“For as long as I can remember,” he says, “MSPs have struggled with how to disarm the threat of internal IT departments and their often incorrect views on managed services. I’ve heard many of these accusations from a) I’m going to lose my job, b) I’m going to lose my job to someone overseas, or c) I’ll keep my job but it will be greatly reduced in terms of importance to the organization.”

These concerns are not unique to internal IT departments; they can cut across many lines of business and outsourcing situations. In the Junkyard Dog Factor—one of 10 ailments that can disrupt or destroy an outsource partnership—the fear of job or turf losses often means that employees will go to great lengths to hunker down and stake their territorial claim to certain processes that simply “must” stay in house. It’s a recipe for suspicion, mistrust, operational inefficiencies and a less-than-optimal relationship.

Worries about job losses at the hands of an MSP or an outsource provider are not new, Weaver says, but they are wrong. In addition, it is a “belief that needs to be corrected immediately.”

A proper relationship with an MSP can prevent these false beliefs from becoming reality, Weaver says, and “the term ‘collaborative outsourcing’ can help.”

“First, the idea that a MSP would necessarily cause a customer IT department to lose a job is false. Originally, managed services were almost exclusively sold into the large enterprise. Rarely would these managed services relationships cause the customer to have to fire their internal IT staff.” Generally, IT staff would manage the outsourced partnership and have new duties focusing on core value to the organization. “Let’s not forget that one of the primary benefits of managed services is that it allows customers to focus on their business, not on managing IT.” Too often, he continues, internal IT staff “does NOT focus on core business objectives because they are doing other menial IT tasks that could be outsourced.”

Another myth around managed services is that it causes job loss due to offshoring. This idea has been “completely debunked,” Weaver. Offshoring is not outsourcing! “When companies claim to be providing IT outsourcing when it is really offshoring a job to another country, we must all make an effort to correct that type of misconception,” he asserts.

This is where collaborative outsourcing enters. Weaver calls it a way to “soften or change the tone of the conversation away from outsourcing (with its connotation of loss of control) to collaboration (and a tone of a deeper and more meaningful relationship). Outsourcing tends to lead people to believe that the relationship is being severed; there will be no more relationship once the deal is signed. But, a collaborative outsourcing relationship necessarily means there will be ongoing communication and participation between all parties.

“We can no longer sit by while our profession is incorrectly defined by those who do not even understand it.”

Well said! I’d add that in a collaborative, Vested partnership the idea that MSPs are out to steal jobs would never be a part of the definition.

[Image: the Creative process - collaboration by sand625 via Flickr]

Linda A. Hill and Kent Lineback, authors of Being the Boss: The 3 Imperatives for Becoming a Great Leader (HBR Press, 2011), have written about the trust aspects of leadership for the HBR Blog Network. In their most recent post, on the character component of trust, they take a somewhat different approach.

“Think of the most chilling villain you’ve seen in the movies, the one who shows up in your nightmares, the one you would avoid at all cost if he really existed, the one, in short, you absolutely cannot trust,” they write. Memorable villains they mention include Hannibal Lector in Silence of the Lambs, Professor Moriarity—the super-criminal and arch-nemesis of Sherlock Holmes—and of course Darth Vader of Star Wars. These villains are frightening, smart, highly competent, but what sets them apart from the normal run of villainy is the clarity of their evil intentions.

Hill and Lineback note “their purpose is to do harm.” For master criminals like Lector and Darth Vader their intentions in this regard are clear and single-minded: they focus their intelligence and competence for evil doings above all else; there’s no ambiguity about it.

“Our visceral reactions to villains illustrate an important point—that our feelings about someone, whether we fear or trust them, are largely determined by their intentions,” they write. “By divining what they want, we answer the question we all instinctively ask about someone new: ally or enemy? Intentions are how we distinguish a villain from someone whose influence we accept, whom we move toward. Competence may be appealing, but intentions are what attract or repel us and foster trust or mistrust.”

