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!

Priceberg

Adjusting to the Vested Outsourcing business model requires a major change in thinking and approach to total costs, pricing and value in the outsource relationship.

Moving away from the conventional and quick-fix focus on price to a shared value and collaborative mind-set that might even involve leaving money on the table is a difficult concept to grasp and frankly a major leap for many. But it is a hallmark of the Vested approach and ecosystem.

Luckily there is help on the price vs. value and Total Cost of Ownership (TCO) issue in the form of a recent paper (available for download from the IACCM library) and presentation from SKF Group, a global supplier of products, solutions and services within rolling bearings, seals, mechatronics, services and lubrication systems. The basic message of Todd C. Snelgrove, SKF’s General Manager, Value, in “The way to drive real sustainable profit to the bottom line,” is that “It’s not how little you pay, it’s how much get.”

In a nutshell that’s the basic difference and tension between  price and value.

In The Vested Outsourcing Manual, set for publication June by Palgrave Macmillan, TCO is defined as the foundation for any Best Value decisions that need to be made. A TCO analysis includes determining the direct and indirect cost of an acquisition and operational costs. TCO’s purpose is to help make clear and comprehensive decisions when it comes to pricing.

When companies and service providers collaborate to create value rather than haggle and squeeze each other on pricing, the pie automatically will become bigger; there is more to go around.

As clearly shown in the “priceberg” illustration, price is a small part of the total picture; many hidden costs of ownership lurk beneath the surface and can punch major holes in a deal if they are overlooked.

“Unfortunately, the spirit of joint effort for joint benefits is rarely the buyer-seller modus operandi,” writes Snelgrove.

Buying on total cost, or TCO, has become an often-used industry mantra in the last decade. But widespread implementation of the concept, which actually dates back to the 1950s, is another matter.

Snelgrove says a 2007 study by Strategic Account Management (SAMA) found that customers rank Total Cost of Ownership nearly two times as critical as price. “Purchasers are beginning to realize that price is just one sub-component of TCO.”

When the supplier-customer relationship is seen as a true partnership, he continues, “the supplier will be motivated to spend these limited resources with partners, not customers who haggle over price.

“In place of ‘squeezing’ suppliers for lower material or component prices, companies are now looking to partner with a select few suppliers who have the expertise to look at the complete picture.” The value of these improvements can add substantially to the bottom line—much more than the relatively small gains from price concessions, he adds.

Those words mesh well with the Vested model.

The Vested approach goes beyond simple cost-slashing to make a deal by examining all hidden costs, and embracing an ecosystem of value initiatives, innovation and incentives that base the payoff on created value.

Companies that use a Vested Outsourcing approach do not spend much time talking about how a business model can give their service providers the opportunity to make more money. They focus instead on how the model delivers better value or better performance at the same or lower total overall lifecycle cost.

The lesson for outsourcing is clear, as clear the need to navigate around the priceberg: Cooperate and base pricing decisions on TCO and value. That means documenting total costs transparently and from an end-to-end perspective by capturing and understanding the costs of the service provider and the company.

Given the history of compensation over the several decades, the answer from the executive suite would of course be “Never!”

But another view is emerging, as highlighted by Vivek Wadhwa in a viewpoint column last week for Bloomberg Businessweek, “How to Fix Oversize Executive Compensation.”

Wadhwa is a visiting scholar at University of California-Berkeley, senior research associate at Harvard Law School, and director of research at the Center for Entrepreneurship and Research Commercialization at Duke University.

He notes that over the past 30 years the earnings of American workers has not kept pace with U.S. productivity growth. Meanwhile the earnings of corporate executives exploded.

Those who defend the explosion in executive compensation—and you know who you are—argue that executives deserve their princely salaries, stock options and bonuses because they make the most significant contributions to their companies’ success. Recent economic and financial history has shaken that idea, and now there’s evidence that the justification was hot air.

Wadhwa writes about a study from the National Bureau of Economic Research, a part of its Shared Capitalism Research Project, showing that “distributing rewards across the corporation—sharing them with workers—is the most efficient way of making businesses more successful. Motivated employees are more productive and spur innovation in products and processes.”

