Interview with Kate Vitasek: the Vested® business model
1. In a blog post, you cited the need for “a more transparent and collaborative approach” to address the challenges for Big Data projects. Most of the public discourse about transparency concerns politics and privacy concerns. Can you explain why you think transparency is important for IT projects?
Transparency allows a supplier to get an inside view of the facts, data, and other relevant information that ultimately will contribute to better business decisions. A better supplier decision virtually always leads to a better result for the buyer. I agree we need to be very careful about privacy concerns, but all too often the reason people hold back from sharing data is they subscribe to the adage “information is power.” Think of it this way: If information is power – having the buyer and supplier have access to the information doubles your power. Why hold back if the supplier’s good decisions can improve the impact and effectiveness of your IT project?
2. Your book, Vested: How P&G, McDonald’s and Microsoft Are Redefining Winning in Business Relationships, describes how P&G introduced innovations through increased collaboration with outsourcers. Has cloud computing accelerated the trend, or just populated the landscape with countless service alternatives?
A typical Vested deal has two basic categories of services: base services and transformation services. A customer buying services using a Vested approach most often will have a need for the basics – processing invoices, transporting pallets, etc. – and also a need for transformative initiatives that will enable the customer to gain competitive advantage in the market. The same applies in the IT area, of course, where the buyer has a need for basic services such as infrastructure and application maintenance but also for transformative services that change entire business processes within the organization.
I think cloud computing will play an important role in how companies structure their IT deals in the future. For example, in a Vested IT deal, a strategic outsourcing partner could supply base services in the form of infrastructure and standard software in the cloud (IaaS and Saas), possibly in collaboration with any of the major cloud computing suppliers. That sort of very standardized solution would enable the strategic outsourcing partner to focus much more heavily on transformation and innovation as the source of creating value for their client. I think it is just a matter of time when standardized cloud computing offerings become mature, and that will force suppliers to become more strategic and focus on value-add versus simply getting paid to provide an army of people to provide the “base” service.
3. What metrics should firms who embrace concepts such as “Vested Outsourcing” adopt to understand how well it’s working for them?
In the Vested business model, there is no standard set of “Vested metrics” that companies must use. Vested deals focus on creating value with a clear aim to achieve mutually defined outcomes. There are two rules of thumb that we teach.
First, since a Vested relationship shifts to outcomes – you have to understand that the best outcomes are boundary spanning. This means that the buyer and supplier must work together to get the most success. Let’s use an example of going to Mt. Everest to make the point. The buyer is the climber, and he wants to get to the top of Mt. Everest. He needs a Sherpa (a supplier). The buyer cannot get his outcome without the Sherpa. A good business outcome is typically boundary spanning because the buyer cannot get business value without the supplier, and the supplier cannot achieve the outcome without the buyer.
Second, don’t fall into the Measurement Minutiae trap by creating SLAs for everything that moves. Just because you can count the number of footsteps the Sherpa uses doesn’t mean that you will achieve your outcome of getting to the top with a photo of yourself.
A key issue with today’s IT contracts is they don’t apply these two simple rules. Suppliers are too scared to step up and work collaboratively as a true Sherpa (only measure what is in my control – I can’t help if it snows on Mt. Everest!), and buyers are control freaks trying to micro-measure every activity (how many rings did it take to answer the help desk call?) versus how well they created real business value or solved a real business problem.
4. Readers of Vested documents will likely conclude the enterprise leaders need further training in order to adopt the collaboration principles suggested. If you agree, what form should that training take?
Reading the Vested books is a great start, but they only scratch the surface of the depth of training we have put into the University of Tennessee’s Certified Deal Architect Program. Companies or individuals can start with the Vested Orientation Course, which is a free online course consisting of six interactive, self-paced video modules designed to help build a basic understanding and awareness of Vested. Our research library is also free – and contains great white papers and snapshots of our various case studies.
To gain further understanding of Vested, we offer the Five Rules That Will Transform Business Relationships Online Course, which consists of 10 interactive, self-paced video modules which provides the fundamentals of how to create a Vested agreement. People love the course because we share some of our favorite case studies – and they can see the practically of how a real world Vested agreement works.
For those wanting to dig further, we offer a 3-Day Vested Outsourcing Executive Education Course in Knoxville where individuals not only complete self-assessments and do a “Roadmap” for how they will create a Vested agreement – the small class size and highly interactive environment also allow attendees the opportunity to engage in insightful dialogue with the faculty.
Those wanting to jump in and craft an actual Vested agreement with their partner (buyer or supplier) can take advantage of the online Creating a Vested Agreement. The course is designed so that for buyers and suppliers can take it their own pace, using a step-by-step approach and the comprehensive toolkit that will help them make the decisions and create the deliverables for your agreement. When done with the course, the parties have an actual Vested Agreement. For those wanting to become a Certified Deal Architect, I suggest the 2-day Collaborative Contracting Course.
5. Your writing cites efforts undertaken by big firms like Microsoft, Dell, P&G and McDonald’s. Does the innovation strategy you recommend look different for small- and medium-sized enterprises versus these large enterprises?
No matter the size of the enterprise, we don’t really tell companies what their innovation strategy should be. That’s up to them. The Vested collaborative, shared-value and WIIFWe mindset gives companies the tools and the environment they need to nourish and unleash innovative ideas. That said, the Vested rules and principles work equally well for non-profits, public-private relationships, and for small- or mid-sized companies. For example, Scott Schroeder, CEO of RelianceCM, a $ 7.5 million Oregon manufacturing firm based in Corvallis, has fully embraced the Vested “What’s in it for We” (WIIFWe) mindset. In 2010, Schroeder read Vested Outsourcing: Five Rules That Will Transform Outsourcing, the first book in the Vested series, and decided to take the University of Tennessee’s 3-Day Executive Education course to learn more.
