I think  Manuel “Matty” Moroun, the billionaire owner of Detroit’s Ambassador Bridge, might be wishing that he used the Vested approach for his Detroit bridge as he was sentenced to jail time for missing deadlines on a construction project.

The Moroun case involves a dispute between Michigan’s Department of Transportation and the Detroit International Bridge Co. The Department sued DIBC in 2009, alleging that Moroun’s company reneged on a contract to improve freeway connections to the Ambassador Bridge. Wayne County Circuit Court Judge Prentis Edwards recently ordered Moroun and Dan Stamper, an executive with DIBC, to jail for failing to comply with court ordered deadlines.

While an extreme example, the Moroun case underscores what many face in the construction industry: the difficulty of consistently completing projects on time and on budget.

A project that runs on court-ordered deadlines has some serious flaws in terms of planning, governance and collaboration. There is a better, more collaborative way to get the job done without people winding up in jail—the Vested way.

It so happens that there is a great example of a highly innovative and successful bridge project in a neighboring state that’s a perfect counterpoint to the Ambassador Bridge fiasco.

The St. Anthony Falls bridge replacement project in Minnesota is powerful proof that a collaborative, innovative—and incentive-laden—approach to solving difficult problems will most often result in huge success.

I wrote about the bridge project in late 2010 in this space, but in brief, the St. Anthony Falls Bridge in Minneapolis, the major Interstate I-35 artery across the Mississippi River, collapsed on August 1, 2007, killing 13 people and injuring 145. It was essential to rebuild the bridge quickly; the initial estimate was that a bridge rebuilding project of this magnitude would take three years to complete. When then-Gov. Tim Pawlenty said he wanted the bridge rebuilt within 17 months many experts asserted that was impossible.

As it turned out, the governor was wrong: it took less than 14 months to rebuild it; the 10-lane 504-foot bridge opened to traffic on September 18, 2008.

The Minnesota Department of Transportation teamed with Flatiron Constructors and Manson Construction, using a design by Figg Engineering, for the rebuild project.

Completing the $234 million project three months ahead of schedule would not have been possible without a high degree of innovation and teamwork in construction and project management techniques. The construction team cut more than three months off the December 24 deadline, earning performance incentive bonuses that totaled about $27 million.

The achievement was made possible by adhering to the collaborative, flexible and outcome-based contracting principles embodied in Vested Outsourcing.

You can read the details on the St. Anthony Falls project in a 56-page case study available here.

A Vested agreement forges the kind of partnerships that have the power to deliver transformational results and solve real problems—like aligning and collaborating with construction contractors to build a bridge in record time and turn tragedy into triumph.

And by the way, it can keep you out of the slammer!

According to ISM, a mini-trial is a contract dispute resolution process “in which each party, usually through its attorney, presents its legal arguments to senior management of the other party where such management has authority to settle the matter; an independent third party may be present and intervene if the parties cannot reach a settlement agreement.”

That sounds pretty cumbersome and well, a little too legalistic when parties feel they must bring in lawyers for a de facto trial. A mini-trial seems like a premature escalation of matters and the sort of activity that should occur when all other avenues have failed.

There is a better and more layered approach to dispute resolution that’s described in The Vested Outsourcing Manual.

Why not create a Vested governance structure that employs a process for managing disputes (and ideas)?

Chapter 7 of the Manual says the Vested governance framework should include a proactive problem-solving and dispute resolution process. By proactive problem solving, I mean a process for channeling problems in a constructive and meaningful way. The idea is to embed a formal problem-solving process into the outsourcing or business agreement that creates a sense of accountability to solve problems in a timely manner using an agreed-upon escalation and decision process. This approach prevents parties from ignoring problems until they get to the point where intervention is needed, such as third-party arbitration or litigation. It’s important to collaboratively establish a clear problem-solving process early-on in the relationship.

Many issues can usually be handled at the day-to-day level of implementation and communication. But because business and events tend to happen with great frequency, problems probably will arise that require internal escalation. In that case establish a problem-solving procedure that employs three components—identifying the situation, determining the situation’s degree of urgency and resolution of the situation.

