Contracting Outcome-based Services: The Wake‑Up Call Executives Can No Longer Ignore

Most Managed Service Providers (MSPs) are still relying on traditional go-to-market pricing models that date back to the early 2000s (for example, models such as Cost-Plus or Per-User). To differentiate, and because of the quick spread of complex technological trends brought on by the Cloud Era, some have moved on and adopted new ways of delivering, such as consumption-based pricing. The emerging signals, what is considered state-of-the-art today, are outcome-based models that tie the provider’s compensation to measurable results such as uptime, resilience, performance, and customer experience. MSPs no longer play a small part role, such as the classical one just focused on outsourcing; they become an important catalyst for facilitating growth and innovation if leveraged properly by any organization.

Outcome‑based pricing is also a mirror. It reflects whether an enterprise is truly aligned around value creation. Those that embrace it will unlock resilience, efficiency, and competitive advantage. Those that cling to outdated models will continue to pay for outages, inefficiency, and lost competitiveness.

While all these shifts towards outcomes represent positive signals of change, true to the continuous improvement nature of how a managed service should be run nowadays, there is still a commonly held belief between most of the service providers that the traditional pricing models may have created and still perpetuate a systemic misalignment on the service consumer’s side.

Many organizations today continue to rely on proposals whose goals are primarily driven by their procurement or IT functions, whose particular and siloed agendas may be different from that of the overall business (for example, IT wants landscape stability and low disruption risk, while procurement’s goal is to minimize costs all the time).

These habits have led to a dysfunctional state that pushes the incentives of the MSPs towards keeping effort minimal or attempting to achieve pre-agreed consumption levels just to maintain their service costs, which in turn is severely limiting the growth and innovation potential of modern organizations whose actual intentions are to surpass their current limits, and the main reason for which they were seeking an advising MSP in the first place.

I intend to stress that if this continues to be treated simply as a procurement exercise, the switch to outcomes will continue to fail. Yes, your enterprise will keep buying new contracts, which may mature within budget, but you may also be kept back by the same outdated mentality and old habits. Instead, if these new partnerships are embraced as organizational transformation, through outcome-based operating models as a foundation, they will unlock resilience, efficiency, and competitive advantage.

In my context, managing a Service Offering and leading teams as part of a Shared Services Center has both advantages and drawbacks. Until now I was fortunate enough to only focus on post-sales efforts: building and leading high-performing teams that are driving and maintaining SLOs/SLIs/SLAs while proactively redirecting their saved bandwidth towards the right incentives focused on achieving those extra 1-2% (usually more) gains at a time, in a collaborative mindset aimed at the betterment of our customers' business.

However, the past two years or so have shown me that the status quo will not persist for long: with the recent advent of AI permeating all functions and affecting process and service delivery, the trend of adoption of AI Ops will no longer mean excuses for most executives to defer the switch towards outcomes. One of the main benefits of AI Ops is that it can create transparency across the organization, showing where the bottlenecks sit in the value chain. And it all begins from how procurement exercises the new managed service contracts.

Note: This opinion piece was co-researched and co-edited using Artificial Intelligence. The foundational ideas are my own.

1. Introduction: The Managed Services Illusion

For more than a decade, enterprises have considered MSPs mainly as a) just cost-saving partners, and b) having limited say in how to drive their business strategy, outsourcing towards them the more common and repeatable functions and processes. Even when complexity increased because of the emergence of sophisticated solutions and platforms, of Cloud and more recently AI they still believed that, for example, by outsourcing application management or cloud operations under a fixed-fee or consumption-based contract, they were at least still buying stability and efficiency. In reality, they may have been buying comfortable failure: predictable costs, but misaligned incentives.

“Gone are the days when simply keeping the lights on was sufficient. Customers expect measurable outcomes."

Source: TSIA State of Managed Services 2025

Given a fair amount of slow business traction experienced in the last two years, I have come to believe that the illusion of stability is collapsing. The next couple of years may actually be an opportunity for positive change, long due. But first executives must confront the uncomfortable truth: pricing models are not neutral; instead, they end up shaping behavior. And the behaviors shaped by the traditional models have ended up unknowingly undermining business value for years.

2. The Historical Trap: How Pricing Shaped Failure

The origins of managed services trace back to the break/fix model, where support was reactive—specialists were called only when issues arose, resulting in unpredictable costs and frequent downtime. This approach was labor-intensive, inefficient, and often led to higher expenses for businesses.

