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!

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.

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.

The model distinguishes among four product categories: leverage items, strategic items, noncritical items, and bottleneck items.

My take on the model, as outlined in The Vested Outsourcing Manual, has been that procurement philosophies such as Kraljik’s encouraged businesses to use their buying power selfishly to condition the supply chain and force a change in the demand curve in order to lower dependency on service providers. The ultimate objective of the buying approach is to trigger lower-cost entrants into the market and force reductions in price and, by default, validate the make/buy decision.

Of course, the more companies applied these win-lose behaviors, the more service providers hunkered down to protect their margins. These heavy-handed transaction-based approaches lead to perverse incentives and missed opportunities to innovate that were outlined in Vested Outsourcing.

They also focus too heavily on transactions, rather than outcomes. This approach can be lucrative in the short term if the buyer gets away with it; however, it is inefficient over the long term, especially in cases where a service provider wants (or needs) to make investments in business infrastructure that require trust and cooperation to deliver results.

Recently I came across a CPO Agenda article from 2008, which featured a long interview with Kraljik, who is director emeritus at McKinsey, where he spent 32 years and held a number of senior positions until his retirement in 2002.

Kraljik’s interviewers, Philip Usherwood and Dick Russill, caught up with Kraljik to mark the 25-year anniversary of his Harvard Business Review article, “Purchasing must become supply management .”

There are many thought-provoking takeways in the CPO interview/article, one being that Kraljik’s description of the economic and political turbulence of the early 1980s and its impact on business procurement decisions is highly relevant today.

Kraljic’s statements about the need for simplicity and consideration of the total value chain when it comes to risk also caught my eye.

More importantly, at the end of the interview Kraljic was asked how he might rewrite or change his original article: “The first thing is that I would not address it to the purchasing community, but to the CEO. CEOs know what it takes, they can appoint the right people, and then they can uplift and anchor supply management so that is clearly visible.

“As regards the basic message of identifying critical items and building management talent, no, I would not change it other than to add trust into the equation – the importance of trust in long-term relationships with suppliers. You need to create win-win.”

Adding the concepts of top-down buy-in, visibility and trust to get to the win-win are hallmarks of the Vested Outsourcing approach, and it seems to me, takes the Kraljic Model out of a selfish, win-lose interpretation.

Yesterday I was working with a client to develop a workshop they have asked me to facilitate in order to help them turn their existing relationship into a high gear, highly collaborative Vested relationship. I came up with a title for the workshop that included the word “winning.”

My client asked me to take out “winning” because of its negative connotation associated with Charlie Sheen.

Well if you listen to Charlie Sheen and his ideas about winning, then the answer is yes, winning does have a negative connotation.

That’s because Sheen is, not to put too fine a point on it, the very definition of a shallow, egotistical and delusional loser. You can see some of his twisted thinking in these video interviews.

They are so nonsensical that that The Gregory Brothers‘ amusing “songified” take on winning—extracted from Sheen’s interviews—reveals a loser’s paradise.

The Sheen song on YouTube is at more than 28 million hits and counting, which may be almost as alarming as the content of the song itself.

Asked in the video if he is bi-polar, he croons, “I’m bi-winning; win here, win there, win-win everywhere.”

There’s really not much for businesses to take seriously from Sheen’s nonsensical answer to the question.

Unfortunately, I think many businesses and individuals may have fallen into the bi-winning syndrome and not realized it. Western culture is especially muscular when it comes to trying to win in business. Tim McBride of Microsoft sums up this infliction with the traditional win-lose thinking well in a quote from my first book when he says, “The one thing we have definitely learned is that saying win-win is much easier than acting win-win…Most procurement professionals are hard-wired to win, which means if Microsoft wins, the supplier loses. We have learned that applying a Vested Outsourcing  philosophy requires a cultural change in how we will need to work with our suppliers…This means exploring Vested Outsourcing one program and one supplier at a time–working to build trust with our supply base and business units that outsource to understand that there really is a better way.”

One business executive trying to break the win-lose drug at a company stated, “Our company usually thinks in terms of win-win as we get to win twice!”  If you find yourself in a potential business arrangement with someone that is bi-winning you should – well – have the intestinal fortitude to resist the urge to get into what one executive coined “deal heat,” which is where you must win at all costs. It’s myopic to think you can take a muscular win-lose approach and turn it into a good deal that is sustainable.

So it’s really quite a scary accomplishment—or perhaps just plain silly—when someone can give “winning” a bad name to the point where even using the word in a totally different, non-Sheen context is a sensitive subject to be avoided.

While Sheen’s refrain on bi-winning is kind of absurd fun, I think too many companies see themselves as bi-winning as well, and that is simply bad for business. Those companies, much like the scorpion in the fable, are dangerous!

Win-win is much more than, as the joke goes, getting to win twice; and winning is much more than Charlie Sheen’s crazy take on it.

That’s a natural and normal approach, especially as we develop concepts and systems and the right way to outsource—such as (ahem) the Vested Outsourcing way!

But sometimes looking through the other end of the lens can bring a useful new perspective, which is what Oliver Kirchner, senior legal counsel, global commercial transaction for Nokia Siemens Networks, did recently at the Arab Outsourcing Conference in Dubai. (I referred to Oliver in recent on outsourcing agreement T&Cs.)

In his presentation on “Why Outsourcing Deals Turn Sour,” he talked about what an outsourcing agreement is not:

• It’s not an “insurance policy” because “outsourcing cannot take away all existing risks from a company’s business and shift it to the partner.”
• It’s not a “blank check” because “outsourcing cannot remove financial discipline or need to re-prioritize work and budget from a company.”
• It’s not a “financial cure-all” because “outsourcing is not intended to relieve a company of its existing financial obligations (e.g. asset depreciation, pre-existing third-party liabilities, etc.).”
• It’s not an acquisition of service providers’ assets or intellectual property because “payments are for services, generally not for intellectual property used or developed to provide services.”

