• Palgrave Macmillan
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Vested



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Q&A with author Kate Vitasek

Q. There is a lot of buzz lately about “shared value.” Can you describe what that is and how it fits into what you are doing with your work on Vested and Vested Outsourcing? 

Shared value principles establish economic value in a way that creates value for everyone. Unfortunately most businesses are pressured by short-term thinking. Think of a conventional buyer-supplier relationship. Buyers and suppliers play an unproductive game of cat and mouse as they negotiate to get the best deal for their companies. This is analogous to fighting over how to divide the pie. In the Vested framework shared value principles focus on creating–and then sharing–a bigger pie.   

The shared value concept is gaining traction, helped greatly by two influential Harvard Business School advocates, Michael Porter and Mark Kramer. Porter and Kramer profiled their “big idea” in Harvard Business Review Magazine. (Michael E. Porter and Mark R. Kramer, “The Big Idea: Creating Shared Value,” Harvard Business Review Magazine (January–February 2011). Available at: http://hbr.org/2011/01/the-big-idea-creating-shared-value/ar/1) The article states that shared value creation will drive the next wave of innovation and productivity growth in the global economy. Porter, by the way, is renowned for his Five Forces model of competitive advantage. 

Our research and fieldwork studying real-world success stories, featured in Vested: How P&G, McDonald’s and Microsoft are Redefining Winning in Business Relationships, shows that companies can indeed find that elusive “win-win” by creating agreements that are designed to create and share value. 

We have codified a process—the Vested methodology—that brings entities together to establish formal agreements with the common goal to ignite innovations that benefit all involved, in short, creating shared value. These parties enter into the agreement with the mindset that they will gain and share in the rewards.  

The Vested business model allows organizations to achieve the elusive win-win through highly collaborative efforts.  

Q. What exactly is Vested? 

Vested is a business model that establishes highly collaborative, win-win business relationships. It is based on a research project we conducted at the University of Tennessee. Vested helps companies go beyond the usual lip service of “saying” partnership, to helping them contract and manage their most strategic business relationships. 

The initial research project was funded by the United States Air Force. We studied some of the world’s most successful business relationships—relationships based on true collaboration that achieved amazing, sometimes even what was thought of as impossible, results.     

We codified our research findings and developed a framework with tools to enable organizations to get the most out of their strategic relationships. We coined the term VESTED to describe this business model. 

VESTED, as we explain in much greater detail in The Vested Outsourcing Manual, is a hybrid of outcome-based, shared-value principles and relational economics. In a Vested environment a company seeks to develop a common solution and a common bond with the service provider based on mutual advantage to achieve Desired Outcomes.   

Our research revealed that conventional transaction-based approaches have inherent flaws because the economics of the deal structure kept buyers and suppliers at arm’s length. This type of approach is not conducive to collaboration, innovation and sharing value, especially for complex, multi-dimensional business relationships. Our research team studied highly successful outsourcing and supplier agreements that were based on true collaboration. These partnerships achieved not only results, but transformational, game-changing, award-winning results. 

These relationships transcended traditional buy-sell transactions that focus on one party “winning” while the other “loses.” The parties worked together towards shared goals to drive innovation, create value and reward success. But while they seemed radical compared to most business relationships today, we realized that these companies were actually leveraging Nobel Prize-winning concepts—from Nash’s equilibrium theory to Williamson’s transaction cost economics.  

It quickly became clear that these new rules for achieving remarkable business relationships were not only applicable to outsourcing. The focus then shifted to codifying the “rules” of these successful relationships and creating a framework for Vested agreements that any businesses could adopt. 

Q. How does it work in practice? Is that the subject of your fourth Vested book?   

The first books in the Vested series laid out the Vested idea and methodology, along with Five Rules and the 10 Elements that practitioners can use to implement an effective Vested agreement. 

The fourth book, Vested: How P&G, McDonald’s and Microsoft are Redefining Winning in Business Relationships, closely examines actual case-histories, if you will, of the Vested approach and mindset in practice, occurring right now in the real world. Vested goes behind the scenes of the best of the best business relationships, both public and private, and reveals how these companies follow the Five Vested Rules. We share an insider’s perspective on how the organizations are redefining the way to foster and nurture long-term, win-win relationships required for our constant-change economy. In this book we show that the Vested approach works not just with buyer-supplier relationships, but also with organizations such as Water for People who is changing the paradigm of a traditional “charity” by creating sustainable and transformational change with Vested relationships with NGOs and local communities to solve for water poverty issues in some of the world’s most remote parts of the world.  

