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	<title>Vested Outsourcing &#187; 5 Rules</title>
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		<title>Is Outsourcing Really a Partnership?</title>
		<link>http://www.vestedoutsourcing.com/is-outsourcing-really-a-partnership/</link>
		<comments>http://www.vestedoutsourcing.com/is-outsourcing-really-a-partnership/#comments</comments>
		<pubDate>Tue, 07 Sep 2010 09:53:57 +0000</pubDate>
		<dc:creator>Kate Vitasek</dc:creator>
				<category><![CDATA[From the Blog]]></category>
		<category><![CDATA[5 Rules]]></category>
		<category><![CDATA[collaboration]]></category>
		<category><![CDATA[outsourcing]]></category>
		<category><![CDATA[partnership]]></category>
		<category><![CDATA[vested outsourcing]]></category>

		<guid isPermaLink="false">http://www.vestedoutsourcing.com/?p=1771</guid>
		<description><![CDATA[Companies that are new to outsourcing, and even those highly experienced with it, like to say their relationship is a partnership. I suppose it’s good for public consumption and public relations to consider all of the businesses and people a company works with as partners, and maybe in some way they really believe they are [...]]]></description>
			<content:encoded><![CDATA[<p><img class="alignleft" src="http://marketing.blogs.ie.edu/files/2009/10/PARTNERSHIP.JPG" alt="" width="313" height="240" />Companies that are new to outsourcing, and even those highly experienced with it, like to say their relationship is a partnership.</p>
<p>I suppose it’s good for public consumption and public relations to consider all of the businesses and people a company works with as partners, and maybe in some way they really believe they are partners. But how often are they true collaborative and trusting partnerships in the <a title="Vested Outsourcing" href="http://www.vestedoutsourcing.com/" target="_blank">Vested Outsourcing</a> mold?</p>
<p>Sadly, not very often, I’d submit. When you beat up a ‘partner’ on pricing and performance demands it’s not really a partnership. It’s not a partnership if you don’t behave as partners.</p>
<p>One recent deal out of the IT space brings this disconnect between word and action to mind.</p>
<p>About a dozen 3PLs were bidding on a recent outsourcing contract with a large firm – I’m keeping the companies anonymous – but some of the post-mortem comments from the logistics company that eventually won the outsourcing contract are telling.</p>
<p>The negotiations were handled by a corporate team “with no connectivity to the business – they just wanted the best numbers,” this person tells me.</p>
<p>“In the end, we were able to find the ‘middle ground’ of price and strategy,” he/she continues, “But it didn’t start that way and throughout the process, it was communicated several times that we were on the cusp of losing the deal.</p>
<p>“There was no strategic planning and partnering up front, with the customer and the strategic partner sitting down to work together to deliver the best results.”</p>
<p>The last point makes me wonder how the deal got done at all, and how successful over the long-term it will be. It sounds like finding that “middle ground” was a really strenuous and stressful exercise.</p>
<p>The Vested Outsourcing approach and its <a title="Five Rules" href="http://www.vestedoutsourcing.com/category/5-rules/" target="_blank">Five Rules</a> would create a firmer foundation from the start and a healthier, more cooperative, less stressful negotiation and operation atmosphere.</p>
<p>For instance this deal does not appear to be very much in the <a title="Laying the Foundation" href="http://www.vestedoutsourcing.com/laying-the-foundation-whats-in-it-for-we/">What’s in it for We?</a> mold. Apparently it doesn’t feature mutual agreement on clearly defined and measurable outcomes (<a title="Rule 3, Agree on clearly defined and measurable outcomes" href="http://www.vestedoutsourcing.com/rule-3-agree-on-clearly-defined-and-measurable-outcomes/" target="_blank">Rule 3</a>) or a governance structure based on insight, not merely oversight (<a title="Rule 5, Governance structure should provide insight, not oversight" href="http://www.vestedoutsourcing.com/rule-5-governance-structure-should-provide-insight-not-merely-oversight/" target="_blank">Rule 5</a>).</p>
<p>The deal was very much like a traditional RFQ, I’m told. “The only think I can think of that was different was the fact that there wasn’t an internet auction pitting the contestants against each other to drive the lowest price possible as a last step.”</p>
<p>Ouch! And that’s from the winning bidder!</p>
<p>I say this all the time, but it bears repeating: Any Vested Outsourcing relationship – indeed most any relationship – flourishes best in a culture in which participants work together to ensure their mutual success. In essence, Vested Outsourcing buys desired outcomes, not individual transactions (<a title="Rule 1, Focus on outcomes, not transactions" href="http://www.vestedoutsourcing.com/rule-2-focus-on-the-what-not-the-how/" target="_blank">Rule 1</a>). Ideally, the service provider is paid based on its ability to achieve mutually agreed desired outcomes.</p>
<p>Well, the logistics company did get a multi-year deal, but don’t give the outsource company any ideas about internet auctions!</p>]]></content:encoded>
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		<title>Vesting in Back to School</title>
		<link>http://www.vestedoutsourcing.com/vesting-in-back-to-school/</link>
		<comments>http://www.vestedoutsourcing.com/vesting-in-back-to-school/#comments</comments>
		<pubDate>Tue, 31 Aug 2010 09:15:38 +0000</pubDate>
		<dc:creator>Kate Vitasek</dc:creator>
				<category><![CDATA[From the Blog]]></category>
		<category><![CDATA[5 Rules]]></category>
		<category><![CDATA[Back to School]]></category>
		<category><![CDATA[collaboration]]></category>
		<category><![CDATA[outsourcing]]></category>
		<category><![CDATA[vested outsourcing]]></category>

		<guid isPermaLink="false">http://www.vestedoutsourcing.com/?p=1764</guid>
		<description><![CDATA[It’s the end of August and that means the back to school dance is in full swing. This is special for me because my five-year old is entering kindergarten this year and because my sister-in-law is a kindergarten teacher. How quickly we get away from the basics as we progress through academia and compete for [...]]]></description>
			<content:encoded><![CDATA[<p><img class="alignleft" src="http://www.effortchurch.org/NewSite.data/images/kidzonelogos/Kindergarten.logo.jpg" alt="" width="216" height="216" />It’s the end of August and that means the back to school dance is in full swing. This is special for me because my five-year old is entering kindergarten this year and because my sister-in-law is a kindergarten teacher.</p>
<p>How quickly we get away from the basics as we progress through academia and compete for the best courses, teachers and grades, and then move into the business world. Nowadays it seems that failing to maintain a perfect grade point average through elementary, high school and college is somehow a failure of the self and the system.</p>