Intentions are where the Vested business and outsourcing model begins—a Statement of Intentions between the parties is a necessary step to align them for the job, and helps define their Desired Outcomes. Trust and collaboration follow once all the parties in an enterprise are in alignment; they understand the business at hand and what they want from the relationship to achieve the win-win.

Everyone has to be on the same page with regard to intentions for the Vested partnership to work—no guesswork and no second-guessing, and especially no ambiguity from the top echelons of leadership.

As Hill and Lineback say, “If you want to lead and influence others, you must reveal your intentions. People won’t believe you will do the right thing unless they’re convinced you genuinely want to do it.”

But they add that there is another element to establishing trust beyond simply revealing intentions, it’s also demonstrating the correct motives and values driving the intentions—the real character of the people and the relationship.

This is done through communication, integrity and consistency – these traits establish the true character of a trusting, win-win collaboration, the hallmark of the Vested model.

It is very common for companies to use “strategic” approaches to win in the game of procurement.  A.T. Kearney’s paper on “The Purchasing Chessboard” plays up the analogy and creates a 64-square chessboard of procurement strategies based on “power” to win.

The ATK paper offers advice on “buying in a seller’s market,” noting that the balance of procurement power has shifted from buyer to seller or supplier.

“Consolidating supplier markets, rising energy prices and the growing demand for raw materials in emerging markets have fundamentally changed the purchasing framework,” ATK says. “Suppliers are more powerful than ever, which means buyers must adjust quickly to a new playing field.”

With more companies operating today in a seller’s market, ATK has developed The Purchasing Chessboard to help buyers “adopt new tools and strategies to compete effectively on a new playing field.”

For one thing the current seller’s market means that the old purchasing strategies “such as pitting suppliers against one another, or simply requesting price reductions, do not work.”

ATK says the purchasing chessboard comprises 64 methods, “each representing a stand-alone, differentiating way to work with suppliers to reduce costs and increase value. These methods are derived from 16 approaches and four purchasing strategies.”

The four major purchasing strategies outlined by ATK are:

• Leverage competition among suppliers
• Seek joint advantage with suppliers
• Change the nature of demand
• Manage spend

Three of those four are based on re-asserting market power and seizing the transactional advantage, while the fourth—seeking joint advantage with suppliers—occurs only when buyers and suppliers in a transaction “have equal market power.”  Mmmm…let’s think about this. Only be collaborative when you don’t have the muscle to win outright. It’s this kind of grudging and forced cooperation: “Suppliers and buyers work together to generate ideas for optimizing costs and then agree to share in the respective benefits. What begins as an ad-hoc program could eventually turn into a longer-term strategic alliance between buyer and supplier.”

While promoting collaboration – it’s not the kind of credible approach that can win the hearts and minds of suppliers to help you win in your own business game. I much prefer the sincere and credible Vested approach that emphasizes a shared-value and outcome-based approach.

Simply put, working together should not be an ad hoc admission that you don’t have enough power to control the market. Playing the power game deteriorates trust; it’s really just a shell game grounded in old-school thinking where everyone works for their own best interest.

The Vested way starts with the idea of working together—to take a vested interest in developing a broader definition of success based on sharing value and the win-win.

Chess is played on a 64-square board, which is I suppose is where ATK got its idea for The Purchasing Chessboard. But chess is also often referred to as the “64-square madhouse.”

[Image credit: Chess by sarahkim via Flicker cc]

The Vested model requires true collaboration as the starting point for achieving all of those other terms over the long haul.

But there’s another important bottom-line reason for collaboration: it’s a necessity in today’s global market. As noted in a recent IndustryWeek article—it helps manufacturers leverage limited resources in a competitive marketplace.

The article discusses a book co-written by Michael M. Beyerlein, Beyond Teams: Building the Collaborative Organization. Beyerlein, a Purdue University professor, jokes that the collaborative organization is a “dream” because it is so difficult to achieve—especially at a high level.

“Management makes the assumption that after it calls you a team, you are a team,” he continues. But in fact, collaboration requires leadership commitment, resources, training and constant reinforcement. “It takes a lot of work to get good at it.”

