5. Elect an insight (vs. oversight) governance structure
The Vested model shifts from a culture of oversight to one of insight. Simply put, the buying organization turns its focus to managing the business with the service provider, not just managing the service provider. Why? If you’ve done a good job of selecting the right partner and aligning their interests by using rules one to four, then the service provider will truly have a vested interest in performing because their success depends on achieving success for the buying organization.
While many outsourcing deals rely on governance mechanisms, most do so informally. A key part of creating a Vested agreement is recognizing that you are creating a formal relational contract. This means you must put the relationship front and center and embed formal relationship management and governance constructs into the actual agreement.
Contractually obligating outsourcing parties to sound governance mechanisms obligates the parties to take proper governance seriously. UT researchers advocate embedding a governance schedule into the actual contract written in plain language as opposed to legal-ease.
David Frydlinger, managing partner at Stockholm-based Cirio Law Firm, explains the rational: “Formally creating a governance schedule in plain language enables the parties to use the schedule more like a ‘playbook.’ Team members can look at the schedule and clearly see how to govern their partnership.”
From research to relevance
Today, more than 100 organizations have applied the Vested methodology in outsourcing deals as diverse as facilities management, reverse logistics, third-party logistics, environmental services, fiber-optic network management, and labor services. UT’s research now includes seven books, 22 white papers, and 20 public case studies that document the success stories of organizations such as Intel (third-party logistics), Dell (reverse logistics), Vancouver Coastal Health (environmental services), and Island Health (labor services/union contract with doctors), and BP (real estate and facilities management).
The Vested movement has become a model for best practices in outsourcing globally — but has yet to get traction for IT outsourcing. In a follow up article we will explore why IT outsourcing has been slow to adopt Vested and how Vested can be a game changer for IT outsourcing.
For those wanting a deeper dive now, visit the University of Tennessee’s dedicate website and research library at www.vestedway.com.
