In what seems to have set the cat among pigeons, Phaneesh Murthy, who previously headed the business process outsourcing division of Infosys and is CEO of the California-based IT company iGATE at present, has advocated revenue model based on 'business outcome'. According to many critics, the effort-based model, the overwhelmingly popular model in the industry at present, relies heavily on body shopping.

To bring home this point, the NASDAQ-listed company has kickstarted a $4-million advertising campaign that dubs the “time and material” or “efforts”-based model as the "number one enemy" of mega-corporations and faulted the prevalent model for throttling innovation.

The prevalent 'time and material' model charges clients for efforts and time that goes into the project instead of outcomes — almost 60 percent of industry's revenue comes from efforts-based pricing.

According to Infosys, the company is already headed in that direction, though most of the revenue continues to come from efforts based model. Giving his perspective on the same, Samson David, vice president - strategic business practice and head - business platform, Infosys, said,"At the core of Infosys 3.0, we are moving from an 'outsourcing' model to an 'outcome-based' model." According to the IT giant’s second quarter results in the ongoing fiscal, the company earned 60.3 percent of revenue from time and material and 39.7 percent through fixed price. 

Terming the shift in revenue model as unavoidable, Vishnu Dusad, CEO and managing director, Nucleus Software, said: "This is the direction the industry as a whole has to go. IT is a tool for realising business benefits. However, the next set of benefits will come with industry resorting to more creative ways of serving clients. This will bring the client and service provider on the same side of the table."

Stating that the business outcome model is bound to challenge the prevalent 'time and material' model, he said the linkage with business benefits (outcomes) would bring better returns for the service providers as well. He said inefficiencies in the industry will also get resolved this way.

Being an IT solutions company, 25 percent of Nucleus's revenue comes from business outcomes and rest from the solution features, he said.

Initially, the industry built its capacity in code writing, then in-system design and customer requirement analysis. "Now there is a need to come up with solutions which would directly spur growth in business productivity," he said.