Benchmarking the digital paradox: performance measurement in outcome-based contracts

Abstract

Outcome-based contracts (OBCs) are emerging business models that can enhance returns from investments in artificial intelligence (AI) and digital transformation. This study identifies the barriers to OBC adoption to explain how organizations can overcome the digital paradox – the under-realization of value from digital technology investments. The study integrates the Grey Systems Theory with the DEMATEL (Grey-DEMATEL) to address uncertainty in expert judgments and to identify, rank and analyse the causal interrelationships among barriers to OBC adoption. The results show that digitally-enabled OBCs (eOBCs) represent an incomplete contracting phenomenon, with barriers spanning technology, strategy, governance and performance measurement. The study identifies joint ownership as a critical mechanism for overcoming these barriers by facilitating asset evolution, improving performance measurability, reducing monitoring costs and safeguarding legitimacy and competencies. It further demonstrates that ownership should be viewed as dynamic, with ex post ownership determined by the party whose investments best sustain long-term value creation. The study advances understanding of the digital paradox by integrating transaction cost economics, generalized property rights theory and digital servitisation. Future research could examine industry contexts, investment risks and cross-country differences in digital asset formation. The findings underscore the importance of collaborative technology provider–user relationships, continuous value chain reconfiguration and adaptive ownership allocation to maximize value from digital technology investments. This study provides a novel theoretical framework explaining how digitally transformed OBCs can unlock business value from digital technologies and mitigate the digital paradox.