Vested Outsourcing Is Not Gainsharing!

DC Velocity’s Basic Training column this week has an interesting take on gainsharing and the value that it can bring to the logistics outsourcing world.

It’s mostly spot-on and very kind. But I must firmly set the record straight when the authors, Art van Bodegraven and Kenneth B. Ackerman assert in their “Gain sharing, pain sharing, and the games people play” that Vested Outsourcing is merely the “latest incarnation” of gainsharing.

That is simply wrong and reveals a basic misunderstanding of what Vested Outsourcing really is about. Vested relationships are a new and separate category in the hierarchy of business and outsourcing relationships.

Bodegraven and Ackerman write: “Metaphoric old girlfriends have a way of showing up in new dresses in our business—once-attractive ideas parading among us, rebranded and repackaged. The latest incarnation of gain sharing is “vested outsourcing,” a concept with roots in the military.

“Our friend Kate Vitasek has done compelling and masterful work in organizing, extending, and communicating the power and potential of vested outsourcing. The basic premise is this: Instead of paying your service provider to perform specific tasks, you pay it to achieve specific outcomes or results—and then provide generous incentives for exceeding those goals.

“Realistically, the concept requires truly committed partners in genuine business relationships, with a lot at stake. It’s not a casual drive-by process for picking off easy targets.”

I thank the authors for their kind words about myself and Vested Outsourcing. While they have much of it right, there is however a fundamental error presented in the article: Vested Outsourcing is most definitely not the “latest incarnation” of gainsharing. It’s not a re-branding or re-packaging of an old idea.

In Vested Outsourcing: Five Rules That Will Transform Outsourcing, I stress that Vested Outsourcing is not gainsharing, a mere tweak of the status quo with a new name.

Gainsharing is a concept that shares a portion of cost savings between the parties in an outsource agreement. It typically is based on productivity and on reducing the cost of service for a specified range of transactions.

Vested Outsourcing goes beyond the gainshare concept. For one thing the Vested model is not transaction-based; it is much broader and holistic because it encompasses not only the cost-reduction ideas of gainsharing but also increases in revenue, benefits perceived from service-level improvements, inventory reductions and process improvements, to name a few.

Also Vested Outsourcing’s DNA is rooted in deep collaboration and trust between the parties and their achievement together of Desired Outcomes over the long term. In short, it fundamentally realigns the parties’ business structure and financial relationship in a way that using the gainsharing tool cannot approach.

Vested Outsourcing is much more than gainsharing. Vested is all about crafting the right relationship and supporting documents and processes to maximize the potential to make a solid deal efficient, successful and worthwhile. If employed at all in a Vested relationship, gainsharing is a small cog of that process and dynamic. In fact I suggest that companies should turn to Vested Outsourcing for answers on how to do gainsharing correctly.

Vested Outsourcing is definitely NOT gainsharing in a new dress.

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