I’m sure there are more points that could be added to the “not” list—one that comes to mind is that outsourcing is not a way for companies to beat up service providers on product, service and labor costs to get the cheapest possible pricing.

It’s also not a way to brag about collaboration and innovation without really doing the work with the service provider to create a true collaborative and innovative ecosystem to produce the win-win.

Actually Oliver’s “not” list reminds me of the Ten Ailments that can plague and derail outsource deals. They are the starting point for determining what’s wrong with an outsource deal–basically how not to outsource–and then realizing the need for a change to the better Vested way.

That’s the way to untangle the annoying that comprise the not list!

Covey’s classic bestseller on personal effectiveness, published in 1989, has huge lessons for business and leadership effectiveness; it also has great resonance for Vested Outsourcing as well.

What got me thinking about Covey’s work, especially the parts about “thinking win-win” (Habit 4), “being proactive” (Habit 1) and “beginning with the end in mind” (Habit 2), is an extract from his book, called “Green and Clean,” posted recently by the Champions Club Community. Champions Club is a London-based organization that stresses the importance of collaboration to achieve more than “any one of us could do alone.”

Covey relates the interaction and “stewardship delegation” he had with his (at the time) seven-year-old son Stephen to maintain the Covey household’s yard. He takes us through the process of training, understanding, options and methods, owning the job and monitoring progress. After two weeks of training and preparation Covey’s son was ready to take on the job code-named named Green and Clean. There were a couple of bumps along the way, but eventually the boy realized that he really was in charge, and that he could even ask his father for help with difficult tasks.

Covey writes: “He took care of that yard. He kept it greener and cleaner than it had ever been under my stewardship. He even reprimanded his brothers and sisters if they left so much as a gum wrapper on the lawn.

“Trust is the highest form of human motivation. It brings out the very best in people. But it takes time and patience, and it doesn’t preclude the necessity to train and develop people so that their competency can rise to the level of that trust.”

That’s what it’s all about—collaborating to achieve the best outcome possible. True collaboration necessitates trust; without it collaboration isn’t really possible in families or in the outsourcing arena.

Covey concludes, “Effective delegation is perhaps the best indicator of effective management simply because it is so basic to both personal and organizational growth.”

And outsourcing is, at its most effective level, stewardship delegation and the trust that your service provider can do it “greener and cleaner.”

Copious, onerous and (often) unnecessary T&Cs not only can hit the bottom line, they can contribute to a failed outsourcing deal, especially if they are one-sided and inhibit innovation and trust.

Oliver Kirchner, Senior Legal Counsel, Global Commercial Transactions for Nokia Siemens Networks, illustrated this point last month in a presentation on “Why Outsourcing Deals Turn Sour“ at the Arab Outsourcing Conference.

Outsourcing projects can sour when the various reasons for outsourcing in the first place become blurred by self-interest and a failure to collaborate, or as Oliver says, when the expectations of one of the parties are not met.

Rigid T&Cs reached in a vacuum can’t align expectations between the parties. In a Vested Outsourcing partnership they can because they exist only after the parties’ collaborative efforts on a joint statement of intent to achieve their Desired Outcomes.

Oliver’s chart shows that T&Cs are not just a legal issue. As base costs (including calculable risks) and costs involved with additional requirements (such as estimated risks) mount up the final pricing structure eats away at profit.

Outsourcing practitioners remain stuck in old-school, and I believe, outdated contract principles designed to shift risk, limit liability and focus primarily on price instead of value as the main priority of contract terms. Oliver points this out in his presentation, and The Vested Outsourcing Manual, which will be published by Palgrave Macmillan later this month, also addresses this unfortunate reality, based on research by IACCM.

Rather than contract terms that start with pricing, price protections, indemnification and payment, why not collaborate on terms that begin with scope and goals, change management, and communication before worrying about price?

That’s the outcome-based Vested approach that produces value through the true collaborative win-win.

It is also what Oliver said last month: “Only a win-win deal is a good outsourcing deal.”

SCC announced the winners of the 2011 North American Supply Chain Excellence Awards at the annual Supply Chain World conference in Baltimore. There are three award categories, operational excellence, technology advancement and academic advancement.

The University of Tennessee Center for Executive Education won the Academic Advancement Award, which recognizes an organization that contributes applied research that advances the supply chain management body of knowledge.

Funded by the U.S. Air Force, The University of Tennessee Center for Executive Education worked with the Air Force and the Defense Acquisition University (DAU) to study companies using performance-based procurement practices. The team developed a framework  and  “just in time” workshops that DAU and the AF now use to train sourcing teams how to buy services in a much better way. The research and fieldwork also led directly to the Vested Outsourcing business model and the University of Tennessee’s three-day Vested Outsourcing course.

Helping real organizations like the Air Force and the dozens of other companies that have turned to the foundations of our research to improve how they buy services is why winning the Supply Chain Council award  is such a great honor for the people in the trenches making the Vested concept happen every day.

I mentioned above that it’s a great challenge. Winning an award of this stature does not mean that it’s time to rest on past accomplishments and the dozens of endorsements from companies, organizations and service providers we’ve received.

It’s nice to gain that wide and increasing recognition, but it only challenges us to strive harder to continue to do the basic research, to continue to educate and to push for a better way to outsource through collaborative frameworks that achieve the win-win.