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The Vested® methodology - 5 rules

Vested® is a business model, methodology, mindset and movement for creating outcome-based contracts that enable win-win partnerships in which both parties are equally committed to each other’s success

Vested is based on award-winning research conducted by the University of Tennessee College of Business Administration and funded by the U.S. Air Force. The University of Tennessee’s research revealed that conventional transaction-based contracts have inherent flaws because the economics of the deal structure keeps buyers and suppliers at arm’s length. This type of approach is not conducive to collaboration, innovation or value sharing, especially for complex, multi-dimensional business partnerships.

Following five rules and a structured process built upon ten contractual elements, the Vested framework fosters an environment that drives innovation, resulting in improved service, reduced costs and mutual value that didn’t exist before.

Rule 1 - Business Model

An outcome-based business model instead of transactions:

Implementing a Vested business model does not influence the nature of the work to be performed. At the operational level we still have to perform the work; orders are fulfilled, codes are written, or repairs are completed. What does change, is the way products or services are contracted, and hence the way they are executed. This new way of contracting requires a different mindset, aimed at transparency, trust and cooperation.

With a Vested business model, you buy desired results, not individual transactions. a Vested partnership is best suited in a culture that embraces collaboration to reach the desired goals together. Therefore, it is essential that, as a first step in this process, you consciously choose a win-win business model, which is build on shared principles and behaviors.

Rule 2 - Scope of Work

Focus on the 'what', not the 'how':

Often, contractors are held responsible for the work they perform through prescriptive Statement of Works, while they are not given the freedom to take initiative to carry out the work in a way that they perceive to be best. Generally companies outsource work for just one reason: doing the work themselves 'in-house' is either too expensive, too ineffective, or both.

Why should we prescribe procedures for work of which we determined that we are not experts on, since it is not our core business, so it is better to outsource it? In output-oriented contracts, companies focus on performance expectations throughout the system, while suppliers determine how they can bring the right processes together to achieve the desired results. This requires a different way of thinking, in which parties come up with 'what' they want to realize, and leave the 'how' to the experts.

Rule 3 - Performance Management

Clearly defined and measurable desired outcomes:

All parties involved must be explicit in defining the results they expect from their partnership. These results are presented in the form of a limited set of high-level measurements. Organizations should take sufficient time to determine what (joint) success really means.

Under the purest form of a Vested partnership, the buying organization only pays for results, not for transactions. Instead of being paid per activity that is been carried out, contractors are paid for the value offered by solutions that are fueled by their innovative capacity.

Rule 4 - Pricing Approach

A pricing model with incentives to optimize the business:

With a Vested business model you buy desired results, not individual transactions. The contractor is paid on the basis of his ability to achieve mutually agreed desired results. A reasonable fee is agreed for the basic work, but the great earnings can be realized by achieving the agreed goals, which are often very ambitious.

The biggest difference with traditional contracts is that a pricing model is created, in which variables are positioned in order to realize the right impact. It is not a list of (fixed) prices. Through the use of incentives, and not penalties, a positive environment is created. In addition, risks are allocated to the party that has the best ability to carry the risk, and that party will be compensated accordingly.
Rule 5 - Governance

Leading the way through insight versus oversight:

In the case of outcome-oriented collaborations, an organization contracts a party that is recognized as a real strategic expert. Such alliances must be managed in a way that creates a culture of insight, cooperation and flexibility instead of one-way control and oversight.

Well-designed governance structures ensure consistent management, consistent policies, processes and decision-making that enable the parties to work together effectively and achieve transformational results during the term of their agreement.
What do we offer?

We can help you get to Vested® in the following ways:

  • Sourcing business models: there are seven different sourcing business models, each with their own approach tailored to the desired type of collaboration. Together we translate the business requirements of your organization into the business model of the right sourcing.
  • Introduction Vested: we introduce the basic principles of Vested within your organization or team. In this way we can create awareness and together assess whether and for which specific situation (s) Vested could offer a good solution.
  • “Getting to we”: in "Getting to we" we focus on the basic principles of creating a strategic relationship. We go through a five-step process for establishing a long-term cooperative relationship.
  • Deal review: we assess the current cooperation and agreement through an assessment and interviews, and provide advice on potential improvements.
  • Vested deal structuring: We guide you and your partner step by step through the Vested rules, through workshops and coaching sessions, to come to a Vested agreement.
  • Coaching: we offer coaching as a neutral third party after the conclusion of the Vested agreement to continue to monitor the "win-win" mindset.