Designing Outcome-based Contracts for Machine Manufacturers: A Taxonomy of Decision Criteria

Abstract

Purpose: Machine manufacturers can enhance their revenues by providing outcome-based contracts (OBCs) that focus on delivering the outcome associated with machine performance. Although OBCs are gaining traction, structured taxonomies of decision criteria to guide their design remain underdeveloped. Methodology: This study conducts a systematic literature review of academically reported industrial cases to develop a taxonomy of decision criteria for designing OBCs. Findings: The proposed taxonomy identifies 20 decision criteria that significantly influence lifecycle profits and risk management in OBCs. These criteria mainly relate to ownership responsibilities, and the payment model. The study also outlines its theoretical and practical contributions. Originality: The paper systematizes existing academically reported industrial cases and clarifies OBC-specific business model decision criteria from the perspective of machine manufacturers. It thus future OBC researchers to describe and analyze OBCs with greater depth and precision. Practical implications: The taxonomy provides a practical tool for managers of machine manufacturers to design OBCs more effectively.

Affiliated Institutions

• Jaipuria Institute of Management IN
• Carroll University US
• University of South Carolina US
• Høyskolen Kristiania
• Tampere University FI

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