How to charge

How to charge

I don't need to tell anyone that business is changing dramatically. It's a simple truism. The way companies operate, go to market and interact with customers, suppliers and partners is significantly different today to the way businesses used to be run.

One very interesting change has been how US technology companies have moved to compensate their employees by giving them a stake in the business with stock options. With demand for specialised and highly skilled staff at an all-time high, stock options have proved the most successful way of recruiting and, importantly, retaining employees. What's more, it engenders a motivated and spirited work force because staff have a greater feeling that, in the end, they will be rewarded for their talent, hard work and effort.

In this week's paper, we feature a story (page 26) on how local integrator PowerLAN has taken a 20 per cent stake in an Internet gambling operation. It's a similar concept. Rather than being paid a specific sum for the development work it does for the Internet start-up, it takes a stake in the business.

It's a great way of working and it is going to be something you'll see more and more of. It is becoming an increasingly prevalent practice in the US and it won't take long before we see it in Australia on a regular basis.

Put simply, it makes sense. In the above example, PowerLAN is motivated to provide the very best work it can because it has a real stake in the future and fortune of the business it is providing its services to.

Traditional arrangement

Compare that to a traditional outsourcing arrangement, where the goal for the service provider is to meet the customer's requirements as cheaply as possible. The only way the customer can motivate its provider is through service-level agreements where stiff penalties are put in place if requirements are not met.

It's hardly a recipe for a trusting, mutually satisfying partnership, is it?

Taking a stake in the customer's business is not the only way of doing this, either. The alternative is to be paid based on the amount of money that you as a service provider either save or make for the customer. So a Web developer might take a proportion of sales that the customer receives from the e-commerce site developed for it. Or a network integrator might receive as its fee a cut of the productivity gains that result from the infrastructure it builds for the customer.

Of course, the tough part in such an example is measuring any such productivity gains. But I would suggest this is an issue you should be looking at anyway; if you're not talking to customers in terms of how much money you are making or saving them you are going to find it very hard, going forward, competing with companies that do.

But once you've made that leap, it's not much of a step to make that the basis of how you bill your customer. The great thing about this is you can invest in providing superior service. Your bottom line improves, not by how cheaply you provide the service, but by how effective your service is.

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