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Performance-Based Contracting Offers Both Opportunity and Challenges

As the market for performance-based contracts grows, providers are facing a slew of challenges related to product and service delivery, customer relationship management, and performance reporting.

"Many companies are reluctant to offer these services because not only must they provide the necessary products and equipment, but they also need to link field service and materials and have to develop the analytics to self-report on performance," says Maha Muzumdar, vice president of supply chain marketing at Oracle.

Performance-based service contracts bundle products and services into new types of service-level agreements that let customers focus on their core business without incurring financial and liability risks for ancillary activities.

Thus, when a longtime manufacturer of industrial compressors delivers equipment, a staff to operate it, and performance guarantees to a natural-gas drilling site, the exploration company customer gets the benefit of near-perfect uptime from the equipment without devoting any of its staff to running it.

"The biggest business driver for performance-based services is risk avoidance–companies are able to shift risk away from themselves to somebody with the expertise to provide the service more reliably," Muzumdar says. "This also means the services can run at 99.998 percent uptime, or Lean Six Sigma performance levels."

To reduce contract complexities, Oracle offers product and service delivery solutions that combine the Oracle Database, Siebel CRM, Oracle Business Intelligence, Contracts, Field Service, and other enterprise tools and technologies for helping companies offer performance-based services.

Together, technologies like these help innovative companies compete in the era of globalization. "Products alone are commodities–they're a dime a dozen," Muzumdar says. "For companies to thrive today, they need to bundle their products with custom delivery services that go way beyond traditional maintenance and warranty offerings."

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