The Shared Capitalism Project has been around for about 10 years. According to Wadhwa, Harvard economist Richard Freeman, Rutgers sociologist Joseph Blasi, and Rutgers economist Douglas Kruse analyzed data from surveys of 41,206 employees at 323 work sites. They found that nearly half the employees of American corporations participate in some form of profit-sharing or stock-option plans, or what they call “shared capitalism.” The researchers found that shared capitalism improves company performance, improves worker well-being and complements other policies.

Incentives are an integral and necessary part of the Vested Outsourcing business model. It’s impossible to have a shared vision and collaborative framework without loyalty, trust and reward for hard work, innovation and participation in decision-making.

“It is no surprise that when workers share in the rewards, they are more likely to be committed to a company’s success,” Wadhwa says. “You would also expect workers to be happier when they have more responsibility and less supervision, as the researchers found.”

A great example of this collaborative, shared reward approach occurred with the closure and cleanup of the contaminated nuclear waste site at Rocky Flats, where plutonium triggers were manufactured for nearly 50 years. In an early and highly successful example of incentive-driven and performance-based contracting with the Department of Energy, CH2M Hill earned three times the average margins of usual DOE deals—all based on bonus money—by exceeding performance and reducing costs to DOE. CH2M Hill gave 20 percent of the incentive bonuses directly to the workforce. The result was that  CH2M Hill saved the DOE $30 billion and cleaned up Rocky Flats some 60 years ahead of the original cleanup schedule estimate.

Wadhwa says there is zero evidence that awarding grandiose executive incentives have caused the U.S. economy to perform better. “Instead, as we have seen with the demise of Enron and other companies—and the near collapse of our economic system—enormous payouts encourage risky behavior and lead managers to game the system.”

Freeman, Blasi, and Kruse suggest that tweaking the tax code can stop that type of game: allow executives to deduct incentive pay as a cost of business only if they offer the same incentive program to all workers.

“In other words, don’t give tax breaks to companies that provide stock options and bonuses to only a few executives. This would correct a major loophole in the tax system with which corporate executives have been enriching themselves at the expense of their stockholders and taxpayers.”

This is not an extreme idea; the same approach applies to pension and health-care plans, which are deductible as a cost of business only when they cover every employee.

So yes close that loophole, but more importantly discover the benefits of sharing value, rewards and innovation by fostering a Vested, “What’s in it for We” mind-set throughout the organization.

And as much of a challenge the holidays present to all of us, nobody is “on the line” more than the big fella himself – good ol’ Santa. Think about it – he’s gotta be the ultimate outsource authority. As I shop for my five-year old this year, I can’t help but wonder how Santa’s operation fits in with Vested Outsourcing.

How he does he do it? First, he’s definitely got a clearly defined mutual Desired Outcome: Happy Children.

But jolly old Santa couldn’t do it without all of his outsourced partners. He starts out by creating collaborations with all those that have a vested interest in his success: Web sites, snail mail, Santa clones in shopping malls and television. Collectively, the world makes sure kids know Santa is listening. And then there are the parents who do the actual purchasing.   And, of course, companies like UPS just love pitching in to do their part to help out the parents.

Then there’s measurement. We’ve all seen the look on the face of the kid on Christmas morning after getting what he wanted!   It’s the happy child thing again and it’s really easy to measure.

Austin gets The Pony

Of course, incentives play a key role as well.

It’s important to note that incentives don’t have to just be about money. For the kids, there’s the incentive to be good all year. Parents appreciate the help they get with discipline because, “Remember, Johnny, Santa is watching…and keeping the list!” Heck, he even has a song about that. Then, of course, the children get loot.

And for Santa?  All he wants is to be loved, keep his prestigious position, and, of course, keep his long term contract intact. There’s something for everyone using this vested model!

Somehow, the belief that the holidays are filled with the loving spirit of this “jolly old elf” always endures. And, perhaps, that’s where Santa fits best with Vested Outsourcing. It works best when folks work together, in an environment of respect. The ultimate vested framework–Santa has that one down pat.

To sum up, Santa is the big picture guy who works with the entire world for a single purpose – to make kids happy.

As far as I’m concerned, Santa’s contract can be perpetually renewed. I’m a believer.

Merry Christmas to All!

The Minnesota bridge project case is a powerful example showing that a collaborative, innovative—and incentivized!—approach to solving difficult problems will most often result in huge success.

