Entering the Performance-Based Contracting Business: An Exploration of Sales-Related Challenges: An Abstract

Abstract

Market conditions for industrial manufacturers have become increasingly challenging due to increasing competition and saturated markets (Kowalkowski et al., 2015). However, the service business still holds an opportunity to differentiate from competitors (von Garrel et al., 2009). One opportunity is offering equipment-based services, such as performance-based contracts (PBC). Performance-based contracting is a concept in which the supplier is paid based on the realized outcome for the customer, such as in Rolls-Royce’s business model “Power-by-the-hour” (Neely, 2008; Ng et al., 2013). Although this business model is not new, research on this field is still rare (Essig, 2016; Selviaridis & Wynstra, 2015). However, traditional product-based firms who intend to enter the service business need to make several fundamental adjustments in their organization, among others, in their sales approach (Kindström et al., 2015). Thus, our study explores which sales-related challenges occur, if a company enters the PBC business.

Our study is based on a qualitative research approach which was realized in problem-centered interviews (Witzel, 2000; Mariampolski, 2001). We conducted 23 interviews with sales managers in Germany, who had experience in managing sales of PBC in six industries (mechanical engineering, printing and copy equipment, industrial gases, compressed air, water treatment, medical equipment). Our data was systematically analyzed with an inductive coding strategy using MAXQDA software, following recommendations of a Grounded Theory approach (Strauss & Corbin, 1998).

The results of the study were structured in a system of inductively developed categories. In total, we identified 20 challenges of PBC sales, five of which we discuss in this paper: prospecting, requirement exploration, close, post-sales activities, and sales force compensation. Our study indicates that industrial suppliers considering PBC for their business model need to make different adjustments in their sales organization. For example, strategic directions regarding prospecting need to be found (e.g., by defining model customers or target industries which are open for PBC); an explorative requirement analysis needs to be implemented in the sales process in order to develop an optimal solution for a PBC (e.g., by standardized analysis covering all technical and commercial aspects); and the compensation models need to reflect the circumstances of PBC (e.g., by increasing the basis salary in order to reduce sales pressure which is counterproductive for a PBC).