Capabilities toward adoption of outcome-based contracts

Abstract

Purpose: Manufacturing enterprises have started to offer the “outcome” derived from machines with the help of outcome-based contracts (OBCs). Offering OBCs leads to benefits such as increased revenues, stronger customer relationships and sustainability. However, implementing OBCs requires critical capabilities. Existing literature has focused on identifying these necessary capabilities, but the prioritization and interrelationships among them remain unexplored. This study aims to address this gap. Design/methodology/approach: Our study employs a hybrid analytical hierarchy process and interpretative structural modeling approach to prioritize and map interrelationships among OBC-related capabilities within small and medium-sized enterprises (SMEs). Findings: The findings highlight the importance of digitalization capabilities such as data privacy and security, remote monitoring, and data analytics; and organizational and governance capabilities, including quantifying, controlling, and monitoring risks, teamwork, and leadership, are highlighted. Research limitations/implications: We quantitatively prioritize OBC capabilities and establish their level-wise structural interrelationships, which will facilitate a more effective and efficient implementation of OBCs. Due to the emergent nature of OBCs, our study could identify just one SME case company meeting our selection criteria. Originality/value: Existing OBC literature focusses on the design of OBCs in large companies. Similarly, earlier capability-related OBC literature is oriented toward identifying the OBC capabilities to perform specific functions. However, in the current study, we propose a systematic decision-making approach that comprehensively prioritizes and identifies the interrelationships among the capabilities necessary to provide OBCs, thus complementing the existing scientific literature on OBCs. In addition, we focus on SMEs, that have specific limitations and characteristics.