By way of a little background, 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. At the time, it was expected that a bridge rebuilding project of this nature would take three years to complete. When Gov. Tim Pawlenty said he wanted the bridge rebuilt within 17 months many experts laughed, asserting that this was impossible.

As it turned out, the Governor was slightly off – it took less than 14 months to rebuild it; the 10-lane 504-foot bridge opened to traffic in September, 2008. The Minnesota Department of Transportation had set December 24, 2008 as the completion date, which was considered unrealistic at the time. It took competitive bids for the reconstruction of the bridge, and offered incentives for on-time and early completion. The team of Flatiron Constructors and Manson Construction, using a design by Figg Engineering, submitted the winning bid. The contract stipulated an incentive payment of $7 million if the bridge opened on time, with earlier opening bonuses of $2 million for every 10 days before December 24th if the bridge opened early. But if the bridge opened late, the construction team would lose $200,000 per day.

Cars were rolling across the rebuilt bridge on September 15, 2008. It was a most impressive infrastructure construction feat. By using 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, thereby earning healthy performance incentive bonuses that were expected to total $27 million. The project has received numerous awards and has been lauded as “representing the best in innovative management, accountability and timeliness.”

Jim Groton, a long-time construction lawyer and student of the construction industry, commented: “This is just another fine example of how smart people can design an incentive system for a contract that is designed to exactly match the needs and goals of a project. On the St. Anthony Falls project, by agreeing in advance what the goals of the project were, and then setting the standards by which performance and superior performance would be rewarded, the parties to the contract achieved project success and a win-win solution for everyone involved, including especially the thousands of Twin City commuters who drive over that bridge every day.”

The construction companies created an innovative, collaborative framework that enabled them to exercise the contract’s performance  incentives, but it wasn’t easy: They often worked 12-hour shifts and drilled three shafts at a time instead of one in subzero temperatures.

Whether they knew it or not they implemented a Vested Outsourcing approach to the project, especially by optimizing pricing model incentives (Rule 4) for the best cost and service tradeoff.

Whether they knew it or not the bridge constructors implemented a Vested Outsourcing approach to the project, especially by optimizing pricing model incentives (Rule 4) for the best cost and service tradeoff.

On a much smaller scale their effort was similar to the Rocky Flats closure and environmental cleanup project, a ground-breaking early instance of performance-based collaboration.

Incentives go hand-in-hand with innovation and collaboration.

Incentives play a critical role in in Vested Outsourcing, 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.

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.

In fact, in many cases, there are significant disincentives to innovation and creativity, many resulting in what I call Ailment #3, 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’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.

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.

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.

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!”

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.

A properly structured vested agreement based on the Five Rules will take the luck – good or bad – out of incentives.

Under Rule 4 pricing model incentives for cost and service trade-offs will be optimized early-on by all of the parties, while Rule 5 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.

Most important in avoiding the propensity for perverse incentives is Rule 1: Focus on outcomes, not transactions.

Don’t let the bean-counter mentality take over.

Most of us grew up hearing about the controversies surrounding the Rocky Flats Plant near Denver, a U.S. nuclear weapons production facility that operated from 1952 to 1992. The 6,200-acre facility was under the control of the Atomic Energy Commission until 1977 and after that the Department of Energy. To make a long, complicated and often amazing story short, numerous violations of federal anti-pollution laws were found there in the late 1980s, including massive water, soil  and building contamination.

That triggered an arduous process of environmental cleanup remediation and restoration, along with the decision to close the facility. It became the Rocky Flats Environmental Technology Site in 1994, and the cleanup effort was contracted to the Kaiser-Hill Company.

During this process, the Contract Management article reports that DOE wanted to “do things differently” in how they contracted for the Rocky Flats closure and cleanup project by providing incentives for the contractor to perform consistently within DOE goals. The department outlined the WHAT and turned to a supplier team of Kaiser Engineers and CH2M Hill, an engineering, consulting, construction and operations firm, to fulfill the HOW.

A short paper on the Rocky Flats closure states the CH2M Hill – Kaiser team “operated under two innovative DOE contracting models” at the site. The first, awarded in 1995, “was the first performance-based contract in DOE,” paying the contractor only for “specific units of verifiable work.”

