vested outsourcing and spot brief august 2011

Copyright © 2010 SPOT Consulting LLC

Vested Outsourcing TM

Alton Mar*n, Founder and Chief Execu*ve Officer

Alton Martin - Background

•  Program Faculty for the University of Tennessee Center for Execu*ve Educa*on –  designated subject maEer expert on using Vested Outsourcing methodology in contact center and BPO opera*ons

•  Founder of both SPOT Consul*ng LLC and COPC Inc •  Involved in the contact center industry since 1993 •  Worked in over 30 countries and with dozens of major firms in scores of industries

•  Note: Vested Outsourcing TM is a trademarked term and is used with permission

2 Copyright © 2010 SPOT Consulting LLC

“The significant problems we face cannot be solved at the same level of thinking we were at when we created them.”

Keep This in Mind…… Vested Outsourcing Makes You Think!

Copyright © 2010 SPOT Consulting LLC 3

Genesis of the Idea

•  USAF hired University of Tennessee Center for Execu*ve Educa*on to study services procurement in logis*cs and maintenance –  Over 50% of the USAF spend is on services; logis*cs was one of

the top 5 spend areas –  Concern was “is there a beEer way to buy services?”

•  Dissa*sfied end users complained about poor service •  Vendors complained the contracts were unprofitable or low margin •  USAF not convinced they were ge^ng the best pricing

•  UT researchers studied more than 20 government “deals” –  What are the drivers that lead to success? –  Is there a process for buying services that can be replicated? –  How could the USAF ensure they were ge^ng “best value”


Genesis, con’t.

•  USAF wanted to ensure they were compe**ve with private industry, so they extended the study –  Added another 30 private sector outsourcing deals –  Expanded the study to other service areas

•  The SAME best prac*ces were found; researchers codified the “Best Prac*ces” into a defined methodology –  USAF calls it “Performance Based Services Acquisi*on”

–  UT researchers coined the approach “Vested Outsourcing” •  UT faculty created courseware now taught by the Defense

Acquisi*on University •  UT and faculty launched a formal agreement that encourages faculty

members to consult with companies and help ins*tu*onalize the Vested Outsourcing concept


Vested Outsourcing Research Reveals Bad Process is why Outsourcing Fails

* Source: Outsourcing Center Survey. Outsourcing Center

The top 5 reasons outsourcing fails are not due to a bad supplier – but due to bad outsourcing process


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5

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0 5 10 15 20 25

Unclear expectations

Misaligned interest over time

Poor governance

Poor communication

Not mutually beneficial

Poor performance

Poor cultural fit

Buyers multi-supplier environment

Percent of Respondents

Note: 11% in “Other”

What is Vested Outsourcing?


•  A game changing approach to outsourcing that –  Is a hybrid business model for buying services –  Leverages “win-‐win” thinking associated with Game Theory / Behavioral

Economics –  Is centered around buying results instead of tasks and/or ac:vi:es with the

conscious effort to use incen*ves to drive process innova*on, which prevents many perverse incen*ves of conven*onal outsourcing

–  Creates a contract that follows “Five Rules” –  Uses incen:ves to transform the work to achieve “trade-‐ups” versus

conven*onal cost/service tradeoffs

•  Transforma:onal when applied –  Endorsed by the Outsourcing Ins*tute, Sourcing Interest Group, Center for

Outsourcing Research, and the Interna*onal Associa*on for Contract and Commercial Management

–  Regarded as the “business concept of the decade” similar to Lean and Six Sigma