<p><a title="Vested Outsourcing" href="http://www.vestedoutsourcing.com/" target="_blank">Vested Outsourcing</a> and the <a title="Five Rules" href="http://www.vestedoutsourcing.com/category/5-rules/" target="_blank">Five Rules</a> embody the fundamental lessons of fair play, collaboration, playing nice, learning and achieving together as a unit within a definite structure of personal and group goals – and I believe my sister-in-law and hopefully most teachers at this level would appreciate and accept this.</p>
<p>Those concepts get kind of lost as time goes on and the pressure to perform at any cost mounts. They are mostly forgotten or pushed aside as we enter the competitive business world.</p>
<p>Kindergarten teachers, whether consciously or not, employ vested thinking and many of the basic precepts of the Five Rules.</p>
<p>They more than anyone <a title="Laying the Foundation" href="http://www.vestedoutsourcing.com/laying-the-foundation-whats-in-it-for-we/" target="_blank">lay the foundation</a> for the academic world their charges will experience for about the next 20 years, and if they don’t employ a What’s in it for We approach in the classroom, chaos will surely reign. (Oddly, WIIFWe will often get transformed into the What’s-in-it-for-me approach for individual achievement but still remains as an overall imperative when it comes to school spirit and pride.)</p>
<p>Kindergarten teachers must also focus on what they want the children as a group and the school to accomplish (<a title="Rule 1, Focus on outcomes, not transactions" href="http://www.vestedoutsourcing.com/rule-2-focus-on-outcomes/" target="_blank">Rule 1</a>), on cooperation and collaboration, and on the measurable outcomes (<a title="Rule 3, Agree on clearly defined and measurable outcomes" href="http://www.vestedoutsourcing.com/rule-3-agree-on-clearly-defined-and-measurable-outcomes/">Rule 3</a>) their charges will achieve.</p>
<p>At this level kindergarten teachers must of necessity use a lot of oversight, but if their lesson plans, i.e. governance structure, and general philosophy don’t embody insight (<a title="Rule 5, Governance structure should provide insight, not oversight" href="http://www.vestedoutsourcing.com/rule-5-governance-structure-should-provide-insight-not-merely-oversight/">Rule 5</a>) – because each class is different and has its own dynamics – then the class becomes little more than an exercise in structured babysitting.</p>
<p>I don’t want to take the vested approach to kindergarten too far – obviously school is much different from the business world and outsourcing.</p>
<p>But think of it this way – we outsource the education of our children at their most tender and impressionable ages and what happens in these early classrooms will stay with them the rest of their lives.</p>
<p>Then also think about your best and most memorable teachers. Weren’t they the special ones who were the best organized, the most empathetic and insightful about their class’s needs?</p>
<p>Weren’t they the ones who were the most vested in your success – even if you did not realize it at the time?</p>]]></content:encoded>
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		<title>The Imp of the Perverse in Outsourcing</title>
		<link>http://www.vestedoutsourcing.com/the-imp-of-the-perverse-in-outsourcing/</link>
		<comments>http://www.vestedoutsourcing.com/the-imp-of-the-perverse-in-outsourcing/#comments</comments>
		<pubDate>Tue, 17 Aug 2010 14:01:35 +0000</pubDate>
		<dc:creator>Kate Vitasek</dc:creator>
				<category><![CDATA[From the Blog]]></category>
		<category><![CDATA[5 Rules]]></category>
		<category><![CDATA[collaboration]]></category>
		<category><![CDATA[Incentives]]></category>
		<category><![CDATA[outsourcing]]></category>
		<category><![CDATA[perverse incentives]]></category>
		<category><![CDATA[vested outsourcing]]></category>

		<guid isPermaLink="false">http://www.vestedoutsourcing.com/?p=1738</guid>
		<description><![CDATA[The old saying, “If I didn’t have bad luck, I wouldn’t have any luck at all,” could easily apply to outsourcing incentives: If there weren’t any perverse incentives in a contract, there likely wouldn’t be any incentives at all! Incentives play a critical role in in Vested Outsourcing, namely in identifying and achieving the win-win [...]]]></description>
			<content:encoded><![CDATA[<p><img class="alignnone" src="http://360vendormanagement.com/imagesforcontent/iStock_000005624555XSmall.jpg" alt="" width="298" height="197" />The old saying, “If I didn’t have bad luck, I wouldn’t have any luck at all,” could easily apply to outsourcing incentives: If there weren’t any perverse incentives in a contract, there likely wouldn’t be any incentives at all!</p>
<p>Incentives play a critical role in in <a title="Vested Outsourcing" href="http://www.vestedoutsourcing.com/" target="_blank">Vested Outsourcing</a>, namely in identifying and achieving the win-win and in encouraging continuous innovation and collaboration. It creates conditions for an incentive mindset and ecosystem, but equally as important, the Vested Outsourcing approach will identify and eliminate those impish perverse incentives.</p>
<p>In a conventional transaction-based outsourcing environment, the emphasis is on conforming to contract requirements and adhering to contract terms. Little incentive, leeway, or opportunity is offered for service providers to explore innovative approaches.</p>
<p>In fact, in many cases, there are significant disincentives to innovation and creativity, many resulting in what I call <a title="The Activity Trap" href="http://www.vestedoutsourcing.com/the-activity-trap/" target="_blank">Ailment #3</a>, the Activity Trap. If pay rates are based on each transaction, it follows that the more transactions that are performed, the more money a company will make, whether the transactions are necessary, or whether there is a more efficient way to do them. There&#8217;s no incentive for the outsource provider to reduce the number of non–value-added transactions, because such a reduction would result in lower revenue.</p>
<p>The Activity Trap can appear in a variety of transaction-based outsource arrangements. When the contract structure is cost reimbursement, for example, the outsource provider has no incentive to reduce costs because profit is typically a percentage of direct costs. Even if the outsource provider’s profit is a fixed amount, the typical company will be penalized for investing in process efficiencies to drive costs down. In a nutshell, the more inefficient the entire support process, the more money the service provider can make. Inherent in the activity trap is a disincentive to try to reduce the number transactions, and conversely – or perversely – increase them if at all possible.</p>
<p>A good early example of a perverse incentive based on transactions occurred in the nineteenth-century, when paleontologists traveling to China would pay peasants for each fragment of dinosaur bone (dinosaur fossils) that they produced. They later discovered that peasants dug up the bones and then smashed them to maximize their payments.</p>
<p>Fast forward to the present: On a site visit, when we asked the general manager of a 3PL what a large area full of orange-tagged pallets was for, she replied: “That’s some of our customer’s old inventory I need to move to an outside storage facility.” When we dug further, we found out it was product that was well over five years old and at the rate it was moving, it would be in storage for 123 years! When we pressed further, asking why she did not work with the customer to scrap the material, the answer was: “Why? I charge $18 a pallet per month to store it. I’d lose revenue if I did that!”</p>
