What is wrong with the conventional approach to strategic business relationships?
What core tenets differentiate a Vested relationship from a conventional one?
What is the Vested methodology?
How does Vested work in practice?
Is Vested really a “new” concept?
Does “win-win” really work?
Are industry organizations endorsing Vested?
My company is not very good at collaborating. I think Vested is a “stretch” for us.
Is Vested only for “outsourcing” relationships?
Are some suppliers a better fit for Vested than others?
Is Vested right for me?
What best practices can I bring to the table for my relationship?
Does the size of the team need to be larger to assure the work can get done?
What advice do you offer to keep Vested a truly collaborative process?
What is the biggest tip you can give us as we start our Vested journey?
How long does it typically take to implement a Vested Agreement?
Do you have a Vested Lite process where I can do certain elements and skip others?
Can I just use The Vested Outsourcing Manual instead of paying for the online course?
Do you have to take the Vested courses in a certain order?
What are one or two of your favorite stories about how Vested works in the real world?
What is your favorite case study from your research?
We’ve identified 10 common and often perverse ailments that can disrupt, derail or even destroy the best-intentioned outsourcing or business relationship. These ailments are described in the second edition of Vested Outsourcing: Five Rules That Will Transform Outsourcing and in a series of posts here.
- Focus on outcomes, not transactions.
- Focus on the WHAT, not the HOW.
- Agree on clearly defined and measurable outcomes.
- Pricing model with incentives that optimize the business.
- Insight versus oversight structure.
The table below provides a comparison of the main differences between a Vested relationship and a conventional relationship.
It is one thing to create a team based upon an open relationship—it is another to structure the actual contract properly based upon rules aimed at eliminating non-value-added transactions. The Vested Outsourcing Manual provides a detailed how-to guide for creating a Vested Agreement.
The table below shows the linkage and interaction between the Rules and their Elements:
The fourth book, Vested: How P&G, McDonald’s and Microsoft Are Redefining Winning in Business Relationships, closely examines actual case histories of the Vested approach and mindset in practice, occurring right now in the real world. Vested goes behind the scenes of the best of the best business relationships, public and private, big and small, and reveals how the organizations involved follow Vested’s Five Rules. It provides an insider’s perspective on how these organizations are redefining the way to foster and nurture the long-term, win-win relationships required for our constant-change economy.
The University of Tennessee’s research is similar to what Jim Womack did in 1990 with Lean. Womack studied the Toyota Production System and other companies that were adopting the TPS philosophies. It was NOT new. However, the value he has brought to hundreds of companies is that he codified the TPS philosophies into layman’s terms and called it a cool name that resonated better with practitioners (“Lean” instead of “TPS”). It was Womack’s ability to bring sound concepts to practitioners that made Lean a popular concept. Prior to Womack’s book, The Machine that Changed the World, very few companies had heard of or were applying these concepts.
The value of UT’s work is that researchers went through the academic rigor to validate best practice with a theoretical foundation. From there, The University of Tennessee codified a set of rules and tools into a formal structured process to help companies achieve the best possible outsourcing deals.
Great business relationships can and do rely on these rules; they are NOT new. The problem is that today most companies do NOT follow these rules or the implementation process and, and as a result, suffer from many of the 10 Ailments outlined in chapter 3 of Vested Outsourcing: Five Rules That Will Transform Outsourcing.
This outdated attitude reflects the shaky ground most business relationships are built upon–a zero-sum game where one party wins at the expense of the other. Yet in today’s rapidly evolving world, this mindset leads to rigid, us vs. them relationships that can’t withstand a market that demands constant change and adaptation.
The University of Tennessee’s research team studied highly successful outsourcing and supplier agreements that sought true “win-win” relationships that were built on highly collaborative and mutually defined outcomes. The research and fieldwork studying real-world success stories, featured in Vested: How P&G, McDonald’s and Microsoft Are Redefining Winning in Business Relationships, shows that companies can indeed find that elusive “win-win” by creating agreements that are designed to create and share value.