Commercial Companies Benchmarked1

Logistics / Supply Chain

Property / Facility Mgmt

Admin/Advisory/BPO

Other

Companies Outsourcing

•  Dell •  JetBlue •  Southwest

Airlines •  Lockheed Martin •  Boeing •  UPS •  Jaquar

•  Microsoft •  Edward

Jones •  H&R Block •  Philips •  P&G

•  Microsoft •  Oracle •  Honeywell •  Boeing

•  McDonald’s • Johnson

Diversey • Dept of Energy • Minn Dept of

Transportation

Service Providers

•  InSource •  Caterpillar

Logistics •  CEVA •  Unipart

•  Grubb & Ellis •  Jones Lang

LaSalle •  Colliers

•  Xerox •  AFMS •  Accenture

•  CH2M Hill •  Flatiron-Manson •  Wipro

Consultants •  Expense Management Solutions

Vested Outsourcing is Research Based and Fact Driven

1. Partial list; over 50 contracts studied


Vested Outsourcing’s 5 Key Rules


© 2010 Vested Outsourcing

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Command Cooperate

Cooperate Lose Much-Win Much

Win-Win

Command Lose-Lose Win Much-Lose Much

Based on Game Theory … Cooperative Games Win!

•  In non-zero-sum games, a gain by one player does not necessarily correspond with a loss by another

•  Win-win game theory emphasizes the importance of cooperation, sharing and over-all group success in contrast to domination and personal gain

•  All players are treated as equally important and valuable

•  When both parties cooperate they both win! When they don’t, they end up with less or both lose!

“The best result will come from everyone in the group doing what is good for himself and the group. It is the only way we all win”

John Forbes Nash-Nobel Prize Winner

VO gets both Parties to the Win-Win Quadrant

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Vested Outsourcing A Hybrid Business Model Approach


•  The core purpose of outsourcing is to enable the most efficient delivery of business outcomes

•  Vested Outsourcing –  focus a1en2on on

outcomes and not transac+ons

–  encourage the service provider to innovate

–  ensure that the selected business model rewards posi2ve outcomes

–  carefully crag collabora2ve agreements

•  Share Value

Overview of Outsourcing Models Sourcing Relationship Focus Interaction Characterized by

Transaction Based Business Model Simple Transaction

Provider Cost and Efficiency

Standard Terms, Fixed Pricing,

Automated Procurement

Abundant and easy to resource, no need for a relationship, no trust

Approved Provider Economies of Scale, Ease of transactions

Blanket Agreement Negotiated Terms

Pricing Agreements

Managed by category locally and cross business sector, bundled for economies of

scale, common terms

Preferred Provider Capability, Capacity and

Technology Simplified Transactions

Contract with SLAs Pricing Agreement/Discounts

Possible Gain Sharing Longer Term Contract

Integral supply across business units, delivering added value and capability, not so abundant, a pain to re-source, limited

trust

Outcome Based Business Model Performance-Based

Relationship Performance

SRM Governance Performance Incentives

Fees at Risk

Longer term relationship, integrated communication, metrics focused,

cooperative relationship

Vested Outsourcing Relationship

Mutual Gain, Shared Outcomes

Vested Governance Framework,

Performance Incentives Margin Matching

Vested Agreement

Interdependent outcomes, aligned goals and objectives, mutual gain, managed

performance, long term relationship, Win- Win relationship

Investment Based Business Model

Equity Partner Equity Sharing Joint Venture Asset Based

Governance Framework

Legally bound, formal strategic partnerships, mergers and acquisitions,

asset sharing/ holding

Benefits of a Vested Outsourcing Approach


•  BeEer compe**on: not just suppliers, but solu*ons –  Supplier buy-‐in and shared interests –  Variety of solu*ons from which to choose –  Supplier flexibility in proposing solu*ons

•  Focus on intended results, not ac*vi*es –  Increased likelihood of mee*ng corporate goals and objec*ves

–  Mutually beneficial, shared incen*ves drive innova*on and cost effec*veness

–  Par*es have a vested interest in other’s success; shared risk and reward

SPOT and Vested Outsourcing

•  SPOT is the designated Center of Excellence firm for using the Vested Methodology for contact center and BPO opera*ons

•  Offerings include –  Deal Review. Assess current “deals” against the Vested Outsourcing criteria and provide detailed gap analysis

–  Cer2fied Deal Architects. Assist a buying organiza*on on how to structure a Vested deal with one or more suppliers

–  Training. Provide seminars, speeches, and structured classes to teach the methodology and expand awareness


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For addi*onal informa*on info@spotconsul*ng.biz

or go to our web site – www.spotconsul*ng.biz


vested outsourcing and spot brief august 2011

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