For example there might be four escalating levels to describe the situation: issue, concern, problem, conflict and finally breach of contract. Each level would carry with it the definition of the degree/impact of the situation and the best way to resolve it.

This cooperative approach allows you to keep the lawyers—and some quasi-legal exercise—at bay for as long as possible. It seems to me that if you have a good business case, a problem-solving procedure and a good board of advisors you won’t need to have a mini-trial.

ISM posts a different Term of the Day on its home page every day, taken from the ISM Glossary of Key Supply Management Terms.

I’m thinking that Vested should have a place in that glossary!

This is the time of year for trend lists and predictions. Usually they are mostly wrong or well, predictable. There are some that are worth paying attention to however. One is the International Association of Outsourcing Professionals’ Top Outsourcing Trends for 2012.

For instance, IAOP says we should watch out for more M&As and consolidation “as providers struggle with tight access to capital and to meet growth expectations given the uncertain economic and political situation worldwide.”

IAOP also says to expect sourcing close to home as “higher unemployment, economically blighted urban areas and local government incentives will drive more companies to stay on shore, especially in the U.S. Nearshoring, rural sourcing and domestic sourcing will be on the rise.”

But also watch for a surge of the BRIC nations as outsourcing destinations, especially Brazil.

It occurs to me that those cover-the-base trends have appeared on various year-end lists for several years now. They are pretty much continuing trends since the Great Recession.

But what really got my attention was when IAOP talked about “collaborative and strategic” trends. It said that models “where customers and service providers work collaboratively to develop performance-based partnerships will be increasingly used.”

Yes! The need for collaboration became a top topic for discussion in 2011 and maybe it reaches critical mass—can you say Vested Outsourcing?—in 2012.

Collaboration pops up again when IAOP talks about technology convergence: “The convergence of social networking, collaboration and mobility platforms will create a significant demand for value-added outsourcing services.”

So however you think about it—collaborative sustainability, or sustainable collaboration—I’m betting that 2012 will be a watershed year for collaborative outsourcing.

And, in my humble opinion, the Vested Outsourcing model is on time and positioned to help lead the charge to a more collaborative, sustainable and long-term win-win outsourcing environment. There are two Vested books—and another on the way—that present a comprehensive program and framework for achieving the long-term win-win in this difficult global business environment in a new, flexible and innovative way.

I hope your New Year’s resolution is to get Vested with your most strategic business partners in 2012!

Happy New Year!

Tim Cummins, CEO of the International Association for Contract & Commercial Management (IACCM), expressed that thought in a recent Commitment Matters blog post about the need for a rebalancing of contract terms, especially in the area of risk allocation.

“The unfairness of risk allocation in contracts is one I have encountered many times during discussions in recent weeks,” he writes. “There is a feeling that large corporations and major public sector bodies have become more risk averse and have used current economic conditions to exert their strength – liabilities, indemnities, IP rights, termination provisions, performance criteria and (in the corporate sector) payment terms have been areas of focus.”

These same organizations “think nothing of using their power to force unilateral renegotiation when conditions change,” Tim continues. “Overall, I think things have become worse.”

There’s a persistent belief that harsh, muscular terms will drive performance. For complicated or long-term relationships, “all the evidence points the other way … unfairness undermines loyalty and commitment, leading to poorer outcomes and therefore added risk.”

Recognition of this problem goes back more than 40 years. In 1968 the legal scholar Ian R. Macneil observed that most contracts are ill-equipped to address the reality of business needs. In Contracts: Instruments for Social Cooperation, he wrote that contracts are rooted in the classical approach to contract law and thus crafted to address transactions and legal protections such as pricing and price changes, service levels, limitation of liability, indemnification and liquidated damages.

Macneil was instrumental in developing a wider view of the contract, called relational contract theory. He contended that business-to-business contracts should be “instruments for social cooperation,” adding that contracts can be “governed efficiently only if the parties adopt a consciously cooperative attitude.” He said that contracts are rooted in relationships and activities that have a large context, rather than as the discrete transactions prescribed in a contract.

