Element 9: Exit Management

Organizations – especially buyers – often fear that a negative consequence of a Vested Agreement is that they will become too dependent on their partner. They believe this will produce what is often called “lock in” and create too much risk associated with potentially changing providers.

If you have structured a sound agreement under Rules 1-4, the likelihood of the partnership degrading is minimized. However, there is still the question of “will I have the ability to dissolve the partnership as required by new circumstances” or more bluntly, “Can I get out of this deal if ‘business happens’ and it no longer makes strategic sense?”

In a properly structured Vested agreement, the answer is “yes.” All parties in a Vested agreement should go into the partnership with eyes wide open; it’s obvious to state that sometimes even the best plan simply does not work out or is trumped by unexpected events. Business happens, and companies should have a credible and clear exit plan when assumptions change and/or unanticipated events occur.

That’s why Element 9, Exit Management—the third of the four implementing steps of Vested’s Rule #5 – which creates a sound governance structure based on insight, not oversight – is a necessary part of the governance framework.

An exit management strategy provides a practical approach to deal with future unknowns. Simply put, exit management addresses what happens when it no longer makes sense to continue with the partnership. The overarching goal of Element 8 is to establish a fair plan and establish the essential processes you will need in the event of a separation.

Typically, contract agreements address what happens at the end of the agreement mainly from a liability point of view, through termination clauses either for convenience or for cause. These clauses may address the notice period or financial obligations under the agreement, but have little clarity on how to unwind the business relationship. In fact, these clauses may actually provide incentives for the service provider to dump and run, stripping resources from the program long before the exit transition is complete. In such cases, services may be seriously disrupted and customers impacted.

A key purpose of an exit management plan is to facilitate a smooth, effective transition of services delivery, minimum disruption of ongoing delivery, and efficient completion of all agreement obligations. The plan is exercised when a formal termination notice under the terms of the agreement is issued. In addition to the termination notice, the components of an effective exit management plan include:

  • An exit transition period – The transition period generally encompasses the time from the date of the termination notice until the date upon which any transition services are completed.
  • The exit transition plan – The purpose is a smooth, effective, and uninterrupted transition of service delivery with a minimum of disruption and efficient completion of an agreement obligation. The exit process is managed through an exit management governance process that is set up specifically within the overall governance structure of the agreement.
  • Exit governance and reporting – Exit management discussions should include a process for handling legal disputes. In effect, the parties are deciding what forum they will use to resolve a lawsuit.

The Exit Management plan will provide a sort of reverse snapshot of the entire governance framework, making it vital to get the structure right at both ends of the relationship.

Element 9 is discussed in chapter 7 of The Vested Outsourcing Manual. Also, Vested’s free self-assessment is a useful online tool to help benchmark how well you are applying Vested’s Rule #5. The 10 Elements assessment report will help identify the structural flaws that may be holding you back from achieving collaborative and transformational success through an effective governance framework.

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