Performance-based contracting: contextual factors and the degree of buyer supplier integration

Abstract

Purpose Performance-based contracting (PBC) links pricing with performance objectives in service business relationships. Although interest in PBC has surged recently, there is still great uncertainty about the risks, opportunities and challenges. This paper aims to provide a deeper understanding of the contextual factors of PBC and how providers assess them. Design/methodology/approach This paper includes conducting a multiple-case study evaluation and analyzes data from 21 cases. Risks, opportunities and contextual factors are identified through interviews, and the case data are analyzed with several methods, including Borda count and cross-tabulation. Findings The results show that the most important factors of PBC are clear responsibilities, clear performance indicators, transparent measurement, cooperative culture and a precise utilization profile of core assets. Surprisingly, incentives are of minor perceived relevance. The analysis supports the differentiation of PBC into two subcategories: lean (low integrated) and customized (high integrated) PBC. Research limitations/implications While many studies stress the uniqueness of PBC in accordance with the “one-size-does-not-fit-all” mantra, this research differentiates the standardized PBC from a customized one. The findings face the limitations of case study research and qualitative data analysis in general. Practical implications Practitioners are provided with guidance to develop either a customized or a standardized PBC. Originality/value Previously, broader empirical insights have still been rare; thus, this paper contributes to the PBC literature, as it provides data from multiple cross-industry cases. The findings (e.g. the minor relevance of incentives) stand in contrast to parts of the academic literature and contribute also to the wider service management field.