As technology became integral to business operations, the need for proactive support led to the emergence of the managed services model in the late 1990s and early 2000s. Managed Service Providers (MSP) began offering ongoing monitoring, maintenance, and support, shifting the focus from reactive problem-solving to preventive care.

At their origins, more than two decades ago, such pricing models have been the key selling point for MSP and were wielded as both an enabler of commodity services (think traditional outsourcing) as well as predictability (you would pay no more and no less).

2.1 Fixed-Fee Models

Fixed-fee (not to be confused with fixed-price) contracts emerged in the 1990s and 2000s as enterprises sought cost predictability. MSPs were paid a set amount to deliver services, irrespective of effort or outcomes.

The main issue with this approach is that it distorts incentives: MSP were rewarded for minimizing their effort, not maximizing value. As a consequence, performance optimizations and innovation may have been discouraged because automation or efficiency gains reduced billable activity and would have made it harder for providers to justify the same fees year-on-year, instead of just lower ones.

It also came under a constant propagation from the enterprise’s internal forces: Procurement was reinforcing the behavior, at the onset, usually by optimizing for the lowest bidder, which in turn transformed MSP into interchangeable labor providers. This behavior, was unfortunately perpetuated time and time again, and is still present today, (especially in the financial services and public sectors).

The result: self-limiting and cheap stability at the expense of hard-to-come-by business resilience. Outages ended up being tolerated as long as costs were predictable.

2.2 Consumption-Based Models

The adoption of remote monitoring and management (RMM) tools further advanced the MSP model, allowing providers to detect and resolve issues remotely before they escalated. The subsequent rise of cloud computing transformed the MSP landscape, as providers expanded their offerings to include cloud migration, management, and optimization services. This shift brought scalability, flexibility, and cost savings, but it also introduced new complexities in service delivery and pricing.

The rise of cloud introduced pay‑per‑use (consumption-based) models. Enterprises believed this would align costs with usage and provide flexibility. In practice, it created runaway operational spend, which made it even more demanding for MSP, as they had to develop dedicated disciplines (e.g., Cloud FinOps) to deal with such things.

MSP ended up, again, wrongly incentivized towards increasing consumption, not efficiency. More cloud usage, more tickets, more hours, more cloud usage again—all translated into higher revenue for providers. Yet consumption models still reward failure. And executives assumed that transparency equaled alignment, but it did not. It just made inefficiency more visible.

2.3 Executive Blind Spots

Leaders believed the pricing models were neutral constructs. As illustrated previously, they turned out not to be; pricing ended up as behavioral architecture that shaped provider and consumer actions. Fixed-fee models incentivized under-delivery, while consumption models incentivized over-consumption. While an upgrade from the break/fix days, both newer models failed to incentivize prevention, resilience, or performance.

3. The Market Has Moved On—Executives Haven’t

My proposal is for executives to focus on a new paradigm, one that by default demands cross-functional collaboration across IT, procurement, finance, legal, operations, and business units to design, measure, and govern outcome-based contracts effectively.

The latest phase in the evolution of managed services is characterized by the integration of artificial intelligence (AI) and (workload) automation. AI-powered tools and enterprise solutions enable predictive analytics, automated remediation, and enhanced operational efficiency. This technological leap has set the stage for a shift from traditional input, or activity-based pricing, to models that tie compensation to measurable business outcomes.

3.1 Outcome-Based Value May Now Expected

There is growing research that there is now a steady shift towards outcome-based services and value-driven pricing. Customers no longer want just SLAs adherence, they demand measurable ROI: uptime, resilience, better performance an upgraded customer experience (XLAs).

3.1.1 Small comparison of pricing logic

3.2 Technology Today Can Enable Outcome Measurement

AI and automation are central to the managed services transformation. Predictive analytics, AI-driven code analysis, and automated diagnostics have reduced the traditional advantage of incumbency, enabling new providers to compete effectively. The operationalization of AI—embedding it into workflows, handling ambiguous scenarios, and coordinating human-AI collaboration—has become the key differentiator.

When orchestrated correctly, telemetry, AIOps and predictive analytics make outcomes measurable in real time. Uptime, MTTR, resilience scores and customer experience metrics can be tracked and audited with ease.

