”What’s In It For We”
Future competiveness is created through effective collaborations between customer and supplier. Strategic partnerships is gaining an increased significance and old business models will be replaced. The Vested-model is already used successfully in large outsourcing contracts.
For David Frydlinger, attorney and partner of the law firm Lindahl, it was like finding a missing piece of the puzzle when he in 2012 found the research on Vested, which described the same problematics he himself experienced in a lot of outsourcing contracts.
David Frydlinger, lawyer and co-owner at Lindahl
- We saw that the participants in complex business deals more often than not developed opposing interest and that our part was writing contracts handling the issues. Despite the fact that we’re moving away from the vertical companies of the 80’s with everything in-house to companies using outsourcing in a larger scale the business and contract models stay the same, says David Frydlinger.
Ordinarily a business deal is much like poker, a zero-sum game, where participants hide their cards and try to outmaneuver each other. In traditional transactions, where supplier gets compensation by the hour or per assignment, contradicting interests develop. The supplier aspire to sell as many transactions as possible at the highest rate possible, while the customer has the complete opposite agenda.
David Frydlinger describes game rules for Vested as being different, where the contract and business models intention is to create collaboration.
− Vested is a business model, a methodology and a mindset, to create collaborations and relationships where both parties are equally engaged in each other’s success. Where both parties cooperate to not only exchange value, but to create it.
Vested is a business model, a methodology and a mindset, to create collaborations and relationships where both parties are equally engaged in each other’s success.
The first step in the Vested-model is to establish a relationship-based contract where both parties understand each other’s goals and strategies. A business model is then added, building on that the supplier will be paid to meet the customer’s needs. For David Frydlinger it is essential that the compensation for the supplier is connected to a value for the customer.
− But nevertheless it’s equally important that old the procuring philosophies, like pressing prices and lowering margins, disappear. That type of behavior aims to maximize the use of supremacy on the market. In complex contracts a relationship based on collaboration outperform those based on power. The connection between trust and growth is undisputable.
Purchasing departments still work as in Henry Ford’s time, with focus on mass production and all parts being exchangeable. Focus on dropping prices contradicts the company’s focus on quality and innovation.
− Customers need to abdicate and realize that a serious collaboration is built on equality. Vested entails a number of guiding principles setting the frames for the relationship. One of those principles is autonomy, of abstaining power, says David Frydlinger.
The conditions for making the Vested-model successful is: an internal consistency within both parties, support from senior management, a true understanding of the trust perspective and as well ‘how-to’ knowledge. The contract should be complex to some extent, for example large outsourcing contracts, where there’s potential for development and mutual value exchanges.
− I often hear “we’re not ready”, but in my eyes that’s an excuse for not wanting to try. Organizational maturity is about resolve. Are we willing to make this change?
The first step to cultivate a relationship-based contract is building trust. Analyzing the relationship in the light of the Vested-model. To what extent are the participants structured after the five rules and six guiding principles that makes the rulebook for the Vested-model?
− Can you complete a “vested light” and adapt two of five rules thinking that it will work? No, you cannot. But if you have proceeded appropriately in your relationship and built a trust between parties there’s no reason to not commit and try, says David Frydlinger.
Five rules for Vested
- Focus on results, not transactions
- Focus on what, not how
- Clearly defined, measurable goals and performances
- Price model for creating the right incentive
- Regulation for creating insight, not monitoring
Six guiding principles
David Frydlinger is an attorney and partner of the law firm Lindahl, where he is operating within the group of strategic contracts. He is a Certified Deal Architect in the Vested-model and the advocate of introducing it on the Nordic market. He also teaches Collaborate Contracting at the University of Tennessee. David is a writer/co-writer of several books, including “What’s In It For We” (Liber: 2015) and “Getting to We – negotiating agreements for highly collaborative relationships” (Palgrave Macmillan: 2013)
Vested is based on award-winning research from the University of Tennessee College of Business Administration. Initially an assignment from the U.S Air Force who continuously exceeded their financial plan in outsourcing contracts. Was there no other way of making contracts? The research team reviewed numerous contracts and could soon identify the factors visible in the successful cases. This was then boiled down to the five rules that makes the foundation of Vested.