Rule# 1 Focus on Outcomes, Not Transactions

Any Vested relationship flourishes best in a culture in which participants work together to ensure their mutual success. In essence, Vested buys desired outcomes, not individual transactions. The service provider is paid based on its ability to achieve the mutually agreed desired outcomes.

Success in Vested requires engagement of five rules. Here we examine the second of those five rules: Focus on the what, not the how.

Adopting a Vested Outsourcing business model does not change the nature of the work to be performed. At the operational level, lines of code must be written, bathrooms must be cleaned, orders must be fulfilled, repairs must be completed, calls must be answered, and meals must be cooked. What does change is the way that the outsourcing company purchases the services.

Using Vested Outsourcing, the company outsourcing specifies what it wants, and moves the responsibility of determining how and what gets delivered to the outsource provider. Firms outsource to a supplier because they know the supplier can do a better job, yet write the contract as if they are the experts. In so doing, they become victim of a detrimental phenomenon called the “outsourcing paradox.” A telltale initial “outsourcing paradox” symptom is an attempt to develop the “perfect” set of tasks, frequencies and measures in an attempt to tightly define the expected results. The result is an impressive document containing all the possible details about how the work is to be done.

But such attempts typically are doomed to failure. A too-tightly written statement of work makes outsource providers responsible for the work without giving them authority to exercise their own initiative in carrying out the work. Good companies outsource for a reason: In-house operations are either too expensive, ineffective, or both.
In the most effective Vested Outsourcing partnerships, very little discussion takes place about the processes the service providers will follow to meet the requirements; participants focus instead on system-wide performance expectations. Why dictate procedures in an area where you have decided you are deficient? It is up to the service providers to understand how to put the supporting processes together to achieve the desired outcomes.

Consider information technology outsourcing arrangements. Under a conventional contract, the company outsourcing would specify the hardware to use and possibly even the number and skills of help desk personnel. This scenario diminishes the outsource provider’s role as the expert. The service provider is the one that is constantly in the marketplace and keeping tabs on the latest developments. Its experts certainly will know of the most appropriate hardware for a given task, and they may even know of process or system efficiencies that allow them to do the task with less labor than non-IT firms. Performance partnerships let each firm do what it does best. Unless the company that is outsourcing has the skills and the resources to keep up with the latest innovations in the service it is outsourcing, it should leave the details to the experts.

Depending on the scope of the partnership, the company that is outsourcing assigns the service provider to perform some or all of the activities required to achieve the contract goals. For example, when outsourcing cleaning services, a company could outsource all aspects of restroom facility maintenance, the scope of which might include management of plumbing needs or procurement of supplies.

Collaboration lies at the heart of Vested Outsourcing because, to be successful, a service provider often becomes responsible for more services and has to work with other service providers. In a properly constructed Vested Outsourcing partnership, the service provider no longer has the option to deny responsibility by saying “it’s not my fault!” Rule No. 2 harmonizes closely with rule No. 4, which explains why pricing model incentives should be optimized for cost/service trade-offs. Applied together, these two rules work in conjunction with each other to create mutually beneficial and achievable goals.

Following Rule #1 prevents The Activity Trap and The Power of Not Doing ailments

Read More! Move on to Rule #2 Focus on the What, Not the How

Comments

  1. Looking for more thoughts around the outsourcing topic

  2. Kate VItasek says:

    Eric,

    thanks for your post. The best resource is actually the Vested Outsourcing website – with articles under Media / In the News and white papers under resources. Definitely read Unpacking Oliver. And if you buy logistics and transportation read Unpacking Transportation Pricing.

    The DOD has some great info – but much of the thinking is tied to coupling performance-based thinking to buying on weapon systems (they call it Performance-Based Logistics in the DOD). Some of the consulting firms have some salesware – but it’s not as educational as the Vested Outsourcing book and white papers we are publishing. I”d love for ANYONE in this group to continue to post articles that are on topic for Vested Outsourcing so we can all share from the wisdom of each other. Of course – feel free to email me directly if you have questions. kvitasek@utk.edu

    Best regards.

    kate

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