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!

Mr. President, I feel your pain.

The American people have spoken. About the jobs crisis, you need to fix two things: 1) Age Discrimination and 2) Outsourcing.  Good luck.

There is little nuance in the public’s two priorities. Old folks find it hard to get a job and, according to popular opinion, Outsourcing is Evil. As the lead researcher and faculty for the University of Tennessee’s Performance-Based Business Programs, I have a few glimmers of hope to share with you about item #2 – Outsourcing.

First of all, this little secret should be shared with the public:  Outsourcing is not evil. In fact, if you outlawed outsourcing tomorrow, you would create a tsunami of American job losses. Let’s look at one industry that would suffer – outsourced logistics.  Dr. C. John Langley Jr. reports the Third Party Logistics (3PL) industry accounted for $128.1 billion in revenue for North American companies in 2009 (that’s revenue associated from outsourcing logistics activities). That’s a lot of jobs, Sir.

Think of that UPS commercial “We love logistics!” UPS is a firm that exists BECAUSE of Outsourcing.

Plus, the companies using 3PLs credit them with helping them achieve critical goals related to service, cost, and customer satisfaction. Definitely not evil.

Now let’s get the basic terminology right. The correct term for sending jobs to other countries is Offshoring – not Outsourcing. Offshoring may in fact have nothing to do with Outsourcing! For example, Intel owns its own plant in China and many other locations in the world. That, Mr. President, is not Outsourcing but Offshoring. There are lots of reasons for business to reconsider using “low-cost” sites like Asia and China to produce goods and perform services.

Third, most businesses usually figure out how to work through issues when things are not economically sound. Recently, individual businesses and industry studies show that Offshoring may not be the best solution and, often, it is laden with problems and disappointments. The Milwaukee based American Society for Quality polled more than 300 companies and found only 34 percent said offshoring provided good value.

The common challenges of procuring goods or services outside of the United States include:

• Long term commitment  and up-front investment is required for ROI
• Culture  and time differences make daily operation complicated
• Communication and language issues create obstacles to management and customer service
• Cost of vendor selection, transition, and lay-offs
• Employee morale and loss of productivity in the home base
• Uncertain delivery of goods – Rising fuel cost causes Ocean Liners to slow down in order to conserve fuel.  Homeland Security Inspections can delay movement of goods.
• Quality control is often difficult.  (i.e. Mercury based paint on toys made in China)

In addition to all those business obstacles, there is the added problem of – dare I say it? – government intervention. Instability is present in many countries, making a long term commitment a bit scary. Here, in the U.S., there is proposed legislation for some high level meddling by prohibiting government funding to companies engaged in Offshoring, requiring identification of Offshoring to customers and authorities, and/or restrictions about transmitting personal information, (i.e. credit cards) overseas. This threat is likely enough to scare off companies from Offshoring.

And, as with most problems, businesses typically find a better way. Progressive companies are turning to a new Outsourcing model provides more value for the companies involved. Companies like the $5m Outsourced manufacturing firm MegaTech of Oregon that are investing in innovative approaches to outsourcing known as Vested Outsourcing to radically change how business is done. Rather than create outsourcing contracts centered on individual transactions or widget manufacture, it contracts for mutually agreed upon goals.  In other words, business buys results, not mere activity. A full description of what this means and how it’s done can be found in the book, Vested Outsourcing: Five Rules That Will Transform Outsourcing, which is the #1 book on Outsourcing on Amazon.com.

So, Mr. President, there you have it – my glimmer of hope. There may well be a degree of natural attrition to Offshoring that will have a positive impact for American jobs.  It’s a small piece of the puzzle, but, isn’t that just what is required? No magic bullet – just pieces of the puzzle, put together, a few pieces at the time, to put together a whole new, healthier Jobs picture.

Ok, I’ll get off the soapbox now!

Randy Tinseth, vice president marketing, Boeing Commercial Airplanes, in a blog post late last month stated, “A few of our partners are working through some spot shortages and are still incorporating engineering changes.” Aviation week magazine was a bit more harsh, saying Boeing’s supply chain is out of control.

It sounds like Boeing might be suffering from  Ailment 8, Driving Blind Disease, or the lack of a formal governance process to monitor the performance of the contracting relationship.

The 787 saga proves that even the big guys can profit from the lessons and rules of Vested Outsourcing in dealing and contracting with suppliers. It’s a good thing that giants like UPS and the Department of Energy are getting on board with Vested Outsourcing’s performance-based principles.

Boeing perhaps should pay attention to UPS’ Brad Mitchell, who recently advised Vested Outsourcing as a Top 5 Trend to watch: “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.”

Even mega-giants like the Department of Energy are singing the praises of performance-based thinking. I was pleased to get my new issue of Contract Management magazine and find the cover story sharing some of the recent successes the government has had in adopting performance-based approaches to recent contracts.

I especially like the one about how DOE wanted to “do things differently” in the way they contracted for the Rocky Flats Cleanup Project by providing incentives for the contractor to perform consistently within DOE’s goals. The department outlined the WHAT and turned to a supplier team of Kaiser Engineers and CH2M Hill that brought innovative approaches to clean up the DOE’s mess - which came in ahead of schedule and $530m under budget!

A good vested relationship with a collaborative governance structure works to anticipate the kinds of problems that Tinseth referred to, and provide better incentives and strategies to drive performance to achieve desired outcomes.

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!