Vested: a new approach to outsourcing deals
The global outsourcing industry has been perceived as operational and tactical, but organizations increasingly expect their sourcing strategy to deliver on strategic objectives, with the outsourcing operating model an area for the CXO team to own. Companies and suppliers must now rethink how they create value.
Many outsourcing deals and relationships in the current market neither satisfy the buyers nor the suppliers. At the negotiation table, it was very clear that the fight was about “what’s in it for me,” and the least scrupulous individual won the deals and the respect. In order to build long-lasting partnerships, buyers, suppliers and procurement will gradually have to revolutionize the way in which they organize the outsourced function with the company.
In a volatile global marketplace, it is important that service delivery is flexible and can contribute with real value by adapting to the ever-changing needs of the business, i.e., scaling up and down, as well as closing and opening new sites effectively and efficiently. In order to support transformation and to be at the forefront of outsourcing of services, a focus on innovation is crucial.
When the corporate strategic agenda changes, the sourcing agenda must too. In addition, it should support the corporate transformation agenda, enabling efficient and effective changes where the sourcing is concerned.
This is not a one-off, large-scale transformation effort, but rather a continuous challenge for the service supplier to respond to external and internal pressures. The service supplier is increasingly being recognized as an important part of the business, not only in terms of business continuity and smooth running, but also as a lever for competitive advantage and a way of building company culture.
In order to shift to the next gear or implement a new business model, new soliciting processes are needed – true partnerships that enable a win-win situation.
Vested: a model for designing the next-generation deals
A research group at the University of Tennessee, led by Kate Vitasek, founder of Vested Outsourcing, managed to codify the key elements of successful partnerships based on extensive field study research.
The codified solution, called Vested, is, according to the university, “Business model, methodology, mindset and movement for creating highly collaborative business relationships that enable true win-win relationships in which both parties are equally committed to each other’s success.” EY and Lindahl Lawfirm have, in collaboration over the last three years, successfully taken Vested to the real estate and facilities management (REFM) market in Europe
“The reason why companies do not ‘get’ innovation is because they don’t buy innovation. There are several fundamental flaws with how existing outsourcing relationships are structured today,” says Vitasek .
Vested is a combination of an outcome-based business model and a relational contract. It creates business relationships with experts outside one’s own domain, with the aim of achieving ambitious objectives never accomplished before.
These relationships are characterized as Vested because they involve creating a relationship in which the parties have a committed and profound interest in each other’s success. To put it simply, the parties are most successful when both reap the benefits.
By applying Vested, the misalignments described in the previous sections can be avoided. This can be illustrated by looking at the five rules Vested is built upon, introduced as a chronological process where buyers and suppliers collaborate and apply a “what’s in it for we?” (WIIFWe) approach — not a “what’s in it for me?”
Brokering business partnerships
Vested thinking is different. It often means going against how suppliers and business partners traditionally approach working together. It requires long-term, not short-term, thinking. Vested is about working alongside suppliers as business partners, rather than relying on default procurement processes that use transactional buy-sell principles.
Moreover, it is about moving away from rigid contracts and statements of work, instead creating flexible business agreements based on trust, transparency and fairness when business happens.
Vested is not just for big companies − it can be applied successfully in many types of contexts, whether private or public.
Strategic relationship management is becoming a hot topic as new business models entering the market create completely new expectations for procurement. For this reason, procurement organizations need to become strategic business partners that focus more on value creation and less on savings.
These strategic partnerships and new business models represent the next level for the outsourcing service business. To achieve this, new competencies are needed, as well as knowledge about the market and which approach to use when requesting information, quotations and proposals. The role of advisors will be that of a deal architect helping complex strategic businesses by facilitating the process and supporting stakeholders in generating desired results