Ending the pricing paradox: moving away from a zero sum IT world

Most IT service contracts utilize pricing schemes that typically do not reward performance improvement or encourage innovation. Rather, most contracts are often a disincentive for organizations to look for ways to add value to the client. For example, with time and materials contracts, a more productive and skilled worker will finish the work earlier, providing more value for the client, but less revenue for the supplier. Fixed price contracts put most of the risk on the supplier, and usually do not reward quality, so the incentive is to complete the work quickly to maximize margin. In addition, continued downward commodity-based pricing pressures and tight margins often do not allow suppliers to fund process and tool improvement initiatives. Game theory dictates that if I win $10, you lose $10-a zero sum result. IT contract pricing may have reached that point. This paper discusses the nature of the problem in more detail and suggest pricing systems and methods that provide win-win conditions, perhaps allowing us both to win $5!.