An empirical comparison of pricing models in information technology service outsourcing in Indian context

Abstract

Purpose – The information technology (IT) outsourcing has been inexorably growing in spite of its downsides. The main reasons are financial gains and cost reductions, as well as it allows companies to focus on their core selling areas. Within IT outsourcing, offshoring has become a big success because it greatly reduces costs. Countries like India, China and Philippines are attracting a lot of IT outsourcing work. In order to save costs, companies have to work out the best pricing models with the vendors so enable profitability at both ends. The main pricing models prevalent in the industry are Time and Material (TnM) and Fixed Time Fixed Price (FTFP) alternately also referred as Fixed Price. There are various other pricing models now, which are mainly variations of these. The purpose of this paper is to show an empirical comparison between these models from the vendor’s perspective to see which of them has greater acceptability. Design/methodology/approach – The paper is an empirical paper in which literature survey has been done to study various pricing models in the IT service outsourcing industry, on the basis of same, two most used models have been identified, namely, FTFP and TnM, hypothesis were formulated, Likert scale questionnaire was formed. Subsequently data were collected and Wilcoxon signed-rank test was carried out to compare the variables defining the FTFP and TnM models of pricing. In total, 68 firms were targeted and 120 responses were received. The two models were studied against parameters like usage, profitability, risk, deliveries meeting project schedule, good quality code, the pricing model used by respondents’ majority of times and whether either of them lead to increasing costs. Findings – This study has found that TnM is less risky for vendors, more profitable and vendors are able to manage better quality delivery compared to FTFP. Also it has been statistically proven that the pricing models TnM and FTFP do not impact the usage and schedules in any way. These are important findings as there have been no earlier research papers which have compared the pricing models with reference to Indian IT service outsourcing industry. Research limitations/implications – The two major pricing models TnM and FTFP are studied in the paper below. Data were gathered from 68 companies. As per results, TnM is more profitable, less risky, does not lead to increasing cost and produces good quality code as compared to FTFP also it has been statistically proven that the pricing models TnM and FTFP do not impact the usage and schedules in any way. The implications bridge a gap between theory and practice, as theoretically many pricing models exist, however, what are practical applications and justification vis-à-vis different aspects has not been approached statistically so far in the given context. Further research can be done on other variations of pricing models and to establish which one should be the preferred model and in which circumstances. Practical implications – There are major practical implications of the paper as it fills the gap between the theoretical discussions of pricing and identifies and statistically proves importance of various aspects of pricing in practice. Originality/value – The paper is original and adds value in terms of advising the IT service outsourcing companies as to which pricing models to use.

Critical Factors to Overcome Project Scope Creep in the Oil and Gas Industry

“…There are two main pricing models, which are Fixed Time Fixed Price (FTFP) and Time & Material (T&M); the other models are simply variations of these two main categories (Jain & Khurana, 2015;Wheatcroft et al, 2021). Those are studied in terms of the general specification of each Contract's pricing model and how each one handles the Scope Creep (Jain & Khurana, 2015).…”

“…There are two main pricing models, which are Fixed Time Fixed Price (FTFP) and Time & Material (T&M); the other models are simply variations of these two main categories (Jain & Khurana, 2015;Wheatcroft et al, 2021). Those are studied in terms of the general specification of each Contract's pricing model and how each one handles the Scope Creep (Jain & Khurana, 2015). In FTFP, the client and contractor agree on a total contract price & time for the final delivery of services, products, and applications before executing a project (Wheatcroft et al, 2021).…”

“…Such miscommunication during the business negotiation or tendering stage can lead to incomplete documented requirements in a contract. As a result, a scope change and scope creep may occur during the project execution stage (Jain & Khurana, 2015). As all requirements are frozen in FTFP from the beginning and estimation, and the project schedule is prepared, any increase in the requirement is treated as scope creep and estimated separately (Wheatcroft et al, 2021).…”

Applying structural equation model to study the critical risks in ERP implementation in Indian retail

“…In fact, ERP product is an expansive product and requires substantial investment which is coupled with acquisition/utilization of IT infrastructure thus leading to even more expensive proposition. In order to meet this expensive proposition it is imperative that the top management in their strategic purview also span in the IT strategy and IT infrastructure (Soja, 2006;Gibson et al, 1999;Al-Mudimigh et al, 2001;Somers and Nelson, 2001;Garg and Garg, 2014;Jain and Khurana, 2015). Once the IT strategy is aligned with the organization strategy and the IT infrastructure is arranged it is important to finalize the level of customization in the product chosen.…”

IS outsourcing satisfaction and the IS managers’ job

“…IS outsourcing has kept growing inexorably during the last few years (Jain & Khurana, 2015), both worldwide (Schwarz, 2014;Qi & Chau, 2015) and in the European Union (Hodosi & Rusu, 2013;Computerworld, 2014). In addition to academics contrasting it, consultancy firms provide us with data about this growth (KPMG, 2014;Deloitte, 2014).…”