Any Vested relationship flourishes best in a culture in which participants work together to ensure their mutual success. In essence, Vested buys desired outcomes, not individual transactions. The service provider is paid based on its ability to achieve the mutually agreed desired outcomes.
Success in Vested requires engagement of five rules. Here we examine the third of those five rules: agree on clearly defined and measurable outcomes.
All parties must be explicit in defining the outcomes they want. These outcomes are expressed in terms of a limited set of — ideally, no more than five — high-level metrics. Organizations should spend the time, collaboratively during the outsourcing process, and especially during contract negotiations, to establish explicit definitions for how relationship success will be measured. Investing time up front in determination of these criteria is a critically important means of ensuring that none of the companies spends time or resources after implementation measuring the wrong things.
Once the desired outcomes are agreed on and explicitly defined, the service provider can propose a solution that will deliver the required level of performance at a predetermined price — often in terms of cost per unit usage. Focusing on outcomes fundamentally shifts the business model, transferring risk from the company that is outsourcing to the service provider(s). Under the purest form of Vested, the company that is outsourcing pays only for results, not transactions; rather than being paid for the activity performed, service providers are paid for the value delivered by their overall solution.
Establishment of the right set of measurement criteria is vitally important. Getting it wrong can result in hundreds of thousands, and possibly millions, of dollars wasted in an outsource solution that is plagued by the ailments described in blogs 1 through 10. The company will have procured a subcontracting assignment that delivers what it asked for, but may not necessarily be what it wants or needs. And, as blog posting #9 advises, use caution to avoid measurement minutiae. Too much of a good thing can yield bad results.
Following Vested Rule #3 prevents the Driving Blind Disease and the Measurement Minutiae ailments.
Read More! Move on to Rule #4 Optimize Pricing Model Incentives