Macneil challenged lawyers to rethink their approach to business-to-business agreements and criticized the classic approaches to contract law.

That rethinking really has not occurred in a comprehensive way. An April 2010 study by the IACCM concluded that contract terms remain mired in the classical legal approach of contract law, focusing almost exclusively and hierarchically on pricing, limiting liability, indemnification, service and transaction levels, risk mitigation, and liquidated damages.

Though Tim says things are worse he also sees some light end of the tunnel. “I have the impression that an increasing number of organizations are starting to question their approach. This is leading to a number who have renounced liquidated damages; some who are questioning how they can be more intelligent in protecting (and exploiting IP); others who are looking for shared approaches to governance through better change provisions, escalation procedures and added flexibility through mechanisms such as ‘hardship clauses’. I believe the door is opening for those suppliers who engage early and demonstrate their capabilities and commitment to deliver.”

The Vested Outsourcing Manual addresses this longstanding contracting problem by changing the way companies and service providers interact. Job one is collaboration and a non-adversarial mindset in which the parties sit with each other at the conference table and jointly discuss their intentions, objectives and Desired Outcomes before they think about final contract terms.

I heartily agree with Tim that “relationships that extend beyond a few transactions will always depend on trust and cooperation. Failure to establish and sustain these characteristics will always result in degraded performance and missed opportunities.”

A Vested Outsourcing partnership is based on trust, cooperation and contracts that are real, sustainable and aligned for the long-term win-win.

It’s a great song with a great beat and melody but this is a progressive rock anthem where the words and the message take center stage.

Chris Martin, the band’s lead vocalist, sings about the arrogance that’s always a prelude to a fall: “I used to rule the world/Seas would rise when I gave the word/Now in the morning I sleep alone/Sweep the streets I used to own.”

Those words make me think about the recent economic and financial catastrophes we’ve lived though. Many of the self-styled, supposedly invulnerable “masters of the universe” on Wall Street fell pretty hard – their overwhelming arrogance and greed blew up and brought the economy to its knees. I also think about the Occupy Wall Street movement that is a direct result of their overreach; or as the song continues: “Revolutionaries wait/For my head on a silver plate/Just a puppet on a lonely string/Oh who would ever want to be king?”

The arrogance is finally gone with this self-reflective lament: “For some reason I can’t explain/I know Saint Peter won’t call my name/Never an honest word/But that was when I ruled the world.”

“Never an honest word.” How many people and businesses could that refrain apply to? Probably far too many or it wouldn’t be worth singing about.

It’s never too late for self-analysis and retrenchment once the self-reproach ends.

The starting point for a Vested Outsourcing partnership begins where the message of “Viva La Vida” ends – in trust, honesty, collaboration and mutual respect. The Vested approach is about knowing the business at hand along with mutual planning to achieve the win-win—not ruling the outsourcing world.

And the Vested relationship also means leaving dishonesty and arrogance at the door.

Joseph E. Stiglitz, a professor at Columbia University, received the 2001 Nobel Prize (with George A. Akerlof and A. Michael Spence) for his analysis into how markets work with asymmetrical information. Since then, Stiglitz has written and lectured extensively about globalization and markets with this unsettling message: they aren’t working very well, especially in the context of the new realities of the twenty-first century.

Stiglitz expressed concerns about how businesses and organizations approach globalization well before the 2008 global economic and financial meltdown. His books on globalization, including Globalization and Its Discontents (2002) and Making Globalization Work (2006) were highly prescient. His most recent book, Freefall (2010), recounts the events of the 2008 economic collapse and how its effects still persist.

In a 2006 lecture on globalization Stiglitz said, “Something is wrong with the way globalization is turning out. It has not lived up to its promises, and the question is what to do about it.”