<p>Too often the emphasis is on knee-jerk compliance, not continuous improvement or innovation. Service providers that try to introduce new ideas may encounter significant obstacles, requiring complex, costly, and often painful contract modifications.</p>
<p>A properly structured vested agreement based on the <a title="Five Rules" href="http://www.vestedoutsourcing.com/category/5-rules/" target="_blank">Five Rules</a> will take the luck – good or bad – out of incentives.</p>
<p>Under <a title="Rule 4, Optimize pricing model incentives" href="http://www.vestedoutsourcing.com/rule-4-optimize-pricing-model-incentives/" target="_blank">Rule 4</a> pricing model incentives for cost and service trade-offs will be optimized early-on by all of the parties, while <a title="Rule 5, Governance structure should provide insight, not oversight" href="http://www.vestedoutsourcing.com/rule-5-governance-structure-should-provide-insight-not-merely-oversight/" target="_blank">Rule 5</a> says that a proper agreement governance structure will provide insight on the relationship, not merely oversight. Insight will detect and quickly counter perverse incentives and make sure the pricing model incentives are functioning properly.</p>
<p>Most important in avoiding the propensity for perverse incentives is <a title="Rule 1, Focus on outcomes, not transactions" href="http://www.vestedoutsourcing.com/rule-2-focus-on-the-what-not-the-how/" target="_blank">Rule 1</a>: Focus on <em>outcomes</em>, not transactions.</p>
<p>Don’t let the bean-counter mentality take over.</p>]]></content:encoded>
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		<title>Flight of Fancy? Synchronicity and Outsourcing</title>
		<link>http://www.vestedoutsourcing.com/flight-of-fancy-synchronicity-and-outsourcing/</link>
		<comments>http://www.vestedoutsourcing.com/flight-of-fancy-synchronicity-and-outsourcing/#comments</comments>
		<pubDate>Tue, 10 Aug 2010 09:00:18 +0000</pubDate>
		<dc:creator>Kate Vitasek</dc:creator>
				<category><![CDATA[From the Blog]]></category>
		<category><![CDATA[5 Rules]]></category>
		<category><![CDATA[Blue Angels]]></category>
		<category><![CDATA[Boeing]]></category>
		<category><![CDATA[collaboration]]></category>
		<category><![CDATA[Harvard Business Review]]></category>
		<category><![CDATA[outsourcing]]></category>
		<category><![CDATA[vested outsourcing]]></category>

		<guid isPermaLink="false">http://www.vestedoutsourcing.com/?p=1716</guid>
		<description><![CDATA[Watching the Blue Angels do their amazing and death-defying feats in the cloudy skies above Seattle last week, I was awestruck, marveling at the fearless synchronization on display. Which lead me of course to muse about what could happen if that kind of synchronization was the rule rather than the exception in outsourcing. The Blue [...]]]></description>
			<content:encoded><![CDATA[<p><img class="alignleft" src="http://blogs.king5.com/citizenrain/images/grab_blue1.jpg" alt="" width="255" height="170" />Watching the Blue Angels do their amazing and death-defying feats in the cloudy skies above Seattle last week, I was awestruck, marveling at the fearless synchronization on display.</p>
<p>Which lead me of course to muse about what could happen if that kind of synchronization was the rule rather than the exception in outsourcing. The Blue Angels make it look so easy, but obviously it’s not. It’s the ultimate in skill, teamwork and trust among the co-pilots and with the maintenance people on the ground. The <a title="Vested Outsourcing" href="http://www.vestedoutsourcing.com/" target="_blank">Vested Outsourcing</a> vision, message and model is straightforward and simple in many respects, but it is not easy to achieve. It’s really hard and also requires a degree of teamwork, trust and flexibility in achieving successful outsourcing that is often not very evident.</p>
<p>While those thoughts were crossing my mind, I came across a <a title="Harvard Business Review" href="http://hbr.org/" target="_blank">Harvard Business Review</a> blog post by Human Resources expert <a title="John W. Boudreau" href="http://hbr.org/search/John%20W.%20Boudreau/" target="_blank">John W. Boudreau</a>, the author (with Peter M. Ramstead) of <em>Beyond HR: The New Science of Human Capital.</em></p>
<p>Coincidentally, Boudreau’s post has to do with aircraft and flying right. Or in the case of his <a title="HBR blog post" href="http://blogs.hbr.org/cs/2010/08/boeings_787_dreamliner_retools.html?cm_mmc=npv-_-DAILY_ALERT-_-AWEBER-_-DATE#comments" target="_blank">“Boeing’s 787 Dreamliner Retools Talent Management,”</a> maybe not so right in every case.</p>
<p>Boeing’s 787 debuted recently at the Farnborough Airshow in England; it’s a highly innovative aircraft that’s also been dogged by supply and production difficulties and delays, which <a title="Even Some Big Guys Need A Lesson in Vesting" href="http://www.vestedoutsourcing.com/tag/boeing/" target="_blank">I’ve referred to previously</a>.</p>
<p>Boudreau posits that the Dreamliner story has “implications for the future of HR and talent strategy that are as important as its technical and strategic innovations.” The Dreamliner line rests upon what is often called the world’s most sprawling supply chain, and managing this complicated and often unruly chain is a key to the company’s success.</p>
<p>“But with the strategic decision to shift to the composite technology that necessitated this supply chain came a shift in the company&#8217;s talent strategy as well,” Boudreau writes. “The pivot-point of talent management shifted from being entirely within Boeing to the talent and ideas that resided in Boeing&#8217;s suppliers. Therefore, like many other HR leaders today, the company had to learn to manage a sprawling global supply chain for talent as well as components.”</p>
<p>In turns out, he continues, that supply chain, inventory and risk optimization, which are front and center in the outsourcing mind, are “good metaphors for the way that HR leaders need to think about their talent pipeline.”</p>
<p>Boeing “manages the supply chain for carpet differently than for wing-frame boxes, striving for reduced risk, higher quality and tighter tolerances in the latter.” Those same principles suggest that the level of acceptable risk, cost, and performance should vary for talent capabilities as well, he continues.</p>
<p>It’s people after all who ultimately deliver on performance and desired goals; it’s people who flip the levers on the processes being implemented and who manage the outsourcing framework.</p>
<p>The <a title="Five Rules" href="http://www.vestedoutsourcing.com/category/5-rules/" target="_blank">Five Rules</a> need people who are skilled, flexible, fearless and collaborative to make the vested relationship soar. People in sync with each other and the mission at hand.</p>
<p>In the case of Boeing it occurs to me that the company needs to have managers with the talent &#8212; and the courage &#8212; to properly manage its suppliers, but without micromanaging them. It&#8217;s a tenuous and often difficult balance to achieve and the storyline from Boeing&#8217;s 787 experience indicates there&#8217;s work to be done on that component.</p>
