Vested outsourcing
Vested outsourcingis a hybridbusiness modelin which contracting parties create a formalrelational contractusing shared values and goals and outcome-based economics to create an agreement that is mutually beneficial for each party.[1]The model was developed out of research by theUniversity of Tennesseeled byKate Vitasek.
Proponents of the vested outsourcing model argue that traditional outsourcing and businesses relationships are focused onwin-losearrangements where one party benefits at the other's expense. In contrast, a Vested agreement creates a win-win relationship in which both parties are equally invested in one another's success.[2]
The Vested approach is firmly rooted inrelational contracttheory, which was originally developed in the United States by the legal scholarsIan Roderick MacneilandStewart Macaulay.Relational contract theory is characterized by a view of contracts as relations rather than as discrete transactions.
Harvard University Professor and Nobel LaureateOliver Hart’s 2019 article[3](with David Frydlinger and Kate Vitasek) in the September-October edition of the Harvard Business Review, “A New Approach to Contracts”, argues for the adoption a different kind of contracting arrangement: a formal relational contract that specifies mutual goals and establishes governance structures to keep the parties’ expectations and interests aligned over the long term. The article notes that nearly 60 companies have employed the vested methodology.
The vested formal relational contract process includes steps to lay the foundation and helps contracting parties stay in continual alignment by establishing a “partnership mentality” which engenders an environment of mutual trust, a shared vision and objectives, adoption of guiding principles, and alignment of expectations and interests. A shared-value mindset is the basis of a vested outsourcing agreement. The contract itself follows five rules based on the Tennessee research on the topic that began in 2003:
- agreements should be outcome focussed
- focus on the "what" not the "how"
- desired outcomes should be clearly defined and measurable
- pricing model incentives should be optimised for cost/service tradeoffs
- governance should be based on insight rather than oversight.[4]
The parties must agree upon one or more "desired outcomes" which can be objectively measured to determine if the relationship is successful. This outcome can include cost reductions,revenueincreases, schedule improvements, increasedmarket shareand better levels ofcustomer service.[5]
More than simply focusing on the success of thecontractrelationship, the Vested approach commits both the company and the service provider to the success of each other's overall business.[6]This strengthens the sense ofpartnershipand encourages a more lasting relationship.[7]By sharing their expertise and aligning their goals, both parties are able to driveinnovation,adapt to changing needs andmitigaterisk while working towards mutual success.[8]
Vested relationships depend oncollaboration,transparency,flexibility and trust. Rather than traditional business relationships in which companies buy transactions or services from suppliers, vested relationships instead focus on buying results.[1]
Vested outsourcing applies in a variety of industries and has been adopted by companies likeProcter & Gamble,McDonald's,Microsoft,DellandFedEx.[9]
References[edit]
- ^abVitasek, Kate;Ledyard, Mike; Manrodt, Karl (2010).Vested Outsourcing, Second Edition: Five Rules That Will Transform Outsourcing.New York, NY: Palgrave MacMillan.ISBN978-1-137-29719-8.
- ^Vitasek, Kate and D. Michael Ledyard. (October 2010). Playing to Win. Outsource Magazine, retrieved fromhttp:// outsourcemagazine.co.uk/articles/item/3565-playing-to-winArchived2012-04-24 at theWayback Machine.
- ^Hart, Oliver; Frydlinger, David; Vitasek, Kate."A New Approach to Contracts".Harvard Business Review Magazine.Harvard Business Review.Retrieved4 January2021.
- ^Vitasek, K., Ledyard, M. and Cummins, T.,Vested Outsourcing: a Better Way to Structure Outsourcing Contracts,University of Tennessee Centre for Executive Education, p 8, published September 2012, accessed 23 May 2021
- ^Vitasek, Kate, Art Van Bodegraven and Ken Ackerman (July 2011), Options in incentive procurement: What are they and when to use them. Warehousing Forum, Vol. 26, No. 8. Retrieved from[1]
- ^Logan, Daniel with special contributor Jim Eckler. (August 4, 2011). Vested outsourcing. Slaw.ca. Retrieved fromhttp:// slaw.ca/2011/08/04/vested-outsourcing/.
- ^Eckler, Jim. A Better Way to Outsource Business Functions. Retrieved from ecklerassociates /uploads/ReinventingOutsourcing.pdf.
- ^(Quarter 3 2011). Outsourcing for mutual success. CSCMP's Supply Chain Quarterly. Retrieved fromhttp:// supplychainquarterly /news/201103forward_outsourcing/.
- ^Vitasek, Kate; et al. (2012).Vested: How P&G, McDonald's, and Microsoft are Redefining Winning in Business Relationships(1st ed.). New York: Palgrave Macmillan.ISBN978-0230341708.