Stiglitz pointed to a critical flaw: “The global financial system is not working the way it ought to. Ordinary laws of physics say that water ought to flow downhill. The parallel in economics is that money is supposed to flow from rich countries to poor countries, and risk is supposed to be transferred from the poor, who are least able to bear it, to the rich. But in the world today, things are moving in the opposite direction. To be precise, for the last several years, money has been going from the poor countries to the rich – the net flow of funds is going in the opposite direction of the way it should.”

He continued: “Meanwhile, the poorest countries in the world are left to bear the risks of interest rate and exchange rate volatility. The result of this has been that, in spite of the fact that economists know a lot more about how to manage an economy today than they did fifty years ago, there have been more than a hundred crises in the last three decades.”

That’s a major flaw all right and there is much that outsource practitioners should heed in Stiglitz’s words—especially as they relate to supply chain sustainability. Globalization is not possible without sustainable, efficient supply chains and outsourcing arrangements, and vice-versa.

It’s no surprise that globalization has meant that we have become more integrated and more interdependent. While globalization brings much value, it also poses challenges in how we need to think (and rethink) existing approaches to globalization around intellectual property, trade, global financial markets, natural resources and the environment.

Stiglitz—like my fellow researchers at the University of Tennessee working with me on Vested Outsourcing—says that countries and businesses should move away from the old-school win-lose strategies aimed at rewarding some at the expense of others because it is an inherently unsustainable model.

In Freefall, Stiglitz points out that The Great Recession and its aftermath “is forcing us to rethink cherished views.” He asserts, “The issue is not whether globalization is going to change; globalization will change. The current system simply cannot continue.”

OK, but what is the answer? Stiglitz advocates for more collaboration and win-win approaches. “Greater inter-dependence means that we have to act together; we have, as economists would say, extra responsibilities which mean that we have more need to act cooperatively.”

The most successful outsourcing relationships revolve around collaborative rather than selfish or muscular me-first relationships. You don’t have to be an economic scientist to see that institutions and governments have not set very good examples on cooperation and collaboration. So without a true collaborative mindset from institutions and governments, it is very difficult to instill those qualities as a default top-down mindset in the globalized outsourcing, business and finance arenas.

That’s where the Vested approach can drive the needed change.

I’m confident that the collaborative Vested framework will help lead the way to achieving the win-win relationships that will leverage the skills and expertise inherent in collaborative partnerships and alliances to create a long-term strategic template for success.

That’s because the Vested model leverages the best aspects of human relationships—collaboration, flexibility, honesty, innovation and open communication—into the outsource business relationship. Those are precisely the qualities that will make globalization and capitalism work—or at least work better—for everyone.

Business relationships obviously are based on economic assumptions and expectations, but they are also based on the human perceptions and biases we bring to the table. And that’s where we can go wrong.

Daniel Gilbert, a Harvard professor of psychology, is a social psychologist who focuses on the nature of perception, belief, forecasting and cognitive biases on our lives.

Gilbert challenges the common wisdom that people will be miserable if they don’t get what they want. His findings?  People have a “psychological immune system” that lets them feel happy even when things don’t go as planned.

In his  (2006), Gilbert observes that people imagine the future poorly, in particular , they are inaccurate about estimating what will make them happy, or successful or rich or whatever.

He argues that imagination fails in various ways – especially when it comes to predicting the impact of success  or failure. Gilbert calls this concept the “psychological immune system” because it allows us to adjust to events by making bad things feel not as bad as when they were first imagined.

Gilbert humorously gives an analogy of how his concept works with assistant professors that did not get tenure. In his research, Gilbert asked assistant professors who were being evaluated for tenure how they would feel six months after they found out if they had or had not received tenure. Unsurprisingly, the professors predicted that they would be happier if they got tenure than if they did not. Now here is the twist – and the heart of his research. In follow-up surveys six months after the tenure decision professors didn’t report feeling any happier if they had received tenure than if they had been denied tenure. They adjusted and got on with their lives. Thus the professors exhibited a psychological immune system because even what appeared to be a devastating blow to their careers did not have a huge effect on their life satisfaction.

