Designing Outcome-based Contracts for Machine Manufacturers: A Taxonomy of Decision Criteria

Authors

  • Sameer Mittal Jaipuria Institute of Management, Jaipur Campus https://orcid.org/0000-0002-8334-1446
  • Karan Menon School of Economics, Innovation and Technology, Kristiania University, Oslo, Norway https://orcid.org/0000-0001-9948-9659
  • Muztoba Ahmad Khan The Sullivan School of Business, Engineering and Technology, Carroll University, Waukesha, U.S. https://orcid.org/0000-0002-2668-1057
  • Hannu Kärkkäinen Unit of Information and Knowledge Management, Tampere University, Tampere, Finland
  • Thorsten Wuest Department of Mechanical Engineering, Molinaroli College of Engineering and Computing, The University of South Carolina, Columbia, U.S. https://orcid.org/0000-0001-7457-7927
  • Mikko Uuskoski Unit of Information and Knowledge Management, Tampere University, Tampere, Finland

DOI:

https://doi.org/10.54337/jobm.v13i2.7850

Abstract

Purpose: Machine manufacturers can enhance their revenues by providing outcome-based contracts (OBCs) that focus on delivering the outcome associated with machine performance. Although OBCs are gaining traction, structured taxonomies of decision criteria to guide their design remain underdeveloped.

Methodology: This study conducts a systematic literature review of academically reported industrial cases to develop a taxonomy of decision criteria for designing OBCs.

Findings: The proposed taxonomy identifies 20 decision criteria that significantly influence lifecycle profits and risk management in OBCs. These criteria mainly relate to ownership responsibilities, and the payment model. The study also outlines its theoretical and practical contributions.

Originality: The paper systematizes existing academically reported industrial cases and clarifies OBC-specific business model decision criteria from the perspective of machine manufacturers. It thus future OBC researchers to describe and analyze OBCs with greater depth and precision.

Practical implications: The taxonomy provides a practical tool for managers of machine manufacturers to design OBCs more effectively.

Author Biographies

Sameer Mittal, Jaipuria Institute of Management, Jaipur Campus

Dr. Sameer Mittal is currently working as an Associate Professor at the Jaipuria Institute of Management, Jaipur campus, India. He previously completed his postdoctoral research fellowship from Tampere University, Finland. He also holds a Ph.D. from West Virginia University. His research interests primarily focus on the topics related to the changes in operational practices and business models in manufacturing industries due to the advent of Industry 4.0 technologies, e.g., product-service systems and outcome-based contracts. Moreover, he is also interested in experiential learning approaches in operations management. He has published original research in Journals like Business Strategy and the Environment, Journal of Manufacturing Systems, Journal of Cleaner Production, and International Journal of Production Research and Production Planning and Control.

Karan Menon, School of Economics, Innovation and Technology, Kristiania University, Oslo, Norway

Dr. Karan Menon is an Associate Professor at Kristiania University of Applied Sciences. His research primarily focuses on the changes in operational practices within manufacturing industries driven by the advent of Industry 4.0 technologies. He is also deeply interested in the evolving trends of servitization, including product-service systems and pay-per-x business models. Dr. Menon has published original research in several high-impact journals, including the International Journal of Production Research, Industry and Innovation, International Journal of Entrepreneurship and Small Business, Procedia Computer Science, Futures, and the Journal of Business Models.

Muztoba Ahmad Khan, The Sullivan School of Business, Engineering and Technology, Carroll University, Waukesha, U.S.

Dr. Khan’s research focuses on the intersection of manufacturing, digital transformation, and business model innovation. He has published more than 25 research papers, which have collectively received over 3,000 citations to date. His work appears in leading journals such as the Journal of Cleaner Production, Business Strategy and the Environment, Production Planning and Control, International Journal of Production Research, and the Journal of Enterprise Information Management, among others. He has served as an Associate Editor of the IET Collaborative Intelligent Manufacturing journal since November 2020.

Hannu Kärkkäinen, Unit of Information and Knowledge Management, Tampere University, Tampere, Finland

Hannu Kärkkäinen is Professor of Knowledge Management at the unit of Information and Knowledge Management in Tampere University, Finland. His current research interests include knowledge management in innovation, digital transformation, and business models and value networks related to novel technologies. He is currently focusing strongly on novel data-driven business models, such as Machine-as a-Service (MaaS), Outcome-Based Contracting (OBC) and Pay-per-X (PPX) business models. He has published more than 150 articles in journals and conferences in outlets such as Computers in Human Behavior, Communications of the ACM, Futures, International Journal of Production Economics, as well as several books and other publications.

Thorsten Wuest, Department of Mechanical Engineering, Molinaroli College of Engineering and Computing, The University of South Carolina, Columbia, U.S.

Dr. Thorsten ’Thor' Wuest is a Professor of Mechanical Engineering and the Program Director of Industrial Engineering at the Molinaroli College of Engineering and Computing at the University of South Carolina. His research focusses on Smart and Advanced Manufacturing, AI/ML Dr. Wuest's research is funded by a variety of federal agencies (incl. NSF, NIST, CESMII/DoE), international agencies (incl. Thomas Jefferson Fund, DFG, EC). He is a globally recognized Smart Manufacturing thought leader and one of SME's 20 most influential professors in smart manufacturing. In addition to publishing his work in the premier academic outlets of his field, he was featured by Forbes, Futurism, IndustryWeek, the World Economic Forum, CBC Radio, and World Manufacturing Forum. He serves as Vice-Chair Americas for the IFIP WG 5.7, is an Associate Editor for the Robotics & Computer-Integrated Manufacturing (RCIM), ASTM Journal Smart and Sustainable Manufacturing Systems (SSMS), and the International Journal of Manufacturing Research (IJMR), and a member of the Editorial Board for the Journal of Manufacturing Systems (JMSY) and Production & Manufacturing Research (PMR) and several more.

Mikko Uuskoski, Unit of Information and Knowledge Management, Tampere University, Tampere, Finland

Mikko Uuskoski is a Doctoral Researcher in the Doctoral Programme in Business and Technology Management at Tampere University, Finland. His research focuses on business model innovation, servitization, and the adoption of outcome-based and pay-per-use business models, particularly in small and medium-sized manufacturing firms. His recent work examines how new types of business models—enabled by Industry 4.0 and digital technologies—foster novel forms of value creation, risk sharing, and outcome-based contracting within the industrial equipment sector.

In addition to his academic work, he has held several executive and managerial positions in the automation and manufacturing industries, including more than 25 years as a Chief Executive Officer and over 30 years of experience in sales and technology-driven business development. He is currently engaged in consulting for the technology industry, combining his extensive practical experience with research on business model transformation and digital industrial ecosystems.

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09-12-2025

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Vol. 13 No. 2 (2025): Open Issue

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