Outcome-based contracts as new business model: The role of partnership and value-driven relational assets

Irene C.L. Ng, David Xin Ding, Nick Yip

Research output: Contribution to journalArticle

53 Citations (Scopus)

Abstract

This paper investigates the new business model of outcome-based contracts where the firm is tasked to achieve outcomes of equipment as a service contract instead of the traditional maintenance, repair and overhaul activities (e.g., power-by-the-hour® engine service contract). Through a qualitative study of two outcome-based contracts between BAE Systems, MBDA and the UK Ministry of Defence, we derive three value drivers of information, material and people transformation. Mapping it with transaction cost literature we propose five relational assets based on the value drivers; three value-driven alignments and two partnership inputs. We then study the relationships between the relational assets and contract performance through a quantitative survey by applying the partial least square (PLS) method. Our study shows that behavioral and information alignments are important to achieve outcomes. However, material and equipment alignment (i.e., joint supply chain) does not have a significant effect on contract performance. In addition, perceived control and empowerment mediated the relationship between partnership inputs and value-driven alignments. Our study provides a more integrated view of how various theoretical management domains overlap in the understanding of business models, and contribute to the understanding of value drivers and partnership factors in achieving performance in outcome-based contracts.

Original languageEnglish (US)
Pages (from-to)730-743
Number of pages14
JournalIndustrial Marketing Management
Volume42
Issue number5
DOIs
StatePublished - Jul 1 2013

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Assets
New business
Business model
Alignment
Value drivers
Performance contracts
Integrated
Repair
Factors
Transaction costs
Empowerment
Perceived control
Least square method
Qualitative study
Performance-based contracting
Partial least squares
Supply chain

All Science Journal Classification (ASJC) codes

  • Marketing

Cite this

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Outcome-based contracts as new business model : The role of partnership and value-driven relational assets. / Ng, Irene C.L.; Ding, David Xin; Yip, Nick.

In: Industrial Marketing Management, Vol. 42, No. 5, 01.07.2013, p. 730-743.

Research output: Contribution to journalArticle

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