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!

Srini Krishna, Director, Finance Operations, Global Vendor Management, Microsoft Finance, recently received the Shared Services & Outsourcing Excellence Award for his personal contributions to the outsourcing industry.

Srini is my friend and colleague and an expert in our field. He was instrumental in crafting Microsoft’s highly successful OneFinance outsourcing deal with Accenture using the Vested model. He manages the OneFinance outsourcing business model and relationship with Accenture and is also the co-author of the Microsoft OneFinance Case Study that details exactly how Microsoft developed its Vested arrangement with Accenture.

“What became a core driver for the team was to create an outsourcing model aimed at improving the efficiency and effectiveness of executing Microsoft’s financial processes” says Srini.

Microsoft uses the Vested Outsourcing framework for its back office procure-to-pay business process outsourcing (BPO) agreement with Accenture. The Microsoft/Accenture team has come away with the “Triple Crown” in the world of outsourcing, receiving the industry’s top awards from the Outsourcing Center, the Shared Services Outsourcing Network and the International Association of Outsourcing Professionals.

And that was before Srini received his personal achievement award from SSON! So add a fourth laurel to the list.

SSON’s annual Shared Services Excellence Awards honor, recognize and promote both captive and outsourced shared services that demonstrate winning practices and tangible results.

These Awards form the industry’s benchmark in terms of best practice and business excellence. They are open to all captive and outsourced shared services organizations, and are judged by a panel of leading industry experts.

The personal contribution award “could not have been given to a better man,” says Henric Häggquist, OneFinance’s Senior Director. “I have worked with Srini for some six years now and I haven’t met a person that knows more about outsourcing.”

I totally agree with Henric’s assessment and I’m so pleased to congratulate Srini for his great achievement and for his tremendous contributions to the Vested concept.

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!

An article by strategic transformation consultants Marcia Daszko and Sheila Sheinberg looks deeply into the critical need to really understand transformation and what it entails. The title is apt: “Survival is Optional: Only Leaders With New Knowledge Can Lead the Transformation.” They write that transformation is an overused and misunderstood word in organizations: “Unfortunately, few individuals understand transformation or why there is an imperative for transformation, not merely incremental or transitional change. Often, people confuse transformation with any kind of change, technology breakthrough, innovation, process improvement or transition. However, few changes are truly transformational.”

They continue:  “Transformation is the creation and change of a whole new form, function or structure. To transform is to create something new that has never existed before and could not be predicted from the past. Transformation is a ‘change’ in mindset. It is based on learning a system of profound knowledge and taking actions based on leading with knowledge and courage.”

When I read that I said wow! – that summarizes the transformative power of Vested Outsourcing! Vested embraces and implements the “new knowledge” that Daszko and Sheinberg write about.

Daszko and Sheinberg identify five elements involved in the transformation process: Awakening, Vision, Method, Learning, and Integration.

I think about this when I think about Pat Summitt, the legendary coach of the University of Tennessee’s Lady Vols basketball team. You probably know of my connection to the University of Tennessee, so of course I’m a little biased – but her record speaks for itself.

Summitt has won eight NCAA titles in her 37 seasons as the Lady Vols coach, and her 1,075 victories is the most by any college basketball coach. Over that span her teams have lost a mere 199 games!

The NCAA will honor Summitt with the 2012 Gerald R. Ford Award, which recognizes a person who has been an advocate for college athletics over the course of his or her career. She’ll be honored Jan. 12 at the 2012 NCAA convention in Indianapolis.

Her achievements are almost unbelievable but she knows—as any great leader knows—that they are not individual or personal accomplishments. Her proven, winning system  can’t work without the right people to make it work, as illustrated in this ABC News Person of the Week clip: “You win in life with people. And if you think you can do this alone – you’re wrong.”

I often say that one of the major flaws that emerges in many outsource deals happens when a company that has decided to outsource because it does not have the expertise in a given activity, suddenly feels it is necessary to micromanage the service provider partner that it turned to as the expert in the first place. That’s what I call The Outsourcing Paradox (Ailment 2), and its related ailment, The Activity Trap (No. 3).

Yes, as Summitt says, you can always do better but the best way to maintain consistent excellence is to put the right system in place and then trust your people will do what they do best and make the system soar.

Summitt announced in August that she has been diagnosed with early onset dementia, Alzheimer’s type. She pledged to continue coaching and show others they can live their lives with the disease.

NCAA president Mark Emmert said the Gerald R. Ford award honors Summitt for “the positive example she continues to set.”

And I would add for the lessons, courage and leadership she exhibits every day.

Jobs was the mastermind behind revolutionary technology products just as the technology age we are currently living in got its start.

It is almost like the old chicken and egg question because it’s difficult to imagine where IT outsourcing and supply chains would be today and how productive we would all be at our jobs without Jobs’ ideas, innovations and massive influence.

One of Apple’s earliest catch-phrases was that it made a computer “for the rest of us.” For those of us who can remember the first MacIntosh – it was a small, almost nondescript machine that suddenly opened a universe of possibility on a small desktop because it was easy to understand and use by the “rest of us.” You did not have to be a computer whiz or master arcane programming languages and operating systems like Cobol or DOS to work effectively on a computer. He made computers personal.

While Jobs was not famed for his collaborative traits, which are a hallmark of Vested Outsourcing, he did bring some Vested ideals to the table including: innovation, flexibility, teamwork, communication and running the business with vision, foresight and insight.

The thing I like about Jobs is that he had vision and wanted to make that vision real while sharing it with the rest of the world.

When the first Mac was released in 1984, Jobs said, “We’re gambling on our vision, and we would rather do that than make ‘me too’ products. Let some other companies do that. For us it’s always the next dream.”

Here are few other pertinent and resonant words to consider from the wisdom of Steve Jobs:

- When he was recruiting John Sculley, then president of PepsiCo, to Apple, Jobs asked: “Do you want to spend the rest of life selling sugared water or do you want a chance to change the world?”

- “You can’t just ask customers what they want and then try to give it to them. By the time you get it built, they’ll want something new.”

- “Innovation has nothing to do with how many R&D dollars you have. When Apple came up with the Mac, IBM was spending at least 100 times more on R&D. It’s not about money. It’s about the people you have, how you’re led, and how much you get it.”

- “You have to trust in something – your gut, destiny, life karma, whatever. This approach has never let me down and it has made all the difference in my life.”

- “Your time is limited, so don’t waste it living someone else’s life. Don’t be trapped by dogma – which is living with the results of other people’s thinking. Don’t let the noise of others’ opinions drown out your own inner voice.”

- “Most important, have the courage to follow your heart and intuition.”

- “You can’t connect the dots looking forward; you can only connect them looking backwards. So you have to trust that the dots will somehow connect in the future.”

Many of those quotes came from Jobs’ 2005 Stanford University commencement speech, which is well worth a listen.

Connecting the dots, courage, innovation, trust and breaking away from dogma – fine qualities to implement in life and in business.

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.