The classical excuse that outcomes are “too hard to measure” is not valid anymore. If outcomes are not measured, it is because leadership has not demanded it yet. The right tools are now available.

3.3 Next-Gen MSPs Are Innovation Catalysts

“Traditional outsourcing models are no longer adequate to accommodate today’s complex combination of new technologies, labor shortages, risk mitigation, and regulatory requirements or to embed continuous innovation and agility into corporate business processes."

Source: Deloitte Next-Generation Managed Services: Journey from Cost to Value

In a more recent paper, adopting a different angle, HBR/Deloitte describe MSPs as “innovation catalysts” and “critical orchestrators” for AI-driven operations. However, enterprises are still measuring MSP using outdated criteria: cost, FTEs, SLAs.

There is a mismatch here that is blocking a lot of value: MSPs are ready to deliver outcomes; executives may still be looking to buy inputs, under the traditional thinking.

4. A Hard Truth: Procurement and IT Cannot Unilaterally Buy Outcomes

While traditional MSP are showing a decline, with most aiming to align technical delivery with business value today, historically, IT services procurement has become a self-limiting factor. It ended-up wrongly focusing on cost minimization and operational stability at the expense of innovation, agility and business alignment. The new paradigm demands cross-functional and cross-organizational collaboration across procurement, IT, finance, legal, operations and business units, to design, measure and govern contracted outcome-based services.

4.1 Procurement’s Cost Obsession Is Outdated

Procurement-led RFPs for managed services have wrongly focused on cost minimization, standardization and risk avoidance. Please do not get me wrong, these resilience-oriented objectives are important but when combined with over-specified RFPs, they often result in contracts that prioritize operational stability over innovation, agility and business alignment. As a consequence, MSP have also adopted new behaviors: they positioned themselves as a governance layer, sometimes overstating the complexity of services procurement to justify their fees. In a mature organization, procurement, legal, IT and business teams may already have the capabilities to manage service provider relationships effectively. Cost-plus pricing is declining, yet procurement teams still cling to it.

Outcome-based services need new thinking patterns: a focus on flexibility, a shared risk model, and an openness towards innovation and continuous improvement.

4.2 IT Cannot Own Outcomes It Does Not Control

The other responsible party for the perpetuating status quo, inside the modern organization, was the IT function. IT departments tend to negotiate SLAs for uptime and ticket closure, however true outcomes depend on factors beyond their control:

• Uptime depends on the robustness of business processes.
• Performance depends on the product teams.
• Resilience depends on a sound business architecture and risk management.

When it comes to ITIL, the guidance is even clearer: outcomes are delivered through the integration and collaboration of people, processes, partners and technology. Your IT function alone cannot deliver them.

4.3 Cross-Functional Alignment Is Mandatory

Well-defined outcome-based managed services require cross-functional collaboration, KPMG notes. It all involves shared accountability, and a desire for continuous improvement. At a minimum, governance frameworks must define roles, responsibilities, and escalation paths, ensuring that all stakeholders are aligned and empowered to deliver on contractual commitments.

In other words, business stakeholders must define the desired outcomes, finance must assess the impact on budgets and revenue recognition, legal must ensure contract enforceability, and (IT) operations must be a true partner to service providers to deliver the promised results.

4.3.1 Operational Implications for Technology Organizations

Mostly under the same paradigm, delivering on outcome-based contracts in technology organization requires the alignment of multiple operational disciplines:

• Site Reliability Engineering (SRE): Focuses on ensuring reliability, SLOs, incident response and related automation.
• Developer Operations (DevOps): Drives the delivery flow, CI/CD automation, and infrastructure as code (IaC).
• Financial Operations (FinOps): Brings financial visibility, cost optimization and accountability to cloud operations.
• Security Operations (SecOps): Integrates cyber and information security hardening principles into the managed services framework.

While each discipline operates under a different “north star”, their collaboration is essential for achieving measurable outcomes in uptime, performance, cost efficiency and cybersecurity.

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Today, most organizations are nowhere close to reaching this internal alignment. They treat outcome-based pricing just as another procurement exercise, not an organizational transformation. The result is predictable: outcome-driven services are perceived as having less or unclear value, and even as a failure.