Entertaining and articulate, Gilbert concludes that “happiness can be synthesized.” He suggests that “synthetic happiness is every bit as real and enduring as the kind of happiness you stumble upon when you get exactly what you were aiming for.”

The lesson for the outsourcing arena is twofold.

First, companies should embrace the concept of contracts as flexible frameworks and build relationships with suppliers that can rise to the occasion of looking at adversity squarely and making the best of it in a fair manner. Old school thinking is to shift risk. Today’s businesses should realize that “business happens;” they should focus their energy on adapting to situations as they develop rather than trying to shift blame and risk to the other party just because their lawyers were better than their counterparts at the negotiating table.

Second, suppliers need not be afraid of failure or innovation. There are (and always will be) elements that color and impact success or failure in the business and outsourcing world.

I submit that Vested Outsourcing creates sound governance conditions through collaboration and communication that result in realistic and flexible expectations and Desired Outcomes based on understanding the business and avoiding false perceptions or biases—which by the way are nicely summarized by the 10 Ailments.

Many of the mistakes we make when outsourcing stem from a failure to recognize and account for the psychology that surrounds decision-making. Then businesses compound the problem by using poor judgment when reacting to the results of those decisions.

Psychologist Thomas D. Gilovich (born 1954) is a professor of psychology at Cornell University who has researched decision-making and behavioral economics. He has written popular books on those subjects, including perhaps his most famous, Why Smart People Make Big Money Mistakes.

Gilovich focuses on subjects such as “causal attribution,” prospect theory, judgment and decision making, which are part of the growing body of research based on behavioral economics.  It may seem like a mouthful, but in a nutshell Gilovich’s work provides insights that help individuals and businesses overcome the blind spots that can cloud financial decisions.

It’s said that economics is a science that tries to explain how money behaves if everyone is making rational financial decisions. Behavioral economics is a relatively new science that recognizes we don’t always make rational decisions. It helps explain how people and organizations behave around money, which in turn, can help avoid unwise financial and business moves.

I like Gilovich’s work because some 15 years ago he put his finger on the need for less self-interest and more cooperation in business and financial situations. His lessons are just as relevant today and are directly addressed with Vested Outsourcing.

The aptness of Gilovich’s thinking in terms of collaborative outsourcing is illustrated in an entertaining early article that he wrote with Robert H. Frank and Dennis T. Regan, “Do Economists Make Bad Citizens?” (in the Journal of Economic Perspectives, Vol. 10. No. 1, Winter 1996).  The answer to the question, while not necessarily a slam-dunk, leans to yes.

The article concludes: “Economics training encourages the view that people are motivated primarily by self-interest. Second, there is clear evidence that this view leads people to expect others to defect in social dilemmas…(and) third, there is also clear evidence that when people expect their partners to defect in social dilemmas, they are overwhelmingly likely to defect themselves.

“The logical implications of these three points appear to place a heavy burden of proof on those who insist that economics training does not inhibit cooperation.”

The Vested Outsourcing Manual notes that the study of behavioral economics is evolving more broadly into the concept of relational economics, which says that economic value can expand through positive, collaborative relationship—or win-win—thinking rather than adversarial relationships.

The Vested Outsourcing approach to outsource relationships is firmly grounded in the ideas and research of behavioral economics and Gilovich is a pioneer in the field.  His work is based on making informed, collaborative decisions that avoid what I call the Ten Ailments that drive perverse behaviors and that can disrupt or derail an outsource deal. You can see how psychologically reactive the ailments are and how they are based on bad individual or group decisions, such as “sandbagging,” (Ailment 6), “driving blind,” (Ailment 8) or “the power of not doing” (Ailment 10), to name only three.

Abraham Maslow (1908-1970), a founding father of humanistic psychology, has more to do with outsourcing than you might think. He is famous for his breakthrough work on the “hierarchy of needs,” featured in his book: Toward a Psychology of Being.

His premise was simple, yet profound: human beings are motivated by unsatisfied needs, and certain lower needs must be satisfied before higher needs can be addressed. He laid this out in his hierarchy of needs pyramid, which starts with physiological needs at the base, then up to safety needs, social needs and esteem needs. Fulfilling those needs leads to self-actualization; they have to be fulfilled before a person is able to act unselfishly.