Beyerlein defines  a collaborative organization as a place “where people automatically think that collaboration is a means to getting things done, solving problems, making decisions and a culture that supports that kind of activity, as opposed to the kinds of cultures and policies where people work in isolation.

“When you set up it up so people collaborate, instead of an additive effect, you get a multiplicative effect,” he says.

I could not say it any better – but here’s also the rub: how do you set it up so that people actually collaborate? You can’t simply snap your fingers for the “multiplicative effect” that results, for example, in innovation and the win-win.

The Vested model is premised on the idea that building long-lasting collaborative business and outsourcing partnerships do not simply appear out of nowhere or in a dream. They require a lot of hard work, preparation and commitment. Turning the collaborative dream into reality by adopting the Vested approach starts with the realization that there is a better, more cooperative way to work with your business partners – by aligning interests, defining mutually-desired outcomes and sharing value by shifting the mindset to a “we” mentality.

This process is described in The Vested Outsourcing Manual, which details a step-by-step way to establish and implement collaboration by adopting the five rules of Vested Outsourcing and their component elements.

When each party has a vested interest in making the relationship work, they really collaborate and then they really succeed.

[Image credit: collaboration by jenlen via Flickr cc]

TranzAct Inside, a group that provides valuable information and research on transportation management, has called attention to this issue in an executive briefing, “27 Million Reasons for Shippers to Address Vicarious Liability.”

“These are big issues for shippers,” says Mike Regan, president of TranzAct Technologies. And in many cases they are not on the C-level radar screen, he adds.

There are more frequent and more expensive judgments involving vicarious liability against carriers, their agents and shippers. Shippers are exposed through the principle of “vicarious liability,” a form of secondary liability that assigns responsibility to the superior for the acts of their subordinate, i.e., the responsibility of any third party that had the “right, ability, or duty to control” the activities of a violator.

Regan cites two recent judgments as prime examples of this.

In an Oregon case, Linhart v. Heyl Logistics LLC, a jury found that Heyl Logistics failed to perform due diligence when it hired a Washington Transportation driver to haul goods for bottled water giant Nestle Waters North America. They awarded $5.2 million to the family of a person killed in an accident, when the driver fell asleep at the wheel. (The facts in the case indicated that the driver was coming off of a crystal methamphetamine high.)  It is apparently the first punitive damages verdict against a transportation broker in a case involving a negligent hiring claim.

Another case, Nancy Hoffman v. Dorlan Crane, et al., finalized this month in Illinois resulted in an award of more than $27 million to a woman left paralyzed when a truck carrying steel coils ran into her vehicle. The judgment was against the company that the driver leased the truck from, the logistics company that arranged the transportation and the coil supplier. The shipper was found liable due to the manner in which it sourced and contracted its carriers, under the principle of vicarious liability.

The TranzAct briefing points to three important lessons from these cases and the layers of liability:

1. “Evaluate all of your carriers and brokers in all modes and regions on an ongoing basis.

1. “Understand, at all levels in the organization, how current sourcing and contracting practices protect you or create the potential for liability.

1. “Ensure that you have valid contracts in place with all vendors, inbound and outbound.”

TranzAct concluded: “In addition to an increased number of cases and more costly judgments on the horizon, the myth that brokers provide an extra layer of protection for the shipper has been dispelled.”

It also shows the danger that can occur when transportation and supplier arrangements are not carefully assessed and monitored from the beginning of the contractual arrangement.

Vested Outsourcing is a major shift away from the traditional, lowest-cost, risk-averse, gotcha! way of writing transaction-based outsource and business contracts.

A good example of a Vested supplier relationship comes from McDonald’s and  Lopez Foods.  Lopez has been supplying McDonald’s with 100 percent beef for nearly 30 years and is obsessed about food safety, as you can see from this video.  I think you will agree  after watching the video that the value of a Vested relationship is obvious.

Bottom line, business and events happen that are beyond anyone’s control.  But as the video shows, Lopez clearly understands the responsibilities and ramifications of food safety. Perhaps Nestle and the others that pushed the risk should begin to look inward and align with high quality strategic suppliers that embrace responsibility to protect their customers.

