Kate Vitasek Shares Why Vested Outsourcing Matters

Vested® is a business model, methodology, mindset and movement for creating highly collaborative business relationships that enable true win-win relationships in which both parties are equally committed to each other’s success. When applied, a Vested approach fosters an environment that sparks innovation, resulting in improved service, reduced costs and value that didn’t exist before — for both parties.

Vested is based on award-winning research conducted by the University of Tennessee College of Business Administration and funded by the U.S. Air Force. Kate Vitasek has successfully combined her role as Faculty for the Center for Executive Education at the University of Tennessee with her role as Founder of Supply Chain Visions, a Top 10 Boutique Consulting firm. Kate recently spoke to CoreNet about the Vested way of business. Here is some of what she shared:

Q. Where did your research start?

The University of Tennessee is number one in the world in the area of supply chain management research. We have a very large research contract with the United States Air Force. They challenged us to see how business can work together in a more highly collaborative way to generate better outcomes for the Air Force.

The lesson is simple yet powerful. If you aren't getting satisfying results from your partners, it's likely because you are not treating—or paying—them like true partners. More specifically, our research found that most companies are developing supplier and outsourcing agreements that simply pay for people in seats—not for innovative partners who help solve real business problems.

We began to look at other companies and industries to see why some were more successful at outsourcing than others. We found that they approached the nature of outsourcing differently. And that’s where we get the five rules and the term Vested Outsourcing.

Q. What is Vested Outsourcing?

One of our clients said, Win-win isn’t just a nice thing to say. If you aren’t doing it you’re leaving money on the table.

Basically, a buyer can extract value, exchange value, or better yet the buyer and seller can create value. Vested Outsourcing is a game changing approach to outsourcing that is centered on buying results rather than tasks and / or activities with the conscious effort to use incentives to drive process innovation.

We use the term Vested Outsourcing because we found these successful agreements were the result of a company and its service provider having a vested interest in each other’s success and working collaboratively to achieve mutually-created desired outcomes.

Q. What are the "five rules" to create a mutually beneficial outsourcing agreement?

All of the highly successful outsourcing relationships we studied had five things in common:

  • Develop an outcome based vs transactional based business model. We get stuck in a transaction mindset. But this is in direct conflict to our preferred outcomes. As a vendor, why should I invest money to be more efficient if my money is tied to the transaction? There’s an inherent incentive for the service provider to perform that activity over and over, rather than look for a better way to do something. In a Vested Outsourcing agreement they are paid for performance.

 

  • Focus on the what not the how. If I’m trying to achieve my desired outcome, then why do I show up with a statement of work for my vendor and tell them how to do it. I’ve outsourced to an expert but as a buyer if I then tell you how to do the work, I’ve now put you in a box. Buyers need to tell suppliers the outcome that they are looking for and let the supplier come up with finding a better way of doing things.
     
  • Clearly defined and measurable desired outcomes. You need to know where you’re going if you’re going to get there. Both parties need to figure out together how to measure the outcomes. Define the outcome with the service provider and then pay for the value that the solution delivers, rather than activity performed.
     
  • Pricing model incentives are optimized for cost/service tradeoffs. We have to give suppliers the hope of a future return. If they can beat the established baseline, then the faster they can receive a bigger paycheck. The model must balance risk and reward for both parties and should be structured to ensure that the provider assumes risk only for decisions within its control. The pricing model also needs to incentivize and reward the supplier driving innovation.
     
  • Insight versus oversight governance structure. The goal should be to expand the pie. I can’t micromanage my suppliers. Instead of managing a scorecard, you want to look at supplier performance as it relates to your desired outcomes. Most Vested Outsourcing agreements are based on “less is more.” They focus on a limited number of performance indicators rather than using detailed service level agreements.

Q. What are the benefits to a vested outsourcing approach?

A client once told us that this method is “radical common sense.” It creates better competition – creating not just suppliers but solutions because you gain from supplier buy-in and shared interest. When you focus on intended results and not activities there is an increased likelihood of meeting corporate goals and objectives. Moreover, mutually beneficial shared incentives permit innovation and cost effectiveness.

Q. What advice would you give to a company looking for an outsource partner?

The first step in the journey is to take the time to map potential outcomes and outline each other’s goals. Aligning strategic interests leads to collaboration, loyalty and mutual satisfaction, market share, and sustainable profit. Defined outcomes creates a culture where the company and the service provider can maximize profits by working together more efficiently, no matter who is doing the activity.