The second contracting model was the 2000 closure contract, which authorized the entire scope of work to clean and close the site by October 2005 at a target cost of $3.9 billion. DOE originally estimated in 1995 that it would take 65 years and $30 billion to clean up and close Rocky Flats.

No wonder DOE’s drive to do it differently.

Fast forward to 2007, when the cleanup was certified by the EPA as complete; in July that year DOE transferred about 4,000 acres of land on the Rocky Flats site to the U.S. Fish and Wildlife Service to establish the Rocky Flats National Wildlife Refuge. It’s an environmental triumph and a major success for innovative contracting. The Kaiser-Hill contractor team brought innovative approaches to clean up the mess, and the result was that contract incentives for schedule and cost savings resulted in the closure more than a year ahead of schedule and $530 million under the contract budget!

It was a groundbreaking example of performance-based collaboration. DOE’s 346-page Rocky Flats Closure Legacy report says: “Beyond any specific innovation, it was through unparalleled cooperation among the interested parties that a conservative and compliant cleanup and closure of Rocky Flats was enabled; ahead of schedule, under cost, and without a fatality or serious injury.”

The report outlines some major takeaways from Rocky Flats, including:

-      Contract reform works: “The first K-H ‘Integrating Management’ contract demonstrated that incentivizing clearly defined performance measures vastly improved actual results.”

-      What, Not How: Simply put, DOE said it “must manage to a contract, not manage the work for the contractor.”

-      Collaborative working relationships: The closure was a success because everyone was “engaged in the process and supportive of the ultimate goal. We communicated openly and often to seek the best solutions, and came to value the input from formerly dogmatic opponents.”

Those points encompass all of Vested Outsourcing’s Five Rules, especially Rule 2, Focus on the What, Not the How; Rule 3, Agree on Clearly Defined and Measurable Outcomes; and Rule 5, Governance Structure Should Provide Insight, not Merely Oversight.

My take? If the government can turn a political, legal and environmental disaster into something innovative and worthwhile by using collaborative, performance-based relationships, industry should pay really, really close attention.

A recent post on Brown’s Compass Online website from Brad Mitchell, the UPS president of distribution and logistics, proclaims Vested Outsourcing is one of the Top 5 trends in logistics.  Mitchell sings the vested song, to wit: “The key is collaboration. It’s crucial that companies and their vendors, suppliers, and service providers work closely to establish appropriate goals based on business objectives and then create realistic and measurable supply chain outcomes that will advance mutual goals.”

That of course is right out of Vested Outsourcing’s Rule 3: Agree on Clearly Defined and Measurable Outcomes. The vested relationship functions best in a culture where the participants work with each other to ensure their mutual success – the idea is to buy desired outcomes, not individual transactions.

The other supply chain trends cited by Mitchell include, in brief: A focus on security; getting serious about sustainability and going green; outsourcing as a supply chain strategy and a way to free up working capital while focusing on core capabilities; and the continuation of “doing more with less” as the new normal, meaning flexible supply chains, more facility sharing and adoption of multimodal transport strategies.

Jim Barnes, president and CEO of enVista, an enterprise cost management services provider that does supply chain, transportation, ERP and CRM consulting, extols the “power of vested partnerships” recently in his blog.   In it he writes that a colleague gave him the book to read.  “I fully support her message and the book’s overall premise. Vested Outsourcing explores the concept of moving beyond what I refer to as ‘Type I partnerships’ whereby a contract between a supplier and customer is based squarely on price and activity. Vitasek rightly stresses the value and importan(ce) of moving instead to “Vested Outsourcing.”

His post continues at length, but he also suggests that “Vested Partnership” is a “better term than Outsourcing for several reasons … primarily because the end goal in any business partner relationship is to create a partnership based upon transparency, collaboration and improved cost containment or reduction whereby all parties have a ‘vested’ interest in the outcome.” I’m not exactly sure why that term is better, or whether he thinks I should change it (yeah right!) but he concludes his post saying: “I want to thank Kate Vitasek for inspiring me. Her book has validated the importance of Vested Partnerships, the same type of partnership enVista has been consulting on and putting into practice with its own clients for the last eight years.”