These partnerships achieved not only results, but transformational, game-changing, award-winning results. These relationships transcended traditional buy-sell transactions that focus on one party “winning” while the other “loses.” These parties worked together towards shared goals to drive innovation, create value and reward success. But while they seemed radical compared to most business relationships today, we realized that these companies were actually leveraging Nobel Prize-winning concepts—from Nash’s equilibrium theory to Williamson’s transaction cost economics.
Following the Vested business model allows organizations to achieve their own elusive win-win through highly collaborative efforts.
Three of the most noteworthy endorsements come from the following industry pioneers:
Dawn Tiura Evans, President and CEO, Sourcing Interests Group: “Kate has hit the nail on the head. The ‘rules’, while often spoken about, have never been so clearly defined as they are here. The journey to a truly collaborative agreement is practically guaranteed if you follow the step-by-step process outlined in this great book.”
Tim Cummins, CEO, International Association for Contract and Commercial Management: “Vested Outsourcing offers a robust approach for developing high-performing strategic relationships.”
Frank Casale, CEO, Outsourcing Institute: “Vested Outsourcing is a game-changing approach that will quickly become the new gold standard for advanced outsourcing relationships. It is a critical enabler for Outsourcing 2.0.”
The International Association of Outsource Providers also endorses the Vested approach; the UT three-day Vested Outsourcing course counts towards the IAOP Certified Outsourcing Professional designation.
The University of Tennessee Center for Executive Education won the Supply Chain Council’s 2011 Academic Advancement Award, which recognizes an organization that contributes applied research that advances the supply chain management body of knowledge.
Vested was also on World Trade Magazine’s WT100’s Fabulous 50 + 1 in 2011.
However, some organizations find they are not ready for various reasons; not having key stakeholders on board is a primary one. In this case, we suggest adopting the five-step process outlined in the book Getting to We: Negotiating Agreements for Highly Collaborative Relationships. This process, when applied, will help lay the foundation for collaboration. While this will fall short of a Vested Agreement, it does establish the critical steps to help parties adopt Vested’s “What’s In It For We” (WIIFWe) mindset.
A good example covered in Vested: How P&G, McDonald’s and Microsoft Are Redefining Winning in Business Relationships is the story of the non-profit non-governmental organization (NGO) Water for People, which helps people in developing countries improve their quality of life by supporting the development of locally sustainable drinking water resources, sanitation facilities and hygiene education programs. Water for People is changing the paradigm of a traditional charity by creating sustainable and transformational change with Vested relationships with NGOs and local communities to solve water poverty issues in some of the most remote parts of the world.
Some suppliers are better suited to certain buyers. Where one supplier may be a better Vested candidate with a particular buyer, another buyer may be better-suited-for another supplier for a Vested approach. The Compatibility and Trust Assessment evaluates the critical aspects of a buyer-supplier relationship to determine the ‘fit’ between buyers and suppliers using well-researched and proven components of a business “personality” and Vested relationship. The CaT brings the essential elements of business relationships and the tenets of Vested relationships, evaluated across five main dimensions, into a scientifically evaluated model using the two-world view to determine the best Vested relationship approach. This is based on the specific buyer and specific supplier and their mutual relationship as evaluated by critical relationship dimensions.
Simply because a company can adopt the Vested model for just about anything it might outsource, that does not mean that it should. Some activities should be outsourced conventionally. For example, office supply purchases are not strategically critical for most firms. A Vested model is hard and takes time; it should be done only in the areas that will have the largest impact or return for the company.
Companies can evaluate their outsourcing opportunities using the above chart. If there is high value and expertise to continue to manage a process within the company, do not outsource those activities. However, if there is low expertise but high value, that activity is a good target for a Vested Agreement. Conventional outsourcing is best used when contracts do not add strategic value to operations. Look for opportunities to decrease cost, increase availability and thus increase customer satisfaction. If the Vested approach looks promising for an activity, don’t ask, “What’s In It For Me?” but rather, “What’s In It For We?” to be successful.
Deciding to shift to a Vested relationship depends greatly on two factors: 1) whether there is a need and potential to create value and drive innovation; and 2) the level of dependency that is required in the relationship (for example, the high cost of switching service providers: a company that is simply buying a pure commodity where there is not potential to create value should use a transaction-based business model.
