Beckett, my colleague at the Business Value Exchange, cited examples where IT vendors are compensated by how much money they save the customer. She positions “payment by results” as the next evolution in paying just for you use, which has become a the well-worn model and mantra for cloud computing.  

It’s akin to construction contractors earning a bonus for finishing a bridge project early. Any anyone who’s going to innovate needs encouragement, right?

I love the idea and am chagrined that I had not heard of it before. Some graduated savings scale could be translated into bonuses or even core compensation for the IT vendor.

Is this a workable approach to get outsourcers to innovate? Do you already do it and if so, has it worked?