<p>In the case of Blue Angels, if the pilots and crew are not on the same page for an instant, disaster can ensue. Not being on the same outsourcing page is not at that level of intense risk, but failure to collaborate, identify talent, work in sync and vest together on mutual goals over the long term will almost surely result in a disastrous outsourcing relationship.</p>]]></content:encoded>
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		<title>Collaborate for Value</title>
		<link>http://www.vestedoutsourcing.com/collaborate-for-value/</link>
		<comments>http://www.vestedoutsourcing.com/collaborate-for-value/#comments</comments>
		<pubDate>Tue, 03 Aug 2010 09:00:56 +0000</pubDate>
		<dc:creator>Kate Vitasek</dc:creator>
				<category><![CDATA[From the Blog]]></category>
		<category><![CDATA[5 Rules]]></category>
		<category><![CDATA[collaboration]]></category>
		<category><![CDATA[negotiation]]></category>
		<category><![CDATA[outsourcing]]></category>
		<category><![CDATA[supply chains]]></category>
		<category><![CDATA[vested outsourcing]]></category>
		<category><![CDATA[win-win]]></category>

		<guid isPermaLink="false">http://www.vestedoutsourcing.com/?p=1690</guid>
		<description><![CDATA[I’ve been thinking about the term “negotiation” quite a lot lately and what it means for outsourcing in general and Vested Outsourcing in particular. For instance, I’ve questioned whether negotiation is really the right word to use when talking about creating a vested relationship. In a recent post I advised that parties shouldn’t negotiate, they [...]]]></description>
			<content:encoded><![CDATA[<p><img class="alignleft" src="http://real-timeupdates.com/it/uploads/pics/cache/1220644114.co" alt="" width="204" height="245" />I’ve been thinking about the term “negotiation” quite a lot lately and what it means for outsourcing in general and Vested Outsourcing in particular.</p>
<p>For instance, I’ve questioned whether negotiation is really the right word to use when talking about creating a vested relationship. In a <a title="Don't Negotiate -- Bargain for the Win-Win" href="http://www.vestedoutsourcing.com/don’t-negotiate-bargain-for-the-win-win/" target="_blank">recent post</a> I advised that parties shouldn’t negotiate, they should collaborate for the win-win. For me, terms like ‘negotiate’ and ‘bargain’ – at least as they are commonly and currently understood – just don’t fit into the framework of <a title="Vested Outsourcing" href="http://www.vestedoutsourcing.com/" target="_blank">Vested Outsourcing</a> and the <a title="Five Rules" href="http://www.vestedoutsourcing.com/category/5-rules/" target="_blank">Five Rules</a>.</p>
<p>But until a kinder, gentler substitute becomes more widespread, along with the Vested Outsourcing mindset – believe me when I say stay tuned, there’s more to come on that score! – we’re kind of stuck with grudgingly using negotiation.</p>
<p>An article <a title="&quot;Negotiating For Value&quot;" href="http://www.sdcexec.com/print/Supply-and-Demand-Chain-Executive/Negotiating-for-Value/1$12501" target="_blank">“Negotiating for Value,”</a> in the May/June issue of <a title="SDCEXEC " href="http://www.sdcexec.com/" target="_blank">Supply &amp; Demand Chain Executive</a> by Martin P. Finkle, CEO of <a title="Scotwork" href="http://www.scotwork.com/" target="_blank">Scotwork, NA Inc</a>., based in Glasgow, Scotland and Parsippany, NJ, is a case in point. It says that learning the total cost of the ownership process “can place you in a better position to negotiate for value.” Scotwork is a negotiation, consulting and training company for individuals and organizations.</p>
<p>“Negotiation is far more than getting the best price,” Finkle writes. “Many procurement specialists, especially in the medical device industry, focus too narrowly on dollars and cents when dealing with suppliers. Whether you&#8217;re buying stents, joints or replacement parts or need to fulfill contracts, you need to include the critical variable for any negotiation — value.”</p>
<p>He derives eight lessons from his experience working in that industry that he says also apply across many industries.</p>
<p>Some of the lessons, such as using a “total cost of ownership” (TCO) approach/analysis and getting involved in the procurement process from the beginning are valid. But others make me a bit uncomfortable because they are straight from the muscular, “old-school” playbook of negotiating tactics. It also seems ‘value’ in this instance primarily means the lowest cost or best deal terms possible for the benefit one side only.</p>
<p>For example, the third lesson directs a company to “see who’s got more power.” This is done through a “power balance analysis” that compares a company’s strengths and weaknesses to that of the supplier while listing what “you believe each side wants.” Ouch!</p>
<p>Instead of working together to achieve mutual benefits and desired outcomes, the company is advised to ask the right questions, determine early on which information should be revealed to the supplier, and to use the TCO approach to negotiate more favorable terms.</p>
<p>“Overcome suppliers who say they’ve been stripped to the bone,” Finkle writes. “When you believe the supplier has more power (discovered in the power balance analysis), enter the negotiation armed with a series of proposals. Then drive the process by putting proposals on the table without spending unnecessary time in dialogue. Be ready to ask what needs to be done to a proposal that&#8217;s first rejected to make it acceptable. This will keep you on the offensive and stick to the agenda.” For me, that’s another ouch that gives ‘negotiation’ a bad taste.</p>
<p>Working together to create trust and flexibility over the long term, to increase the size of the pie, getting to the win-win and ‘What’s in in it for We,’ and collaborating to create mutual value are conspicuously absent concepts from this particular lesson plan.</p>
<p>I’m not saying you should look at the world and your suppliers through rose-colored glasses, or join hands and sing “Kumbayah” with them. It’s tough and highly competitive out there.</p>
<p>But instead of “negotiating for value,” it’s better to collaborate for value.</p>]]></content:encoded>
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		<title>Don&#8217;t Outsource the Leadership</title>
		<link>http://www.vestedoutsourcing.com/dont-outsource-the-leadership/</link>
		<comments>http://www.vestedoutsourcing.com/dont-outsource-the-leadership/#comments</comments>
		<pubDate>Tue, 27 Jul 2010 09:00:56 +0000</pubDate>
		<dc:creator>Kate Vitasek</dc:creator>
				<category><![CDATA[From the Blog]]></category>
		<category><![CDATA[5 Rules]]></category>
		<category><![CDATA[HBR]]></category>
		<category><![CDATA[leadership]]></category>
		<category><![CDATA[outsourcing]]></category>
		<category><![CDATA[vested outsourcing]]></category>

		<guid isPermaLink="false">http://www.vestedoutsourcing.com/?p=1674</guid>
		<description><![CDATA[A key thing to understand about any outsourcing endeavor is that once the decision is made to outsource the work, the work definitely is not done. In fact the real work at each end of the outsourcing equation is just beginning, particularly in a Vested Outsourcing relationship. Establishing a proper, flexible governance framework, setting systems [...]]]></description>
