The technology services industry has wrestled with a fundamental misalignment between what clients desire and how providers typically charge for their work. While organizations seek tangible business achievements, service companies have historically invoiced for time and effort invested, creating an inherent tension that often leads to prolonged projects and disappointed stakeholders. Phaneesh Murthy recognized this disconnect early and developed alternative approaches that have since influenced an entire generation of technology partnerships.

The Economics Behind Value-Oriented Contracting

Murthy’s insight about results-driven pricing emerged from direct observation of client frustrations with traditional billing structures. During his transformation of iGATE’s business approach, he explained the core principle: charging clients based on delivered outcomes rather than hours invested creates authentic partnership dynamics between service providers and their customers.

The mathematical logic becomes clear through practical applications. In 2002, when Murthy’s team tackled mortgage processing inefficiencies affecting American financial institutions, traditional loan processing demanded approximately $2,300-$2,400 per completed mortgage due to manual, paper-heavy workflows. His team developed technology-enabled solutions that reduced processing costs to $1,000 per completed loan, establishing a fixed-fee structure tied directly to successful loan closures rather than time spent working on tasks.

This approach naturally drives operational improvements and efficiency gains. Service providers must optimize their delivery mechanisms to maintain profitable margins, while clients pay exclusively for completed deliverables and measurable results. The partnership emerges from this shared focus on measurable business achievements rather than billable activities and time tracking.

Consumer preferences support this methodology across various industries. As the technology executive observes, “Would you ever go to an auto mechanic and show your car to him and be comfortable when he or she turns around and said, ‘I’ll just charge you so many bucks an hour until I figure out what the problem is?'” This analogy illustrates how outcome-focused pricing reflects natural consumer expectations for predictable, results-oriented transactions across multiple sectors.

Implementation Challenges and Strategic Approaches

Despite its intuitive appeal, executing outcome-based pricing demands sophisticated risk assessment and precise outcome measurement capabilities. Murthy’s experience reveals several critical success factors for making this business model function effectively in practice.

The fundamental challenge involves establishing measurable business outcomes that both parties can influence and monitor transparently. During the mortgage processing engagement, Murthy’s team discovered they could improve “pull through rates”—the percentage of approved loan applications that actually reach closing. Through data analysis and process optimization, they determined that processing speed, rather than just product features, significantly influenced borrower selection decisions, enabling them to increase pull through rates from the industry standard of 38-40% to an impressive 60%.

This improvement generated compounding value creation for both organizations involved. “We were doing all of the work anyway for 100 loans earlier, earlier we were getting paid for 40, now we’re getting paid for 60,” Murthy explained during a conference presentation. Financial institutions experienced similar benefits, extracting value from 60% of their processing investments instead of 40%, demonstrating how properly structured outcome-based contracts can generate mutual value creation and shared success.

Risk management becomes essential in results-focused engagements across the board. Service providers must possess adequate confidence in their ability to influence desired outcomes and sufficient financial resources to absorb potential losses during optimization phases. Phaneesh Murthy’s teams invested heavily in understanding client business models, with one notable cultural adaptation being that new hires from traditional Indian IT companies initially struggled with the automation-focused approach.

The mindset shift proved challenging for some team members and organizational culture. “We were hiring people from the Indian industry and they actually wanted to know how many people they were going to manage,” Murthy recalled during an industry discussion. “I used to tell them, ‘Actually, I don’t want you to manage anybody, I just want to build cool technology to do this stuff in a completely automated manner.'” This cultural transformation required extensive change management as employees adapted to technology-driven rather than labor-intensive service delivery models.

Contemporary Applications in Modern Advisory Practices

Murthy’s current advisory work through Primentor continues emphasizing outcome-focused relationships with clients and business partners. Rather than charging conventional consulting fees, he frequently accepts equity positions in the companies he advises, directly aligning his compensation with long-term business performance improvements and growth trajectories.

This approach has attracted attention from established technology firms seeking growth acceleration and market expansion. In June 2024, InfoBeans appointed Murthy as Advisor to the Board specifically to help achieve their ambitious growth objectives and market positioning goals. The company sought his experience to position itself as a sought-after global presence in digital engineering and artificial intelligence applications.

Earlier in April 2024, CriticalRiver appointed Murthy as a Senior Executive Advisory Board Member, where his extensive experience in driving growth and operational excellence provides strategic direction for the company’s expansion plans and business development initiatives.

The evolution of outcome-based models extends beyond traditional IT services into industrial applications and manufacturing sectors. Manufacturing companies have adopted similar principles, where service providers optimize clients’ fuel consumption patterns and receive compensation based on a percentage of the documented savings achieved, demonstrating the model’s versatility across different sectors and industries.

Technology Infrastructure and Market Development

The outcome-based pricing framework that Phaneesh Murthy pioneered has evolved significantly as technology capabilities have advanced and matured. Modern applications extend beyond process optimization to encompass comprehensive digital transformation initiatives, artificial intelligence implementation projects, and integrated business strategy consulting services.

Technology infrastructure developments have been crucial for enabling these models and their widespread adoption. When Murthy started implementing outcome-based approaches in 2002, cloud computing remained in its infancy and early development stages. The emergence of cloud platforms from major technology companies has made outcome-based services more viable by reducing infrastructure investment requirements and enabling rapid scalability for service providers.

Current implementations often involve sophisticated integration of multiple technology domains and specialized expertise. “The idea is can I integrate a whole bunch of services, AI in it, analytics in it, maybe infrastructure cloud in it, maybe software in it, and business process in it and stuff like that and offer it to the client,” Murthy explained during a recent industry conference and discussion panel. This integrated approach allows service providers to accept responsibility for comprehensive business outcomes rather than discrete technical deliverables and individual project components.

The transformation requires fundamentally different organizational thinking and talent management approaches across teams. Incentive structures must shift from resource management to outcome optimization and results achievement. This represents a significant cultural reorientation from managing human resources to optimizing measurable results for traditional service organizations and their established practices.

Industry experts predict increasingly sophisticated applications of outcome-based models and pricing structures will emerge. Murthy envisions companies offering comprehensive “profitability as a service” arrangements, where providers fundamentally transform clients’ business performance through integrated technology and operations solutions, receiving compensation based on a percentage of the documented improvement and measurable gains. While acknowledging implementation challenges, particularly in reaching appropriate decision-makers within client organizations, he believes the fundamental economic logic will drive continued adoption of results-based pricing models throughout the technology services industry and beyond.

The model’s long-term success depends on proper execution frameworks and transparent measurement systems that all parties can trust. Organizations implementing outcome-based pricing must establish comprehensive monitoring capabilities, define clear success metrics and benchmarks, and maintain open communication about progress and results achieved. When executed effectively with proper planning, this approach creates sustainable competitive advantages and stronger client relationships compared to traditional pricing methodologies and billing practices.