Q. What are one are two of your favorite stories about how Vested works in the real world? 

First, it is gratifying to see more and more companies embrace the Vested concept. That said, the case studies in Vested about McDonald’s and Procter & Gamble are exceptional. 

Most of us know about the McDonald’s secret sauce that makes its Big Mac so tasty. But even more important is that in this book, we reveal their real secret sauce—known as the “System”—that company founder Ray Kroc perfected to build long-term transparent relationships as the basis for long-term success. This “secret sauce” is based on the firm belief that everyone in the McDonald’s System comprises a three-legged stool—employees, owner/operators and suppliers—and that as such they all can and should win together.  

Kroc established a precedent of trust, loyalty and collaboration throughout the company, believing that if the restaurant owner/operators, McDonald’s employees and suppliers were successful, success would come to him as well. Simply put, McDonald’s, its owner/operators, and suppliers have a Vested interest in helping each other succeed. The stool is only as strong as its three legs; for one leg to prosper, each leg must prosper. This means that the company employees, the franchise owner/operators, and the suppliers each support McDonald’s equally.  

Those are inherently Vested concepts of course but remember that Kroc developed this way of thinking and operating in the 1950s. And even more amazing—nearly all of McDonald’s supplier relationships are based on handshake deals that have stood the test of time. 

To this day McDonald’s lives the philosophy that, as Kroc famously said some 50 years ago, “None of us is as good as all of us.” Kroc was doing it the Vested way before many of us were born—that’s why the McDonald’s story is so inspirational to me and one of my favorites. 

Another favorite from Vested is the P&G story. The company’s groundbreaking contract with Jones Lang LaSalle in 2003 flipped the conventional approach to outsourcing on its head: P&G created a business model based on contracting for transformation instead of contracting for day-to-day transactions. A.G. Lafley had taken the helm in 2000 as P&G’s CEO to lead the organization into the twenty-first century—innovation became a priority under his stewardship. He questioned the sustainability of the ‘in-house-invent-it-ourselves’ model, betting that looking beyond P&G’s walls could produce more highly profitable innovations that would drive value for both P&G and the parties bringing innovation to P&G. 

This thinking required rejection of a “not invented here” mindset to enthusiasm for those ideas “proudly found elsewhere.” By 2003, P&G began extending this thinking to how it worked with its suppliers. P&G believed that, by working with world class outsource service providers it could drive costs lower and ensure that service offerings remain on the leading edge of best practice. P&G deployed a Vested approach when it penned a pioneering outsource contract with JLL spanning 60 countries that included facility management, project management and strategic occupancy services. The scope and complexity of the deal was a first for both companies, as well as the approach of the commercial contract.  

The two companies created a commercial agreement that was highly Vested in nature, collaborative in approach and transformational in thinking. Under their agreement, P&G created an outsourcing relationship that challenged JLL to not just take care of its buildings, but to take charge of its buildings. 

The P&G and McDonald’s stories embody the transformational nature that visionary leaders can bring to business relationships. 

Q. What’s next for the VESTED brand and book series?  

Well, we are always busy furthering our research in areas that support the Vested approach and its principles.  

Right now we are revising and updating a second edition of the first Vested book, Vested Outsourcing: Five Rules That Will Transform Outsourcing, which will be published next year. We are also deep into a fifth book project with Palgrave—Getting to We—which also will be published in 2013. 

While I love writing as it shares our great work with the world, I am most excited about taking the concept from research into practice by helping companies establish their own Vested agreements. To me Vested is more than a methodology; it is really a growing business movement that is gaining adoption in many industries. I love developing and nurturing Vested and spreading the Vested mindset, both in UT classrooms, industry conferences, in the press and in company board rooms. For example, we recently completed a project to help Dell restructure its outsourcing deal with Genco ATC– enabling both parties to achieve amazing results in the first six months. We are also featuring their story in our revised edition of the first Vested book, Vested Outsourcing: Five Rules That Will Transform Outsourcing.