So maybe that explains where he’s coming from. I’ll stick with Vested Outsourcing for obvious reasons and because an outsource relationship is something that’s a little different than a corporate partnership. Legal expert George Kimball (author of Outsource Agreements: A Practical Guide) argues the term Partner connotes a legal entity. Kimball’s book because is an excellent guide to the legal and practical issues that can arise from complex outsourcing deals. While I agree in spirit with Jim – I’ll stick to Vested Outsourcing for now!

Let the vested inspiration flow. To paraphrase Sally Field’s famous comment after winning the Oscar: You like Vested Outsourcing! You really like it!

Success in Vested Outsourcing requires engagement of five rules. Here we examine the fourth of those five rules: Optimize pricing model incentives for cost/service trade-offs.

The fourth hallmark of a Vested Outsourcing partnership is a properly structured price model that incorporates incentives for the best cost and service trade-off. A logical pricing structure is essential to avoid ailment No. 1, the “penny wise and pound foolish” syndrome described in Blog No. 1. The pricing model is based on the type of contract — fixed price or cost reimbursement — that will be used to reward the outsource provider.

When establishing the pricing model, businesses should apply two principles:
1. The pricing model must balance risk and reward for the organizations. The agreement should be structured to ensure that the outsource provider assumes risk only for decisions within its control. For example, a transportation service provider never should be penalized for the rising costs of fuel, and a property management service provider never should be penalized for an increase in energy prices.
2. The agreement should specify that the service provider will deliver solutions, not just activities. When properly constructed, Vested Outsourcing will provide incentives to the service provider to solve the customer’s problems. The better the service provider is at solving those problems, the more profits the outsourcing company can make. This solutions-oriented approach encourages outsource providers to develop and institute innovative and cost-effective methods of performing work to drive down total cost while maintaining or improving service. The essence of Vested Outsourcing is a strategic bet by the outsource provider that it will meet the service levels at the set price. Inherent in the business model is a reward for the service provider to make investments in process, service or associated product that will generate returns in excess of contract requirements. Performance partnerships usually are based on fulfillment of the desired trade-off stated by achieving:
• higher service levels at the same cost
• the same service levels at lower costs
• higher service levels and lower cost levels
If the service provider does a good job, it will reap the rewards of greater profitability.
Vested Outsourcing does not guarantee higher profits for service providers; it does, however, provide them with the authority and autonomy to make strategic investments in their processes and product reliability that can generate a return on investment that is greater than a conventional cost-plus or fixed-price-per-transaction contract might yield. Vested Outsourcing also typically seeks to encourage service providers to meet the desired performance levels at a flat or decreasing cost over time. Therefore, the service provider has to leverage its unique skills and capabilities to make the processes more efficient — to the point that it can generate increased profit. By doing so, the outsource provider may earn intangible benefits, such as contract extensions, additional business or locations, expanded services it can offer the partner, or the willingness of the customer to provide references.
Partners in a Vested Outsourcing relationship — the originating company as well as its vendors — should continually seek ways in which to reduce the total cost of the process being outsourced. The interwoven dependencies of outsourcing relationships require an environment that encourages service providers to push outsourcing companies to change internal processes if they are inhibiting the success of Vested Outsourcing. Outsourcing companies also must be open-minded and accountable for driving internal process changes.

The correct pricing model supports the business and provides appropriate embedded incentives. It is important to understand implicitly that the outsource provider is a profit maximizer. This is reasonable, since few businesses are designed to be otherwise. Therefore, companies that outsource contracts to vendors should explore means of encouraging top performance by vendors of outsourcing services, and should reward that performance financially.
Is this approach a risky bet for a company and its service providers? Most thought leaders say no. The profitability potential exceeds possible liabilities. Adrian Gonzalez from ARC Advisory Group, which specializes in supply chain management and third-party logistics, offers this advice: “What differentiates Vested Outsourcing [is] not the risks, which are inherent in any outsourcing relationship, but the potential payoff for both service providers and customers. In other words, the benefits-to-risk ratio is much greater for Vested Outsourcing. And the risk of remaining at the status quo — in terms of lower profits for service providers and continued diminishing returns for customers — trumps them all.”
Organizations can encounter difficulty in attempting to build a dynamic relationship that challenges the status quo in existing processes. But properly structured Vested Outsourcing partnerships can — and do — create paybacks for both parties.
Following Vested Outsourcing Rule #4 prevents the Penny Wise and Pound Foolish and Sandbagging ailments.