			<content:encoded><![CDATA[<p><img class="alignleft" src="http://www.acrodex.com/upload/files/images/Leadership2.jpg" alt="" width="304" height="202" />A key thing to understand about any outsourcing endeavor is that once the decision is made to outsource the work, the work definitely is not done.</p>
<p>In fact the real work at each end of the outsourcing equation is just beginning, particularly in a <a title="Vested Outsourcing" href="http://www.vestedoutsourcing.com/" target="_blank">Vested Outsourcing</a> relationship. Establishing a proper, flexible governance framework, setting systems for monitoring and measuring desired outcomes and keeping the right people in place all take on vital significance.</p>
<p>The latter point applies from the top down.</p>
<p>Once the decision to outsource is made – “Do what you do best and outsource the rest!” – a natural temptation in upper leadership echelons might be to disengage and let the outsource provider worry about it. Guess again!</p>
<p>Some disengagement is healthy and necessary: let the experts exercise their expertise without continuous micromanagement. But there is just as much danger in becoming too disengaged, too complacent, too unaware.</p>
<p>A good case in point was cited in a recent <a title="Harvard Business Review" href="http://hbr.org/" target="_blank">Harvard Business Review</a> blog item by Susan Cramm, <a title="Cramm blog post" href="http://blogs.hbr.org/hbr/cramm/2010/07/outsource-the-work-not-the-lea.html?cm_mmc=npv-_-DAILY_ALERT-_-AWEBER-_-DATE#comments" target="_blank">“Outsource the Work, Not the Leadership.”</a> Cramm is the founder and president of <a title="Valuedance" href="http://www.valuedance.com/" target="_blank">Valuedance</a>. A former CFO and CIO, she is an expert on IT leadership, and she’s the author of  <em><a title="8 Things We Hate About IT" href="http://hbr.org/product/8-things-we-hate-about-it-how-to-move-beyond-the-f/an/14726-PBK-ENG?Ntt=8+things+we+hate+about+IT" target="_blank">8 Things We Hate About IT</a></em><a title="8 Things We Hate About IT" href="http://hbr.org/product/8-things-we-hate-about-it-how-to-move-beyond-the-f/an/14726-PBK-ENG?Ntt=8+things+we+hate+about+IT" target="_blank">.</a></p>
<p>In her post Cramm writes about a software company that decided to implement some packaged software to streamline its financing operations, and also decided to outsource that work. The company did “a great job working through a disciplined process to define requirements, solicit bids, evaluate vendors, finalize the scope of work, and negotiate the contract.” It hired a “brand name” consulting company to make it all happen and the project apparently hummed along until it crashed into a wall just as the delivery date approached. It turns out the users disliked the software.</p>
<p>About eight months of delay and tense scrambling ensued; the project was delivered “but not without a significant amount of organizational angst — it exists today and will continue for the foreseeable future,” Cramm writes.</p>
<p>She continues: “The software is late and not accepted by its users. The search for the guilty party settles on the vendor. Everyone agrees they are at fault and resolves to pick a better one next time. Clarify the scope of work and relative responsibilities, they chant. Hold them accountable.”</p>
<p>So is the case closed? Blame properly levied and lessons learned? Well no, not hardly. Maybe the company’s “disciplined process” was not so great after all, and then when things went south there was no process to determine mutual accountability. I’d submit that without a vested partnership that follows the <a title="5 Rules" href="http://www.vestedoutsourcing.com/category/5-rules/" target="_blank">Five Rules</a> this type of thinking and action is almost destined to occur, and recur. Agreeing together on clearly defined and measurable outcomes from the outset, as stated in <a title="Rule 3" href="http://www.vestedoutsourcing.com/rule-3-agree-on-clearly-defined-and-measurable-outcomes/" target="_blank">Rule 3</a>, likely would have avoided the situation that the company found itself in.</p>
<p>I agree with Cramm when she says that this is a typical case of the difficulties inherent in outsourcing, where the work <em>and</em> the leadership of the work are outsourced. “When outsourcing, you can&#8217;t manage through the contract, you have to manage through the people. Delegating to a vendor is no different, on a day-by-day basis, than delegating internally.</p>
<p>“You have to stay close in the beginning to ensure that objectives and success measurements are well understood, the approach makes sense, accountabilities and roles are clarified and the team jells.”</p>
<p>This hits the sweet spot of<a title="Rule 5" href="http://www.vestedoutsourcing.com/rule-5-governance-structure-should-provide-insight-not-merely-oversight/" target="_blank"> Rule 5</a>, implementing a governance framework that provides insight and flexibility from the start and throughout the term of the outsourcing arrangement, not simply Statement of Work oversight that might not address or catch fundamental problems.</p>
<p>With the proper framework the work will be outsourced properly and credibly without abdicating essential leadership.</p>]]></content:encoded>
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		<title>Don’t Negotiate! Collaborate for the Win-Win</title>
		<link>http://www.vestedoutsourcing.com/don%e2%80%99t-negotiate-bargain-for-the-win-win/</link>
		<comments>http://www.vestedoutsourcing.com/don%e2%80%99t-negotiate-bargain-for-the-win-win/#comments</comments>
		<pubDate>Tue, 20 Jul 2010 09:00:33 +0000</pubDate>
		<dc:creator>Kate Vitasek</dc:creator>
				<category><![CDATA[From the Blog]]></category>
		<category><![CDATA[5 Rules]]></category>
		<category><![CDATA[collaboration]]></category>
		<category><![CDATA[interest-based negotiation]]></category>
		<category><![CDATA[outsourcing]]></category>
		<category><![CDATA[vested outsourcing]]></category>
		<category><![CDATA[win-win]]></category>

		<guid isPermaLink="false">http://www.vestedoutsourcing.com/?p=1664</guid>
		<description><![CDATA[It seems there is never a simple negotiation.  The term &#8220;negotiation&#8221; itself connotes that the parties involved have differences of opinions and are sitting across the table from each other discussing positions and trade-offs.  Some even view negotiations as a pejorative euphemism &#8211; something that should be approached with suspicion or trepidation. A necessary evil [...]]]></description>
			<content:encoded><![CDATA[<p><img class="alignleft" src="http://www.beyondintractability.org/images/aha/Integrative_two-pies.jpg" alt="" width="260" height="108" />It seems there is never a simple negotiation.  The term &#8220;negotiation&#8221; itself connotes that the parties involved have differences of opinions and are sitting across the table from each other discussing positions and trade-offs.  Some even view negotiations as a pejorative euphemism &#8211; something that should be approached with suspicion or trepidation. A necessary evil that’s more like dueling fact sheets and head-to-head talking points by talking heads.</p>