5. Designing a New Incentives System for All

Pricing is an incentive system, as we have explored previously. Fixed fees usually push incentives towards effort minimization; per-usage pricing pulls the other way, towards maximizing consumption; outcome pricing flips the script towards prevention, automation, and stability. Admirable, yet not enough: outcomes also depend on actors beyond IT and procurement—product teams, operations, finance, and front-line business units all need to come together.

Now that we know where a few of the principal issues sit, where do we best begin a realignment of priorities? There are two main parties in this system: the service providers and service consumers, and both will need to adapt their approaches.

Since the consumer demand typically drives the incentives for providers, let us focus on a practical blueprint as a foundation for both:

1. Joint outcomes design: Business defines value; IT defines feasibility; MSP designs the service delivery; Procurement sets commercial guardrails.
2. Shared KPIs that map to business impact: Use and continuous measurement of MTTR, MTTD and SLO adherence, resilience scoring, customer-experience delta, and cost-to-serve reduction. KPIs must be auditable and aligned to economic levers.
3. Governance and risk-reward mechanisms: Steering in a cross-functional manner, using transparent measurement, and joint risk/reward (shared savings, performance bonuses, penalties) are mandatory.

5.1 Shared Accountability

The pace of business change–driven by digital products, mergers, acquisitions, and continuous restructuring–is putting a lot of pressure on traditional MSP models and businesses to adapt. Enterprises now require capabilities that support ongoing design, build, modernization and adaptation without structural disruption. The focus has shifted from mere stability to enabling business agility, modernization and resilience aligned with growth objectives.

Without a deliberate focus on shared accountability, outcomes will stay aspirational. As we noted previously, many organizational functions will have to come together and co-own outcomes:

• Business defines value.
• IT defines feasibility.
• Risk defines resilience.
• Finance defines economic guardrails.
• MSP co-designs the service delivery model.

Most important change driver, due to previous: a fundamental shift in the mindset towards collaboration, over time.

5.2 Business-Aligned KPIs

Clear, measurable, and objective KPIs are essential to MSP for outcome-based contracts. Ambiguous or aspirational language leads to disputes and undermines trust. Here are a few typical ones (not exhaustive):

• Mean-Time-to-Respond (MTTR) reduction.
• Mean-Time-to-Detect (MTTD) reduction.
• Service Level Objectives (SLO) adherence.
• Resilience scores tracking.
• Customer Experience metrics.
• Cost-to-Serve (CTS) reduction.

Usually, the above are enough to expose organizational dysfunction; thus, leaders resist them. However, without first getting these right, outcome-based services are meaningless.

5.3 Governance That Requires Collaboration

Mandating cross-functional steering committees, employing joint risk-reward mechanisms, and transparent measurement across all are essential. Outcome-based delivery forces collaboration by making silos visible.

Executives must welcome the challenges and break the silos. They are the path to higher value and future proofness.

6. The New Role of the MSP

MSPs must develop from vendors of services and operators of tasks to co-owners of outcomes. It falls under their responsibility to orchestrate stability, prioritize performance, and resilience across the enterprise functions they end up supporting as part of their client commitments.

As we were writing previously, Deloitte notes that MSPs can act as innovation catalysts by adopting AI-driven operations. However, since it takes two to tango, to fulfill this role, MSPs must be empowered to influence architecture, automation, and process design for an organization.

Even so, AI and automation are key pillars to the shift towards outcome-based commercials. AI-powered tools and solutions help with continuous monitoring, anomaly detection and enable predictive analytics, automated remediation and, at a minimum, facilitate operational efficiency for the delivery of outcome-based services. For example, AIOps platforms such as ServiceNow’s Predictive Intelligence and Dynatrace’s Davis AI analyze historical data, user behavior, and system logs to detect anomalies and recommend fixes, often resolving a significant proportion of issues automatically. Both customers and MSPs may need to invest in training and deploying these sort of solutions.

It also becomes imperative that commercial models reward innovation: shared savings, performance bonuses, resilience guarantees, transformation-linked pricing. MSPs must be incentivized to prevent incidents, to automate processes, and to deliver measurable business impact. Risk allocation needs to ensure that providers are held accountable for the outcomes they can influence.

And where there is risk, there may be liabilities and contingencies for providers: they may be required to pay refunds, service credits, or penalties. Contractual Liability Insurance Policies (CLIPs) are a practical option to transfer these to regulated insurance entities, protecting providers from catastrophic losses and ensuring financial stability.

