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Vested Outsourcing: A New Business Model

My first book, Vested Outsourcing: Five Rules that Will Transform Outsourcing, [1] centered on a better, more collaborative way to outsource by outlining the need for business relationships based on trust, collaboration and working together to achieve mutually beneficial goals.

Extensive research by the University of Tennessee faculty resulted in the development of a new, hybrid outcome-based business model called Vested Outsourcing ( The core principle and methodology of the Vested business model is to establish a collaborative outsourcing relationship in which companies and service providers become “vested,” or mutually committed to each other’s success, creating a true win-win relationship, and not just feel-good lip-service.

When an outsourcing relationship goes wrong, it can cost millions of dollars, dissolve market share and ruin consumer confidence in a company or brand. Companies fall prey to what I call 10 Ailments that result in poor outsourcing agreements. The Vested Outsourcing model puts practitioners on a realistic path to outsourcing success, embodied in five key rules, whichwhen applied to a business outsourcing practice will transform outsourcing relationships, increase innovation and improve efficiency.

My second book, The Vested Outsourcing Manual (published by Palgrave Macmillan in June 2011), takes the Vested concept to the next level by providing a practical guide for implementing the Five Rules and crafting a successful Vested agreement.

This article summarizes the manual with a focus on the new, hybrid Vested business model and the creation of a successful Vested partnership by implementing Ten Elements needed for a successful Vested Agreement.

A New Hybrid Business Model: Vested Outsourcing

It’s long past time for a change in the way outsourcing contracts are negotiated and managed.

In 1968 the legal scholar, Ian R. Macneil, observed that most contracts are ill-equipped to address the reality of business needs. In Contracts: Instruments for Social Cooperation, [2] Macneil wrote, “Somewhere along the line of increasing duration and complexity [the contract] escapes the traditional legal model.” He argued that contracts are rooted in the classical approach to contract law, and thus crafted to address transactions and legal protections such as pricing and price changes, service levels, limitation of liability, indemnification and liquidated damages. [3]

Those classical approaches to contract law are still mostly with us. An April 2010 study by the International Association of Contracting and Commercial Management (IACCM) concluded that contract terms remain mired in the classical legal approach of contract law, which focuses almost exclusively and hierarchically on pricing, limiting liability, indemnification, service and transaction levels, risk mitigation and liquidated damages. [4]

The Vested Outsourcing Manual is a step-by-step guide for developing collaborative business-to-business agreements and working rules that will facilitate successful and long-lasting business relationships based on mutually Desired Outcomes.

For example, a common mistake companies make in outsourcing today is that they create detailed statements of work (SOWs) and then try to define too tightly the work to be done. They handcuff their service providers’ innovation and flexibility in this way.

[1] Kate Vitasek, Mike Ledyard, and Karl Manrodt, Vested Outsourcing: Five Rules That Will Transform Outsourcing (New York: Palgrave Macmillan, 2010).

[2] Ian RMacneil, Contracts: Instruments for Social Cooperation (Hackensack, NJ: F. B. Rothman, 1968).

[3] Ian R. Macneil was the John Henry Wigmore Professor Emeritus of Law at Northwestern University School of Law. Macneil died in February 2010 after devoting his life to advocating that contract law needed to be approached from a collaborative rather than an adversarial approach.

[4] “Contract Negotiations Continue to Undermine Value,” International Association of Contracting and Commercial Management Ninth Annual Top Ten Terms Report, April 2010.