Outcome-Based Contracting
When Rolls-Royce developed Power by the Hour in the 1960s, outcome-based pricing seemed risky.
The plant has evolved the biological equivalent of outcome-based contracting.
Legume plants don't pay nitrogen-fixing bacteria for showing up - they pay for nitrogen delivered. Plants monitor nodule performance with ruthless precision, measuring nitrogen fixation through chemical signals. Nodules with lazy bacteria get starved of carbohydrates. High-performing nodules receive increased resource allocation. The plant has evolved the biological equivalent of outcome-based contracting.
Business Application of Outcome-Based Contracting
When Rolls-Royce developed Power by the Hour in the 1960s, outcome-based pricing seemed risky. They solved this by instrumenting engines with sensors, enabling charging for thrust hours delivered (outcomes) rather than engines sold (products). This aligns incentives around actual performance. Applicable beyond aerospace: industrial equipment providers charging for uptime, software companies pricing on business outcomes achieved, service providers compensated for results delivered rather than time spent.