<p>I believe the term &#8220;negotiation&#8221; itself is simply not good enough to describe what happens in the business and political arenas. In fact I’d say that the term negotiation should be banned altogether when you talk strategic outsourcing, and even more so for <a title="Vested Outsourcing" href="http://www.vestedoutsourcing.com/" target="_blank">Vested Outsourcing</a>. What you are really doing – or should be doing in the case of outsourcing agreements – is sitting on the <em>SAME</em> side of the table, working together to create a collaborative contract.</p>
<p>It’s not a contest of wills or positions or trying to one-up your prospective partner. It’s striving to achieve mutually beneficial outcomes over the long haul, in good times and bad.</p>
<p>The good news is that I am not alone in my thinking. There’s been quite a lot of thought leadership on this concept, with much of it traceable back 20 years or so to the influential book <a title="Getting to Yes on Amazon" href="http://www.amazon.com/Getting-Yes-Negotiating-Agreement-Without/dp/0140157352/ref=sr_1_1?ie=UTF8&amp;s=books&amp;qid=1278256193&amp;sr=8-1" target="_blank"><em>Getting to Yes</em> </a>by Roger Fisher and William L. Ury, which I talked about recently in the context of <a title="Getting to We Follows Getting to Yes" href="http://www.vestedoutsourcing.com/getting-to-we-follows-getting-to-yes/" target="_blank">Getting to We</a>.   Today&#8217;s thought leaders include <span style="background-color: #ffffff;"><a title="Brad Spengler" href="http://www.beyondintractability.org/action/author.jsp?id=24548" target="_blank">Brad Spengler</a> (2003 article <a title="Interest-based bargaining" href="http://www.beyondintractability.org/essay/interest-based_bargaining/">“Integrative or Interest-Based Bargaining</a>&#8220;)  and <a title="JNyden.com" href="http://www.jnyden.com/index.htm" target="_blank">Jeanette Nyden </a> <a title="Negotiation Rules" href="http://www.amazon.com/Negotiation-Rules-Practical-Guide-Deal/dp/0981800475" target="_blank"><em>(Negotation Rules!</em></a></span>) &#8211; who profess that organizations should collaborate to find a ‘win-win’ solution. Spengler and Nyden both teach that conventional &#8220;positional bargaining&#8221; &#8211; which is based on fixed viewpoints and tends to result in compromise that is often unsatisfactory, or no agreement at all &#8211; is old school. Instead both encourage parties to be  “joint problem solvers” with a common goal to achieve a wise decision; who work together; who focus on interests and not positions; who use fair principles; who insist on objective criteria and use reason and who look for the win-win.</p>
<p>Sound familiar? Take those valuable precepts out of the dispute resolution realm and apply them to strategic outsourcing. Integrate them with Vested Outsourcing’s <a title="Five Rules" href="http://www.vestedoutsourcing.com/category/5-rules/" target="_blank">Five Rules</a> of collaboration, trust and <a title="Laying the Foundation" href="http://www.vestedoutsourcing.com/laying-the-foundation-whats-in-it-for-we/" target="_blank">‘What’s in in it for We.’</a> Mix well with patience, flexibility, measurable outcomes and insight.</p>
<p>Voila! You’re not negotiating or bargaining, you’re collaborating together for the win-win where parties have a vested interest in each others success.</p>
<p>I love the teaching of Spengler and Nyden. The only flaw: I think they should change the name of what they call their teachings. Spengler calls his approach &#8220;interest-based bargaining&#8221; and Nyden refers to it as &#8220;interest-based negotiation rules.&#8221;  As stated above, the terms bargaining and negotiations simply don&#8217;t connote the proper meaning of their lessons.  A successful collaboration is about baking a bigger pie &#8211; not just about negotiation or bargaining over the existing one!</p>]]></content:encoded>
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		<title>Making Everyone Whole</title>
		<link>http://www.vestedoutsourcing.com/making-everyone-whole/</link>
		<comments>http://www.vestedoutsourcing.com/making-everyone-whole/#comments</comments>
		<pubDate>Thu, 08 Jul 2010 09:01:04 +0000</pubDate>
		<dc:creator>Kate Vitasek</dc:creator>
				<category><![CDATA[From the Blog]]></category>
		<category><![CDATA[5 Rules]]></category>
		<category><![CDATA[Lean]]></category>
		<category><![CDATA[Lean Enterprise Institute]]></category>
		<category><![CDATA[outsourcing]]></category>
		<category><![CDATA[vested outsourcing]]></category>

		<guid isPermaLink="false">http://www.vestedoutsourcing.com/?p=1617</guid>
		<description><![CDATA[I wanted to share some recent wisdom from Jim Womack, founder and chairman of the Lean Enterprise Institute, and a chief maven for the Lean concept. He sends out emails on a regular basis, and one in particular, “Making Everyone Whole” talks about the difficulty that organizations often experience in trying to create lean value [...]]]></description>
			<content:encoded><![CDATA[<p><img class="alignleft" src="http://4.bp.blogspot.com/_X4QtYA2Unoo/SJRovR0Qs1I/AAAAAAAADRM/OtNYJxBGhd8/s400/super-lean.jpg" alt="" width="240" height="180" />I wanted to share some recent wisdom from <a title="Jim Womack" href="mailto:&#x6a;&#x77;&#x6f;&#x6d;&#x61;&#x63;&#x6b;&#x40;&#x6c;&#x65;&#x61;&#x6e;&#x2e;&#x6f;rg" target="_blank">Jim Womack,</a> founder and chairman of the <a title="Lean Enterprise Institute" href="http://www.lean.org/" target="_blank">Lean Enterprise Institute</a>, and a chief maven for the Lean concept.</p>
<p>He sends out emails on a regular basis, and one in particular, “Making Everyone Whole” talks about the difficulty that organizations often experience in trying to create lean value streams.</p>
<p>After visiting various companies on three continents, Jim said, “Walking through any process, good or bad, seems to put a smile on my face for one of two reasons. If the process is awful it&#8217;s easy to see how it could be better. And, if it has already been significantly improved from its original condition, I&#8217;m both pleased by the progress and aware that the next layer of waste is now visible and ready for elimination.”</p>
<p>But he also found himself frowning in some cases: “This happened when I heard improvement teams complaining about the difficulty of gaining and sustaining the engagement and cooperation of everyone and every part of the organization touching the process being improved.”</p>
<p>It’s one thing to gain the initial buy-in, cooperation and collaboration that’s essential for a project; it’s quite another – and equally essential – to sustain those elements for the long haul.</p>
<p>As an example, he wrote that “on one walk through an information processing activity in a large service company, the team was complaining about the resistance of the company&#8217;s information technology department to substantially modifying the company-standard software package in order to support the improved process.</p>
<p>“In another case, a team was bemoaning the resistance of experienced financial service workers to sharing the details of how they worked their way around the problems in the existing process. In both cases I found the teams defaulting to the most comfortable explanation for the lack of engagement: Bad people.”</p>