6. You complimented a blog post by Seth Godin in which he recommends distributing three books among colleagues or friends. Apart from your own books, can you recommend three books that might serve his purpose?
That’s a very good question because my reading is concentrated mainly in business and non-fiction. Picking only three books that need to be read would be difficult if not impossible for me, so I’ll fudge Godin’s challenge a little and pick a few authors that I believe are “must-reads”: Ian R. Macneil’s Contracts: Instruments for Social Cooperation is high on the list, as are the works of Michael Porter on creating shared value, and Oliver Williamson on the nature of the firm, contracting and transaction cost economics. I have a long list of honorable mentions, including Robert Solow, Dan Ariely, Douglass North, Jane Mansbridge, Malcolm Gladwell, Donella Meadows, Clay Christenson and Ronald Dworkin. Other influential books, when it comes to collaboration and collaborative systems, would include The Toyota Way by Jeffrey K. Liker and Grinding it Out: The Making of McDonald’s by Ray Kroc. Three books currently on my must-read list are Dan Ariely’s The (Honest) Truth About Dishonesty, Susan Scott’s Fierce Conversations and Steven Johnson’s Where Good Ideas Come From: The Natural History of Innovation.
7. You point companies to use a Vested Business Model Mapping Template to determine if Vested is a good fit. Can you explain?
As part of our field-based research, we work with companies to develop a “business model mapping profile” to help companies understand which sourcing business model is right for what they are buying (transaction based, performance-based, Vested). The reason we wanted to do some applied research here and create a process to help companies is because we found that all too often, companies should use a more advanced sourcing business model (performance-based or Vested) – but they were defaulting to a transaction-based business model because that was what their procurement people knew. Using the wrong sourcing business model for the job is like putting a square peg in a round hole – it just doesn’t work well. You tend to force-fit it – shaving off the corners of the square to make it fit. This reduces a supplier’s ability to create value for the buyer – and worse, creates inherent perverse incentives in the deal structure.
To learn more about the various sourcing business models, we suggest reading the white paper, “Unpacking Sourcing Business Models: 21st Century Solutions for Sourcing Services,” published by the University of Tennessee, the Sourcing Interests Group, the Center for Outsource Research and Education, and the International Association for Contract and Commercial Management. The white paper is free and is available for download here.
If you want to learn more, we recommend folks come to our 3-Day Executive Education course where they can get hands on experience understanding, using, and customizing the business model mapping tool. (A generic version of the tool is available here).
8. Is the Risk Mitigation responsibility shared across all of the companies in a Vested agreement, or is responsibility assigned according to the nature of the work?
The Vested approach seeks to share risk and share reward. Following the Vested structured methodology helps companies understand that risk needs to be allocated to the party that can best mitigate it. A key step in creating a Vested Agreement is understanding your risk tolerance. Knowing this will help you craft a pricing model that best fits how you deal with risk. It is important to understand the role that transparency plays when assessing risk. Transparency builds trust and enables the parties to better understand the real total costs – and risks. The Vested approach encourages the use of a jointly designed pricing model with incentives that optimize the overall business and fairly allocates risk/reward.
9. What has the Vested team learned from developing the courseware content for the courseware collaboration with the University of Tennessee at Knoxville? Has eLearning worked well for this?
A hallmark of what we have done with the Vested programs at the University of Tennessee is active involvement of field-based work from the Vested Centers of Excellence – which are consulting and law firms that help companies create actual agreements with their suppliers or clients. By having a close collaboration with leading consulting / law firms, we are able to get direct feedback into what is working and what is not working. For example, we are revising our business model mapping tool as we speak because of the work we have been doing with the The Forefront Group and Lindhal Law firm.
We also love our three eLearning courses. We realize that not everyone can come to Knoxville. In fact, 51% of the people coming to the Vested website are from outside of the United States. It makes sense of course – because companies have strategic deals no matter what country they are in, and they all need to have access to our research and teachings. Our online course has helped us deliver courses all over the world.
I also really like how we have developed the Creating a Vested Agreement online course. It is truly innovative, and people love it. The course is designed for a “deal team” to go through. We know that the “typical” deal team in an IT deal involves a cross-functional team from the buyer and supplier – and these team members are not always in the same city. The course allows the Deal Team to take a module in the course to get the fundamentals of what needs to be done. For example, they would take Module 5 and learn how to identify and create Desired Outcomes. Then they download the Vested Toolkit and it literally walks the Deal Team step by step through how to do this – which can be done in conference calls, webinars, or in face-to-face meetings. Basically, at the end of the course (which is 17 modules), the Deal Team has created an actual Vested agreement/contract.
10. What standards – formal or de facto – are you watching most closely?
I don’t think there are really any specific standards we are watching per se. However, I do like to keep my eye on how companies are deploying big data and cloud computing initiatives and how they are seeking to define and buy these services in their outsourcing deals.
11. What is the best sort of background to develop analytical skills for studying technology industries?
Understanding the various technologies (e.g., big data, data mining, cloud computing, etc.) is necessary, but not sufficient. I think one of the most valuable skills today is being able to translate your findings into language that non-technical people can understand. This means analyzing technology and articulating the ability for the technology to create value (e.g., business growth, productivity gains, etc.) in the context of the business in which it is used (e.g., supply chain, health care, digital marketing).
I think some of the MVPs in the technology sector are those that combine “business smarts” with their technology savvy. The good news is that universities like the University of Tennessee are starting to respond to this need. We’ve invested in creating a Business Analytics program that provides business smarts and soft skills in addition to the technical skills. Our masters of Business Analytics program was ranked in the “Top 20 in Big Data” by Information Week.