Episode 13 of the Public Procurement Leaders Podcast – Sponsored by Ivalua
Have you ever seen the popular YouTube video, The Backwards Brain Bicycle? It’s a great demonstration of how our minds work. In the video, a man attempts to ride an otherwise-normal bike that does the exact opposite of what we expect: turn the handlebars left and the bike goes right; turn right and it goes left. Seems easy enough to master, but crash after crash confirms that simply having information is different from applying it to the challenge at hand.
Such is the experience of Kate Vitasek, a Professor at the Haslem College of Business Administration at the University of Tennessee and founder of the Vested business model. Her passion is studying collaborative, highly successful buyer-supplier relationships to see how they perform better than just “average” deals. Her big break came early in her career, when the United States Air Force funded her study of service acquisitions and provided the opportunity to examine their contracted maintenance of complex weapons systems.
“We were looking for a better way to buy complex services, something the Air Force spends billions of dollars on. They wanted deep, inquisitive research into why some deals succeed and others don’t,” she told host Raj Sharma on the Public Procurement Leaders podcast. Through the study, she identified five key differences that exist between high performing deals and ones that are just average. As she continued to observe these differences through her study, they became the foundation for the five rules of her Vested® business model.
And she is bullish about calling them rules. “When you structure these contracts with service providers, you must follow the rules! Everyone has to rethink what they’re working on.” Just like riding that backwards bicycle, “you have to unlearn what you think you know first.” Toss out the dogma, be certain that policy actually applies, and reject the status quo wherever possible.
She calls it “real play” because the change is happening in real time, with all the participants being challenged to redefine the rules of their relationship while they work to deliver contracted outcomes. This is a good forcing function that acts as a catalyst for change: “They begin to co-create the new rules of the game, and those new rules become the foundation for the new contract,” she says.
So what are the five rules of the Vested business model? The first is outcome-based thinking; a focus on buying the outcome, not the process. Second is an emphasis on the what, not the how of service delivery (similar to performance-based acquisitions) to give the provider flexibility to innovate and creatively solve challenges. The third is to clearly define measurable outcomes, and don’t worry there’s a tool for that: the requirements roadmap (you can download it and other valuable resources in the Vested Open Source Toolkit).
The fourth rule (which, according to Kate, is “where the rubber really meets the road”) is linking the organization’s finances to the business outcomes. Stating you want to “pay for outcomes” is one thing, but having the reporting and account structures to enable that as an economic model is quite another. Whereas rules 1-4 are about crafting the deal, rule five revises the traditional oversight model. She calls it insight vs. oversight because it creates the governance structure that allows the organization to sustain the relationships that have been developed through the process, and which are now critical for delivering the service outcomes.
It’s entirely a change management process, but organizations that follow the 5 rules of Vested® business management will reap the benefits through more productive, efficient and effective service acquisition contracts. Through the collaboration required to relearn the new rules of the game, both parties to the contract come out ahead. But don’t take our word for it; check out this excellent case study on how a public hospital system used Vested to stabilize their Hospitalist program and reduce turnover, improve scheduling and working hours, and promote communications and transparency throughout the system.
There are other lessons, too, so we encourage you to listen to the podcast and read the case studies for yourself. We’re going to be rolling out more content inspired by Kate and the Vested business model, to include workshops and webinars that help procurement teams apply the model to their own complex service acquisitions.
Registration is now open for the upcoming webinar, Vested for Success: An Innovative Approach to Complex Services Acquisition. Vitasek will share her insights and field your questions about how to navigate complex sourcing initiatives to create highly collaborative win-win supplier relationships – even in public procurement acquisitions. Register today.
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