Outcome‐based service contracts in the defence industry – mitigating the challenges

Abstract Purpose – This case study aims to explore the risks and challenges associated with the implementation of outcome‐based contracts (OBCs) in maintenance, repair and overhaul services in the defence industry. It also aims to identify ways to address and reduce them. Design/methodology/approach – The case study approach was used to capture the dynamics of OBCs in B2B service delivery. The challenges and risks were explored using qualitative approaches such as in‐depth interviews, and findings were abstracted through grounded theory. The factors identified from the above findings were structured in a survey and validated using simple descriptive statistics. Findings – This study identified the challenges and risks of implementing OBCs, which include complexity and unpredictability of costs, dependability on customer in delivering the service and cultural change from traditional setting. Although the survey results revealed 11 factors that could mitigate these challenges and risks, the most important factors are mutual expectations, teamwork, shared information and materials as well as the firm's access to customer resources. Practical implications – This study's results have practical implications for businesses implementing OBCs in the B2B arena. Ensuring the presence of these factors, identified from this study, in OBC delivery would overcome most of the challenges and risks faced. Originality/value – Although research has been done on OBCs, many are conceptual or theoretical studies. This study is an empirical research into the challenges and risks of OBCs and the factors that could mitigate them; this advances knowledge in this domain.