Element 1: Business Model Map

Vested’s Rule #1 directs companies starting on their Vested journey to focus on outcomes, not transactions. Thus, it makes sense that the first step in the Vested methodology, Element 1, is to understand and document your business model to ensure you are aligned with the underlying constructs of how the relationship and agreement should be structured.

Why? Far too many companies have misaligned their intentions with their sourcing business model. The result is a company seeking innovation and transformation, but that instead is saddled with a contract that only buys transactions: it’s infected with the Activity Trap. As your Grandma likely said “you get what you pay for” and it is important to understand the sourcing business model most suited to meet your needs.

So what are the various sourcing business models? The Vested Outsourcing Manual describes them in detail. Briefly, the models are:

  • Transaction-based, which most companies use for their commercial agreements when making a “buy” decision. Three types of transaction-based sourcing relationships have evolved as businesses determine how to create service provider relationships that are best suited for more complex business relationships: simple transaction providers, approved providers, and preferred providers.
  • Outcome-based models pay service providers for achieving a defined set of business outcomes, business results or for attaining agreed-upon key performance indicators.
  • Investment-based models are used when companies struggle to meet complex business requirements using conventional transaction-based or outcome-based approaches. Under the investment-based model, a company returns to a single balance sheet entity through equity partnerships.
  • The Vested business model is a hybrid of outcome-based and shared value principles: the company is seeking to move beyond having a service provider perform a specific set of directed tasks in favor of a solution-based collaboration, and mutual advantage to achieve their Desired Outcomes. Simply put, the parties build a cooperative foundation for sharing value together; the company and its service provider become vested in each other’s success, achieving a true win-win relationship.

Another good resource for understanding sourcing business models is the University of Tennessee/Sourcing Interests Group white paper, “Unpacking Sourcing Business Models—21st Century Solutions for Sourcing Services,” a free download on the Vested site.

So how do you determine the sourcing business model that’s best for you? The Vested methodology includes completing a Business Model Map. Jointly mapping a business model with your potential partner will pinpoint the value levers between the parties. A completed Business Model Map will help guide you to determining the best sourcing business model for you to pursue.

It’s essential for companies on the Vested journey to have a clear understanding of the sourcing business models available so that they can determine if the Vested model is the right fit for them. This is what the mapping exercise does: helps the parties make an informed decision—together—a about the suitability of using the Vested approach.

We offer many resources to help parties along their Vested journey. They include online courseware, tools and a free 10 Elements self-assessment that will help you on your journey to Vested. Our Business Model Mapping template is part of our open source toolkit – and is also a free download.

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