We have a great white paper done in conjunction with the Sourcing Interests Group on this very topic, “Unpacking Sourcing Business Models – 21st Century Solutions for Sourcing Services.”
It is a free download from the Vested library and is a great resource for deciding which sourcing business model is the best fit for your company. Vested’s Centers of Excellence also offer a Business Model Mapping workshop to help companies map various “commodities” they are buying against the Business Model Map.
Let’s take P&G for example. In this Manufacturers Alliance for Productivity and Innovation (MAPI) webinar Matt McClish, P&G’s North American Leader for the Global Asset Recovery team and the former Group Manager and Outsourcing Deal Manager responsible for Global Facilities and Real Estate, speaks about how P&G was already “best in class” when it came to industry benchmarks for facilities and real estate management. By outsourcing to Jones Lang LaSalle, P&G was able to merge the companies’ core competencies and further create value for each party. In essence, they defined new best practices.
A simple statement from William Reeves, P&G Director to Bill Thummel, Chief Operating Officer – Corporate Solutions at JLL, sums up why determining future best practices is often uncertain. After Jones Lang LaSalle won the RFP to manage P&G’s facilities and real estate management efforts worldwide, Reeves shook hands with Thummel to symbolically seal the deal, stating, “We know that you (JLL) and the other suppliers we evaluated have never done this before, and neither have we. But JLL has the culture that is much like P&G’s. We think we have the best chance of being successful with you because you are so much like us.”
Most organizations also create an “extended team” comprised of subject matter experts that work on a particular component or aspect of the agreement (e.g. finance folks are typically assigned to work on a pricing model). For more information about how to structure your implementation resources, refer to the Creating a Vested Agreement, Module 2.
- Follow the process. You might think taking a “class” is not helpful. However, the Creating a Vested Agreement course offers a proven step-by-step process for helping you stay on track and not skip vital steps, decisions or deliverables. The course is designed to be taken together—with both (or all!) partners learning and doing together. If you work through the deliverables together, you will find the process itself has created an environment that fosters collaboration.
- Use a Vested Center of Excellence to support you in your journey, especially if you are following the methodology for the first time. Centers of Excellence are trained to provide neutral, third-party support for “deal teams” as they embark on their Vested journey. They also can provide expert advice and examples they have seen in action, if you find yourself getting stuck.
As you embark on your Vested journey, we highly recommend organizations spend plenty of time on the “Getting Ready” Module in the Creating a Vested Agreement online course and that they do not proceed until they are “ready.” For example, the parties should determine their “guardrails” early. We find companies that do not do this often get to the pricing model—or worse—signing of the contract only to find that one or more stakeholders will not agree to the Vested deal because it is not within their risk/reward tolerance (e.g. “I can’t agree to a seven-year contract — our corporate policy is three years”).
Once a company has the commitment from key stakeholders, it typically takes companies four to seven months to complete the work needed to get to a Vested agreement using the Vested tools and methods. The general rule of thumb is larger or more complex relationships take longer.
Factors to consider are:
- Limited scope vs. a more integrated scope (e.g. combining real estate and facilities management like P&G has done with Jones Lang LaSalle).
- Global vs. regional focus. Global agreements typically take longer to complete (e.g. Microsoft OneFinance, which is global in nature vs. the MnDOT agreement for the I35 Bridge rebuild).
- One business unit vs. multiple business units in scope. (e.g. A pharmaceutical company did a supply chain agreement that encompasses five different business units, combining the scope of work for each of these business units under one Vested agreement with the supplier).
A Vested Center of Excellence is a great resource to help you determine the path/implementation plan for your situation. In many cases, organizations choose to “pilot” Vested in a limited scope area to get familiar with the changes they need to make and then roll it out to a broader area. We find “pilots” are a very effective way to begin your Vested journey
We do understand that in many cases an organization does have constraints and cannot adopt all 10 of the Vested Elements. In this case, we recommend you consider your relationship as being a Vested “journey.” Adopt the Elements you can do now, and then seek to adopt the other Elements as you have time or constraints are lifted. At a minimum, we recommend that an organization follow the five-step Getting to We process, which will ensure you are laying a proper foundation for your relationship. In doing so, you will complete Element 2 (shared vision/statement of intent) and Element 7 (Relationship Management Framework) and thus inject good governance into your agreement and relationship. By starting with the Getting to We process, you will lay a strong foundation for your relationship and over time you can address each of the additional 10 Elements of a Vested Agreement on your Vested journey.
