Risk And Reward Sharing Model - Rescue To Falling Contracts Between Vendors And Clients Article

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Risk And Reward Sharing Model - Rescue To Falling Contracts Between Vendors And Clients

This economic turmoil, which has come after several decades and may not arrive again for several decades, is the only naïve and most apt period for pitching new contracts on “risk and rewards sharing.

Author: Sunita Christ

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This vertical fall in the industry has hit every single company globally from clients to vendors. However companies with variable cost model has not taken a bigger hit in comparison to companies with the fixed cost structure. Even the companies which were outsourcing are now under cost pressure and cash flow pressure as their net outflow are fixed while the net inflow is variable. The existing ties between vendor and client are weakening due to the cost pressure and cash flow issue. Clients, which were satisfied with their existing vendors for a longer period are now struggling to withhold the same relation despite quality being delivered. Vendors, on the other side, are struggling to align their cost or cash flow model as they were build in the upmarket.

Outsourcing partners/vendors need to work in tandem with the clients to adjust the cost and cash flow cycle and tie up a flexible business model of risk and reward sharing. Vendors need to look at the bigger picture of retaining the client or will have to spend a bomb price for client acquisition in the up market. Vendors which has very optimized cost and cash model can strike “risk and reward sharing” will sign record breaking number of contracts. Clients need vendors to devise more flexible business model to share the risk in this economic turmoil and get rewarded as the the economy revives.

Vendors with low cost and ready to take a hit on cash flow can flip as many contracts from their competitors based on “risk and reward” sharing model. If vendors with flexible business model miss this dip in the economy and are not able to substantially sign new contracts, they will have to fight the big players in the upmarket.

About Author

In the current economic turmoil, when most of the big research and consulting firms are booking losses in 1st financial quarter (Q1), MarketsandMarkets is tying up with the research firms, publishers and corporates for their market research reports and consulting requirements on a risk and reward sharing arrangement. MarketsandMarkets is producing high level strategically analysed full reports about 120 a year tracking ten industries.

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