Regarding incentives under their control, TSIA’s Offer Pricing Continuum report pushes MSPs throughout the evolution of their pricing strategies, focusing on aligning prices with service consumer value. Starting their journey from:

1. Traditional Pricing Models

   • Cost-Plus Pricing: Adding a markup to the cost of products/services. This model often fails to reflect the actual value delivered to customers.
   • Per-User Pricing: Charging based on the number of users, which may not correspond to the outcomes or value experienced by customers.

2. Forward-Thinking Pricing

   • Consumption-Based Pricing: Charges are based on the actual usage of a service or product, ensuring customers only pay for what they utilize.
   • Value-Based Pricing: Prices reflect the perceived value of the product/service to the customer, aligning pricing with outcomes.

3. Emerging Models

   Outcome-Based Pricing is a pricing strategy that aligns the cost of a product or service with the results it delivers to the customer.

   Here’s a breakdown of its key components:

   a. Value Alignment: Prices are based on the tangible outcomes and value generated for the customer rather than the cost of the product or service itself. This ensures that customers see a clear connection between what they pay and the benefits they receive.

   b. Customer-Centric Focus: This approach prioritizes understanding customer needs and desired outcomes, making it essential for companies to engage closely with their customers to identify what success looks like for them.

   c. Risk and Reward Sharing: Outcome-based pricing often involves a shared risk model, where the provider may take on some of the risk associated with achieving the desired outcomes for the customer. This can enhance trust and foster long-term relationships.

   d. Flexible Models: Pricing can be structured in various ways, such as:

   • Performance-Based Fees: Charging based on the achievement of specific performance metrics.
   • Tiered Pricing: Offering different price levels based on the level of outcomes achieved.

   Transitioning to outcome-based pricing requires a robust understanding of customer metrics, effective tracking systems, and a clear method for measuring and reporting outcomes.

   Yet, by aligning pricing with customer success, MSPs can enhance client satisfaction and loyalty, ultimately leading to sustainable profitability over time.

   In summary, outcome-based pricing emphasizes results and customer value, making it a compelling alternative to traditional pricing models, particularly in environments where measuring and delivering value is critical.

6.1 Implementation Steps

Switching to an outcome-based offering must address both technological and behavioral shifts, from the teams delivering the services. They have to welcome and adapt to new workflows, judge and trust algorithmic suggestions, and reorganize around product-centric delivery. Clients also need to be brought onboard, and with them, continuous communication is key.

Here is a quick step-by-step approach:

1. Develop a Phased Plan: Create a detailed roadmap for transitioning to the chosen pricing model.
2. Build Capabilities: Measure customer outcomes that are relevant to a given client.
3. Establish Metering and Billing Systems: Implement systems to track usage accurately.
4. Shared Understanding: Align internal stakeholders around a shared pricing strategy.
5. Train Teams: Ensure sales and marketing teams can articulate the value effectively to customers.
6. Craft Communication Strategies: Develop clear messaging to guide customers through the transition, emphasizing the enhanced value proposition.

6.2 A Strategic Guidance

TSIA’s Strategic Pricing Model Evolution framework offers structured support to navigate the complexities of transitioning from traditional to innovative pricing strategies. This strategic guidance is crucial for aligning pricing with customer value and ensuring long-term profitability.

This framework is useful for MSPs aiming to adopt more customer-centric pricing models while addressing the challenges associated with such a transition.

7. Conclusion—Outcome-Based Services are a Mirror

Building your pricing strategy as a result of what clients care most about, i.e., outcomes, may mean a different focus from the cost of your offer towards what it is worth. Reimagining managed services through this window starts with you, the MSP.

Outcome-based pricing is not only a commercial mechanism; it is a mirror that reflects whether an enterprise is truly aligned around value creation. If treated as a procurement exercise, it will fail, as procurement-led approaches are insufficient on their own. Organizations will keep buying new contracts and will be retaining the same silos, paying for outages, inefficiency, and underperformance when compared to their true potential.

By being intentional about designing shared accountability, and with alignment between the various functions, systems, and next-generation MSPs, the measurable values promised by outcome-based services can be reached. Embrace this shift—invest in data maturity, seek AI-driven operations, and promote cross-functional governance starting today.

Until the next one… Cheers,

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