Also, following the online course is a great way to provide structure for your Vested journey. Many companies choose to take one module of the online course per week, which allows the organizations to get in a rhythm for implementation of “learn and do.”
Lastly, people learn differently. Some enjoy reading the book, and others prefer to have the content delivered in smaller bits “just in time” to their project plan.
We recommend augmenting the Creating a Vested Agreement course by working with a Vested Center of Excellence where a Certified Deal Architect can assist with the project you are working now.
For reference, completing a Vested agreement typically takes 4-6 months, so you can easily begin with the online courseware and end with the University of Tennessee onsite courses if you wish to pursue your CDA. (AE and DM)
Most of us know about the McDonald’s “secret sauce” that makes its Big Mac so tasty. But even more important is that in this book, we reveal the real secret sauce—known as the “System”—that company founder Ray Kroc perfected to build long-term transparent relationships as the basis for long-term success. This secret sauce is based on the firm belief that everyone in the McDonald’s System comprises a three-legged stool—employees, owner/operators and suppliers—and that as such, they all can and should win together.
Kroc established a precedent of trust, loyalty and collaboration throughout the company, believing that if the restaurant owner/operators, McDonald’s employees and suppliers were successful, success would come to him as well. Simply put, McDonald’s, its owner/operators and its suppliers have a Vested interest in helping each other succeed. The stool is only as strong as its three legs; for one leg to prosper, each leg must prosper. This means that the company employees, the franchise owner/operators and the suppliers each support McDonald’s equally.
Those are inherently Vested concepts, of course, but remember that Kroc developed this way of thinking and operating in the 1950s. And even more amazing, nearly all of McDonald’s supplier relationships are based on handshake deals that have stood the test of time.
To this day, McDonald’s lives the philosophy that, as Kroc famously said some 50 years ago, “None of us is as good as all of us.” Kroc was doing it the Vested way before many of us were born—that’s why the McDonald’s story is so inspirational to me and one of my favorites.
Another favorite from Vested is the P&G story. The company’s groundbreaking contract with Jones Lang LaSalle in 2003 flipped the conventional approach to outsourcing on its head. P&G created a business model based on contracting for transformation instead of contracting for day-to-day transactions. A.G. Lafley had taken the helm in 2000 as P&G’s CEO to lead the organization into the twenty-first century, and innovation became a priority under his stewardship. He questioned the sustainability of the “in-house, invent-it-ourselves” model, betting that looking beyond P&G’s walls could produce more highly profitable innovations that would drive value for both P&G and the parties bringing innovation to P&G.
This thinking required changing the “not invented here” mindset to enthusiasm for those ideas “proudly found elsewhere.” By 2003, P&G began extending this thinking to how it worked with its suppliers. P&G believed that by working with world class outsource service providers, it could drive costs lower and ensure that service offerings remain on the leading edge of best practice. P&G deployed a Vested approach when it penned a pioneering outsourcing contract with JLL spanning 60 countries that included facility management, project management and strategic occupancy services. The scope and complexity of the deal was a first for both companies, as was the approach of the commercial contract.
The two companies created a commercial agreement that was highly Vested in nature, collaborative in approach and transformational in thinking. Under their agreement, P&G created an outsourcing relationship that challenged JLL to not just take care of its buildings, but to take charge of its buildings.
The P&G and McDonald’s stories embody the transformational nature that visionary leaders can bring to business relationships.
I’d be remiss not to also mention the Vested journey of RelianceCM and its President Scott Schroeder as another favorite. It’s a great example of a small company that achieved huge success by adopting Vested principles and the WIIFWe mindset.
As you can see, Vested’s Five Rules is a one-size-fits-all approach because the methodology allows organizations big and small to benefit from a Vested approach.