In reality, most companies actually have a transactional business model and contract that they call a strategic partnership. Many adhere to a preferred supplier model combined with a transactional contract. Moreover, some companies have a performance-based business model where the suppliers are rewarded based on performance connected to SLAs. More often than not, they are combined with a transactional contract, which we no longer consider to be a viable option is creates opposite interests. In the global outsourcing market, we see large, complex deals covering a vast number of services in many countries where both the buyer and supplier stick to the same old (transactional) routine while expecting different results from a structure that does not enable different results. In order to orchestrate new types of sourcing deals, new RFX models are needed.
Vested: a model for designing the next-generation deals A research group at the University of Tennessee, led by Kate Vitasek, founder of Vested Outsourcing, managed to codify the key elements of successful partnerships based on extensive field study research. The codified solution, called Vested, is, according to the university, a “Business model, methodology, mindset and movement for creating highly collaborative business relationships that enable true win-win relationships in which both parties are equally committed to each other’s success. The reason why companies do not ‘get’ innovation is because they don’t buy innovation. There are several fundamental flaws with how existing outsourcing relationships are structured today. Vested is a combination of an outcome-based business model and a relational contract. It creates business relationships with experts outside one’s own domain, with the aim of achieving ambitious objectives never accomplished before. These relationships are characterized as Vested because they involve creating a relationship in which the parties have a committed and profound interest in each other’s success. To put it simply, the parties are most successful when both reap the benefits.
Your future role as an actor in the outsourcing markets From a buyer perspective, I have found that the sourcing business model needs to contribute to corporate strategy with value beyond savings. It must enable execution of the full corporate transformation agenda. Through combined forces, sustainable business transformation can be achieved faster when a small, yet competent, demand organization collaborates with a “best fit” partner. With that in mind, businesses must also change their way of structuring and crafting their deals.
From a supplier perspective, I have found that suppliers are shifting value creation chains in response to a very challenging business climate where a wider service portfolio (total cost of ownership) will enable suppliers to come closer to their clients. In the process, new value pools arise. Suppliers therefore welcome the movement toward true strategic partnerships, as strategic and complex deals are best orchestrated by using outcome-based business models in collaborative contracts. In the future, suppliers have a real opportunity to become true integrators that deliver real strategic client value that is closely aligned with the buyers’ strategic objectives.
From a procurement perspective, sourcing, as we know it, is slowly disappearing. Strategic relationship management is becoming a hot topic as new business models entering the market create completely new expectations for procurement. For this reason, procurement organizations need to become strategic business partners that focus more on value creation and less on savings. To achieve this, new competencies are needed, as well as knowledge about the market and which approach to use when requesting information, quotations, proposals and even strategic partners.
From a management consultant perspective, I can see definite change as we move away from being perceived as “taking sides.” Our role will be that of a deal architect helping complex strategic businesses by facilitating the process and supporting stakeholders in generating the best desired results for the market.
I believe that strategic partnerships and new business models represent the next level for the outsourcing business.
Lastly, I acknowledge that the “classic” way of carrying out service outsourcing business will remain, but not as the default choice.
Henrik Jarleskog is Senior Manager & Global Co-Lead of EY’s Vested Advisory Services and member of the outsourcing advisory management team. He is a keynote speaker on outsourcing trends, sourcing business models for the future and how to maximize innovation in strategic partnerships.