<p>As Jim points out,  it’s not typically  “bad people” that cause the problem &#8211; it’s the natural and universal human resistance to change, and especially changes to processes or operations that affect people’s jobs and livelihoods.  He adds, “In fact, those affected are reacting quite rationally to protect their interests because they would be hurt by the changes.&#8221;   Jim points out the real problem is a lack of discussion and clear agreement between the heads of IT, HR, and the improvement teams about how winners could compensate losers to make everyone whole.”</p>
<p>Jim concludes with a very wise and in my opinion highly accurate statement. &#8220;My experience over many years is that making visible efforts to make everyone whole…is the best way to make and sustain big improvements in core processes.&#8221;</p>
<p>The <a title="Vested Outsourcing" href="http://www.vestedoutsourcing.com/" target="_blank">Vested Outsourcing</a> approach acknowledges that change in business, as in life, is inevitable and that collaborative and flexible relationship frameworks that build trust and plan for mutually beneficially outcomes by implementing the <a title="Five Rules" href="http://www.vestedoutsourcing.com/category/5-rules/" target="_blank">Five Rules</a> will minimize intransigence and blaming attitudes when change comes your way.</p>
<p>Incorporating the principles of focusing on outcomes, not transactions (<a title="Rule 1, Focus on outcomes, not transactions" href="http://www.vestedoutsourcing.com/rule-2-focus-on-outcomes/" target="_blank">Rule 1</a>) and focusing on the what, not the how (<a title="Rule 2, Focus on the What not the How" href="http://www.vestedoutsourcing.com/rule-2-focus-on-the-what-not-the-how/" target="_blank">Rule 2</a>) will give an organization and its people the mechanisms they need to adapt.</p>
<p>For many organizations, committing to Vested Outsourcing is a major change in and of itself that by default requires a mindset amenable to and accepting of change, a plan for coping with change and a ‘What’s in it for We’ approach when it occurs.</p>
<p>Or as Jim might say, “Making everyone whole.”</p>]]></content:encoded>
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		<title>Getting to We Follows Getting to Yes</title>
		<link>http://www.vestedoutsourcing.com/getting-to-we-follows-getting-to-yes/</link>
		<comments>http://www.vestedoutsourcing.com/getting-to-we-follows-getting-to-yes/#comments</comments>
		<pubDate>Tue, 06 Jul 2010 09:00:05 +0000</pubDate>
		<dc:creator>Kate Vitasek</dc:creator>
				<category><![CDATA[From the Blog]]></category>
		<category><![CDATA[5 Rules]]></category>
		<category><![CDATA[collaboration]]></category>
		<category><![CDATA[Getting to Yes]]></category>
		<category><![CDATA[Oliver Williamson]]></category>
		<category><![CDATA[outsourcing]]></category>
		<category><![CDATA[vested outsourcing]]></category>
		<category><![CDATA[win-win]]></category>

		<guid isPermaLink="false">http://www.vestedoutsourcing.com/?p=1609</guid>
		<description><![CDATA[Many of you probably remember the bestselling book Getting to Yes by Roger Fisher and William L. Ury, and its influential take on negotiation and cooperation. I’m thinking about this book today in a couple of respects. First,  it was published about 20 years ago at about the same time that modern outsourcing began to [...]]]></description>
			<content:encoded><![CDATA[<p><img class="alignleft" title="negotiation" src="http://www.clippercp.com/Negotiation%204.jpg" alt="" width="289" height="247" />Many of you probably remember the bestselling book <a title="Getting to Yes on Amazon" href="http://www.amazon.com/Getting-Yes-Negotiating-Agreement-Without/dp/0140157352/ref=sr_1_1?ie=UTF8&amp;s=books&amp;qid=1278256193&amp;sr=8-1" target="_blank"><em>Getting to Yes</em></a> by Roger Fisher and William L. Ury, and its influential take on negotiation and cooperation.</p>
<p>I’m thinking about this book today in a couple of respects. First,  it was published about 20 years ago at about the same time that modern outsourcing began to take off as an accepted business strategy. Some food for thought there it seems to me.</p>
<p>Second, after about two decades we&#8217;re still trying to find the best ways to negotiate and collaborate, and I think it’s fair to say that <a title="Vested Outsourcing" href="http://www.vestedoutsourcing.com/" target="_blank">Vested Outsourcing</a> and it’s collaborative approach to achieving the win-win and<a title="Laying the Foundation" href="http://www.vestedoutsourcing.com/laying-the-foundation-whats-in-it-for-we/" target="_blank"> ‘What’s in it for We’ </a>is in many respects a modern day updating of <em>Getting to Yes &#8211;</em> sort of a ‘Getting to We.’</p>
<p>The subtitle of <em>Getting to Yes</em>, “negotiating agreement without giving in” is not as harsh as it might imply or as the book’s message ultimately bears out.</p>
<p>The problem of reaching an agreement, according to the book, is that arguing about a position leads those involved to lock-in to their positions, leading to less than optimal agreements, or no agreements at all.</p>
<p>The authors talk about “hard” and “soft” positional bargaining – hard being to not give in, soft being to make concessions. Neither way of course is likely to produce an optimal agreement, because doing it the hard way can damage the relationship while acting softly will produce too many concessions.  This is very similar thinking to Dr. Oliver Williamson’s description of the “muscular” and “benign” approaches to contract negotiations, which I’ve talked about in <a title="A nobel laureate with undertones for Vested Outsourcing" href="http://www.vestedoutsourcing.com/a-nobel-laureate-with-undertones-for-vested-outsourcing/" target="_blank">previous posts</a>.</p>
<p>Playing nice will get you only so far; it’s just as important to be credible, flexible and hard-nosed when necessary.</p>
<p>Fisher and Ury suggest parties should negotiate on the merits of the problem, using principled negotiations while viewing the participants in a negotiation as problem solvers – not as friends or adversaries. They continue that the goal should be to achieve a “wise outcome” efficiently and amicably, not just to get an agreement or to win.</p>
<p>They also say: “Separate the people from the problem,” and “Be soft on the people and hard on the problem,” “Focus on interests not positions,” and “Invent options for mutual gain.”</p>
<p>Wise words from the past that are remarkably resonant today with Vested Outsourcing’s Five Rules and the need for credible contracting, such as focusing on outcomes (<a title="Rule 1, Focus on outcomes, not transactions" href="http://www.vestedoutsourcing.com/rule-2-focus-on-the-what-not-the-how/" target="_blank">Rule 1</a>), focusing on the what <a title="Rule 2, Focus on the What not the How" href="http://www.vestedoutsourcing.com/rule-2-focus-on-outcomes/" target="_blank">(Rule 2</a>) and agreeing on clearly defined and measurable outcomes (<a title="Rule 3, Agree on clearly defined and measurable outcomes" href="http://www.vestedoutsourcing.com/rule-3-agree-on-clearly-defined-and-measurable-outcomes/" target="_blank">Rule 3</a>) that produce mutual benefits and the win-win.</p>
<p>On that note. one of my favorite philosopher-bloggers,<a title="Seth Godin on winning" href="http://sethgodin.typepad.com/seths_blog/2010/06/winning.html" target="_blank"> Seth Grodin,</a> wrote about winning recently, and especially about what winning means as we mature as people and institutions.</p>