The application of this progression for businesses, workplaces and in a collaborative outsourcing environment is clear. First, let’s consider the concept of Desired Outcomes.  Most business – like people – have desires. A desire is something a business wants, but does not have. An outcome is a business result.

Desired Outcomes are at the top of a company’s needs pyramid when it comes to the decision to outsource.  They want real results, whether it’s cost savings, service improvements, market share, or innovations such as business product or process improvements. Call Desired Outcomes the self-actualization stage for a business.

But in order to get to the top of the pyramid, companies—like people—need to take care of the basics. This is where pricing comes in. Pricing is at the base of the pyramid when it comes to service providers and suppliers.

Not enough profit?  It’s pretty much for sure the client won’t be getting a green scorecard—let alone attain their coveted Desired Outcomes.  A supplier can’t possibly help their client solve complex business problems if they are not at least covering their basic costs (unless of course they have deep pockets and a Board of Directors that doesn’t care about making money).

In the middle of the pyramid for businesses that outsource is the need to achieve agreed upon service levels. Our work at the University of Tennessee has shown that in order to move to a Vested Outsourcing agreement, most companies need to feel comfortable that their service provider can block and tackle on the basics of getting the job done.

Maslow also said, “What is necessary to change a person is to change his awareness of himself.” That’s true for businesses also, for what is necessary to change a business is to change its awareness of itself.

I believe The Vested Outsourcing Manual is an engine for that change. Its hierarchy of steps provides a platform that guides companies and service providers to collaborative and trusting partnerships that understand and fulfill the joint needs of the enterprise.

Vested Outsourcing makes sense both from a humanistic and business perspective. That’s because, as Maslow said, “If you only have a hammer, you tend to see every problem as a nail.” It’s not possible to share value with that mindset. The Vested model puts that hammer aside in favor of a much gentler, innovative and comprehensive toolkit.

Wayne Dyer

In a very real sense this highly aphoristic spiritual guru and author of more than 30 books has a lot to say about the business and outsourcing mindset.

Much of what Dyer says boils down to knowing and trusting yourself, accepting yourself and in his words, making yourself “available for success.” Those are important guideposts in the business arena as well.

One of his most famous books, The Power of Intention (2005) is used by students and workers to further their careers and businesses. Dyer holds a Doctorate in Educational Counseling from Wayne State University and was an associate professor at St. John’s University in New York.

Intention is often described as a fierce determination propelling one to succeed at all costs by never giving up on an inner picture. In this view, an attitude that combines hard work with an indefatigable drive toward excellence is the way to succeed.

Dyer says there’s more to it than that. For him intention is a force that allows the act of creation to take place. His book explores intention—not necessarily as something you do, but as a form of energy that’s actualized and controlled through creativity, expansion, receptivity and kindness.

Well, I did mention that there’s a lot of the spiritual and metaphysical in Dyer’s teaching! But to bring this back to Earth and Vested Outsourcing, the Vested approach is based on creative collaboration and trust, receptiveness to change, expansion through innovation and incentives, and kindness by “playing nice.”

And one of the first things that outsourcing teams do as they establish a Vested relationship is to jointly draft a Shared Vision and then distill that vision in a joint Statement of Intent. These are the necessary building blocks of a Vested agreement, setting the larger guiding principles for the relationship.

The parties at this point understand the business at hand and align their objectives for the work ahead. But sharing intentions is not easy and requires a flexible and receptive mindset. The Statement of Intent builds the foundation for the agreement to go forward by defining how the parties will work together under the agreement and how they will behave once the agreement is documented.

The elements that go into crafting the Shared Vision and Statement of Intent are detailed in The Vested Outsourcing Manual.

It’s not quite a spiritual or metaphysical process, but the Vested approach and Statement of Intent does create the spirit and energy that drives the Vested partnership and makes it “available for success,” or as I call it, “getting to we” for the win-win.