My bet is on companies like McDonald’s who have strategically chosen to develop Vested relationships with their suppliers like Lopez.

A real-world example of this idea was on display in the case of a janitor by the name of Tony Lee who rescued a failing factory in Ohio. His inspiring story is one of grit and commitment.

After leaving the Army in 1997 Lee took the only decent job he could find, accepting a janitorial job at an Eaton Corp. factory in Massillon, Ohio. Like a lot of U.S. manufacturing centers, Massillon has suffered from closed factories and thousands of lost jobs. Tony made the most of his opportunity, rising from janitor to foreman in four years.

But things got worse at Eaton. In 2002, the company started shutting down divisions of the factory. More than 900 workers in were laid off in Lee’s division, which was slated for closure at the end of 2002.

Lee refused to give up. After lots of study in the Public Library, he wrote a business plan detailing how his factory could survive and prosper.

Against all odds, he convinced a group of investors to buy the factory and keep it running. But there was a catch: The investors wanted Lee to have some “skin in the game,” so he had to raise $25,000 to purchase a stake in the factory.

Lee had to scramble to raise the funds needed for him to stay in the game—for him it was more than just some skin in the game—to use a poker term, the investors forced him to go “all-in” or lose the pot.

You can probably guess the end of this story. Today he’s co-owner of Ring Masters, a company that makes engine rings for industrial use, and he’s recouped that $25,000 investment several times over.

Vested Outsourcing is first and foremost a mind-set change in which the participants approach outsourcing differently, crafting relationships that move beyond simply placing butts in seats or employing transaction-based approaches to an environment where the service provider has skin in the game and has the freedom and responsibility to drive results and real value for the company.

Sometimes putting skin in the game means going all-in. Vested deals have skin in the game: both parties invest because they have a vested interest in making their enterprise work. It’s NOT a buy-sell relationship; it’s a win-win partnership.

[Image credit: 83 dollars by Seditious Canary via Flickr CC]

By Inaz via Flickr CC

Alignment is key in Vested Outsourcing.  Companies like Jaguar and Unipart showed the importance of properly aligning when they created a shared vision more than a decade ago: it catapulted them to the top of the JD Powers charts.

And when I read through an excellent eyefortransport report on outsourcing logistics strategy I am reminded of the importance of alignment.

In the report, shippers were asked to outline the key reasons for not renewing contracts with 3PLs (third party logistics providers), and the 3PLs in turn were asked what they believed the reasons were. The results, charted to telling effect in the report, showed a marked disparity between the two: shippers identified cost creep, poor service, and competitors offering a better service as the main reasons for not renewing, while 3PLs said the primary reasons were competitors’ lower prices, poor service and relationship management issues. This illustrates a dramatic lack of alignment, something that has dogged the 3PL outsourcing industry for ages. If they were aligned, their answers to the renewal question would not be so at odds.

I highly recommend EFT’s report and especially the chart on page 5 that so starkly reveals the alignment issues uncovered by the survey. I can’t reproduce the chart here, but the above link will take you to a free download from EFT after registering.

I also want to recommend EFT’s coming 3PL Summit on June 18-20 in Chicago, where I’ll be leading a conference workshop on contracting.  The workshop on June 18 will be “hands-on” and designed to take the guesswork out of structuring a 3PL relationship and contract. It will examine real service-level agreements, reveal the crucial dos and don’ts and describe the steps to building a trust-based relationship prior to the bid process.

There is a huge difference between simply hiring a service provider and establishing a Vested agreement. In a Vested relationship the service provider must have a vested interest in being a competent and efficient collaborator in the company’s success. The mind-set has to shift from an “us-versus-them” to a “we” philosophy.

Companies that recognize their service providers as essential partners in the success of the joint enterprise can achieve transformational results—and that occurs when interests and goals are truly aligned.

I want to thank and commend EFT for its good work on this topic and for inviting me to take part in the 3PL Summit, where I’m sure the subject of alignment will come up!