<p>For example, he writes, “A toddler wants what she wants, <em>now</em>. That&#8217;s a win. A little later, when we&#8217;re more mature, we might define winning as getting what we want at the expense of someone else.”</p>
<p>Godin continues: “What happens when you define a win as getting closer to someone who wants the same thing? Or when you define it as improvement over time? Or in creating trust?</p>
<p>“What if the win is the ability to give a true gift?”</p>
<p>Is there any need to answer those questions?</p>]]></content:encoded>
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		<title>Cut If You Must, But Do it Credibly</title>
		<link>http://www.vestedoutsourcing.com/cut-if-you-must-but-do-it-credibly/</link>
		<comments>http://www.vestedoutsourcing.com/cut-if-you-must-but-do-it-credibly/#comments</comments>
		<pubDate>Thu, 01 Jul 2010 09:00:15 +0000</pubDate>
		<dc:creator>Kate Vitasek</dc:creator>
				<category><![CDATA[From the Blog]]></category>
		<category><![CDATA[5 Rules]]></category>
		<category><![CDATA[collaboration]]></category>
		<category><![CDATA[cost-cutting]]></category>
		<category><![CDATA[McKinsey Group]]></category>
		<category><![CDATA[vested outsourcing]]></category>

		<guid isPermaLink="false">http://www.vestedoutsourcing.com/?p=1599</guid>
		<description><![CDATA[I was reading the Harvard Business Review&#8217;s Daily Stat and discovered that a mere 10 percent of cost-reduction programs sustain their results after three years, according to research from McKinsey. Sometimes there’s no accounting for cost-accounting when it doesn’t really account for all the costs involved in an enterprise. That can really stress complex supply [...]]]></description>
			<content:encoded><![CDATA[<p><img class="alignleft" title="cuts" src="http://thenonconsumeradvocate.files.wordpress.com/2008/09/cut-cost-save-money.jpg" alt="" width="206" height="210" />I was reading the Harvard Business Review&#8217;s Daily Stat and discovered that a mere 10 percent of cost-reduction programs sustain their results after three years, according to research from McKinsey.</p>
<p>Sometimes there’s no accounting for cost-accounting when it doesn’t really account for all the costs involved in an enterprise. That can really stress complex supply chain and outsourcing relationships, where cost and financial information is often not very transparent or willingly shared and when costs need to be examined and reduced.</p>
<p>A recent <a title="Five ways CFOs can make cost cuts stick" href="https://www.mckinseyquarterly.com/Corporate_Finance/Performance/Five_ways_CFOs_can_make_cost_cuts_stick_2597?gp=1" target="_blank">article</a> from McKinsey Group’s Corporate Finance Practice says that even apparently successful cost-cutting exercises can erode over time. But the group outlines ways – five to be exact – to make cuts stick.</p>
<p>According to the article, while there is optimism that a “solid economic recovery is taking hold around the world,” don’t expect the cost cutting that was so prevalent during the recession to soon go away as a strategic priority. In fact “the number of executives reporting steps to reduce operating costs in the next 12 months increased significantly between February and April, even as confidence in the economy grew,” McKinsey says.</p>
<p>But even as they plan new cost cuts these same executives know that “any successes companies have at cutting costs during the downturn will erode with time. Many executives expect some proportion of the costs cut during the recent recession to return within 12 to 18 months — and prior research found that only 10 percent of cost reduction programs show sustained results three years later.”</p>
<p>Programs started in the early months of the downturn “are already beginning to fail,” McKinsey continues.</p>
<p>Why is it so hard to make cost cut stick? Several factors come into play: “In most cases, it’s because reduction programs don’t address the true drivers of costs or are simply too difficult to maintain over time.</p>
<p>“Sometimes, managers lack deep enough insight into their own operations to set useful cost reduction targets.”</p>
<p>In other cases, business unit leaders try to meet targets “with draconian measures that are unrealistic over the long term, such as across-the-board cuts that don’t differentiate between those that add value or destroy it.” Or, the article continues, managers use inaccurate or incomplete data to track costs, thus missing important opportunities and confounding efforts to ensure accountability.</p>
<p>McKinsey describes methods to make cuts stick:</p>
<p>-          Assign accountability at the right level</p>
<p>-          Focus on <em>how</em> to cut, not just <em>how much</em></p>
<p>-          Don’t let P&amp;L accounting data get in the way of cost reduction</p>
<p>-          Clearly articulate the link between cost management and strategy</p>
<p>-          Treat cost management as an ongoing exercise</p>
<p>As I read these it occurred to me that implementing <a title="Vested Outsourcing" href="http://www.vestedoutsourcing.com/" target="_blank">Vested Outsourcing </a>model, along with the <a title="Five Rules" href="http://www.vestedoutsourcing.com/category/5-rules/" target="_blank">Five Rules</a> would be a great service in providing the insights required for executives to know what is driving costs in the first place and then to understand their operations more clearly when setting their cutting goals. That’s right out of Rule 5 – establishing a governance structure that provides insight, not just oversight.</p>
<p>In fact those “sticking points” that McKinsey mentions merge well with the Rules. For example, ‘assigning accountability’ tracks focusing on outcomes not transactions (<a title="Rule 1, Focus on outcomes, not transactions" href="http://www.vestedoutsourcing.com/rule-2-focus-on-the-what-not-the-how/" target="_blank">Rule 1</a>) while focusing on ‘how to cut, not just how much’ naturally leads into the vested tenet to focus on the what (<a title="Rule 2, Focus on the What not the How" href="http://www.vestedoutsourcing.com/rule-2-focus-on-the-what-not-the-how/" target="_blank">Rule 2</a>). And ‘articulating the link between cost management and strategy’ is helped along by agreeing on clearly defined and measurable outcomes in the first place (<a title="Rule 3, Agree on clearly defined and measurable outcomes" href="http://www.vestedoutsourcing.com/rule-3-agree-on-clearly-defined-and-measurable-outcomes/">Rule 3</a>) and by optimizing pricing model incentives (<a title="Rule 4, Optimize pricing model incentives" href="http://www.vestedoutsourcing.com/rule-4-optimize-pricing-model-incentives/" target="_blank">Rule 4</a>).</p>
<p>Of course Vested Outsourcing is about collaborating for mutual success and the win-win rather than achieving cost cuts, but isn’t it easier to save money and avoid the need for cuts in the long run when collaborating, measuring and reviewing for mutually beneficial outcomes, rather than just arbitrarily deciding to lop people or services one fine day?</p>
<p>The point is that draconian cutting would not be credible or even needed in a vested relationship.</p>]]></content:encoded>
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