Vested Outsourcing: Gain Sharing in a New Dress?

As long-time readers of Logistics Viewpoints know, I’m a big proponent of Vested Outsourcing (VO), which I believe has the potential to transform the way 3PLs and their customers work together. But whenever I talk about Vested Outsourcing, there’s always at least one person in the audience that quickly jumps to the following conclusion: “Oh, that’s gain sharing, and we tried it before and it didn’t work.”

Equating Vested Outsourcing with gain sharing is an ongoing problem in the industry. Just last week, for example, noted consultants Art van Bodegraven and Kenneth B. Ackerman wrote the following in an article published in DC Velocity:

But metaphoric old girlfriends have a way of showing up in new dresses in our business—once-attractive ideas parading among us, rebranded and repackaged. The latest incarnation of gain sharing is “vested outsourcing,” a concept with roots in the military.

Equating gain sharing with Vested Outsourcing is like equating baseball with cricket. Yes, they share similarities, but they are fundamentally different.

So, what is Vested Outsourcing and how does it differ from gain sharing? For the most detailed answer, I recommend reading my friend Kate Vitasek’s book on this topic or taking the Vested Outsourcing course at the University of Tennessee. But last year, in preparation for our seminar on performance-based outsourcing, I interviewed three senior executives at Unipart Logistics–a logistics service provider that has been on a VO journey for more than two decades with customers such as Jaguar and Vodafone–to obtain their perspectives on the key attributes that define a VO relationship. Based on these interviews, I identified seven critical building blocks that I believe form the foundation and framework for vested outsourcing relationships, and that also re-enforce the “Five Rules” that Kate Vitasek discusses in her book. Here they are:

  • The CEOs as Catalyst and Champions for Change
  • Trust in Each Other’s Expertise
  • Clear “Shared Vision” Statement with End Customer Focus
  • A Contract Structure that Encourages Independent Action
  • Provide Insight, Not Just Oversight
  • Flexibility to Adapt to Change
  • Passion for the Customer Brand

I discussed the first point in a blog posting last year (see “The Missing CEO in Logistics Outsourcing Relationships”). I don’t have the time or space today to address all the other points, but I’ll quickly comment on creating a shared vision statement, using Jaguar and Unipart as an example.

Discussions between the two companies, which began with their CEOs, ultimately led to the creation of the following shared vision statement, which is reviewed at the start of every meeting between the two companies:

”To support Jaguar dealers in delivering a Unique Personal Ownership Experience to Jaguar Drivers worldwide, ensuring industry leading owner loyalty through partnership and world-class logistics.”

This shared vision statement answers two basic questions: Who is the real customer that defines the success of both companies? And how do you measure success? The real customer is every person that drives a Jaguar, and the overriding measures of success are providing “a unique personal ownership experience” and “owner loyalty.”

Determining how to measure “ownership experience” and “owner loyalty” was part of the exercise the two companies went through, along with determining how logistics and other parties in the supply chain impact these measures and what defines world class. But the key takeaway is that this shared vision statement aligned both companies towards a common goal that both unified and transcended the interests of each company. “Our destinies are linked,” explained Paul Brooks, Unipart Logistics Sales Director, during our interview. “If Jaguar’s sales increase, our profits increase, and if their sales go down, we make less money. But we also have the ability to influence sales through the investments we make to innovate and improve our processes.”

This concept of a shared vision statement is also evident, albeit in a different framework, in how Lowe’s and Whirlpool have integrated their CPFR and S&OP processes. Executives from both companies presented their case study at our “Beyond the Perfect Order Metric” seminar in January, and here is an excerpt from their presentation (which was subtitled “Two Companies, One Plan”) that sums up the opportunity nicely:

The environments surrounding the Retailing and Manufacturing industries have evolved to the point that the best way to extract additional value is joint business planning [emphasis mine] in concert with supply chain collaboration.

As the Lowe’s executive noted, “The more successful Whirlpool is, the more successful we are, and vice versa.” It is a recognition, based on mutual trust earned through decades of working together, that their destinies are truly linked. And it’s this firm belief in having a shared destiny (where ‘destiny’ implies a long-term future together) that is often missing from gain sharing agreements. Simply put, most gain sharing agreements are too narrowly focused, both in terms of scope and timeframe, which is why most of them ultimately fall apart.

There are many reasons to dismiss Vested Outsourcing–it requires too much work, it takes two to tango and our customers/suppliers/partners aren’t ready for it–but pointing to a failed gain sharing agreement shouldn’t be one of them.

Vested Outsourcing is not an old girlfriend in a new dress. She’s a different woman, in a league of her own.


  1. I just wanted to leave an overdo book report for Kate Vitasek’s “Vested Outsourcing.

    When I first encountered Kate during a CSCMP Annual Conference presentation she gave on the subject of the Performance Based Logistics (PBL) model for outsourcing relationships in 2007, I felt a sudden jolt pulling me on some on a journey heading somewhere that I knew was better – Nirvana, maybe. Wait a minute! I work in transportation and logistics – where the heck would Nirvana surface? Very hard to say. For sure, the anticipation was created for me that one day some new bell would be ringing to proclaim the glory of a very different level for value to be delivered by transportation and logistics solutions – and there would be much more BFD (yes, this acronym means exactly what you think it does) for everyone!

    Since that first session with Kate, I have forever incorporated the concept of Desired Outcomes into my lexicon and it features as the corner stone of our Business First Approach at Fujitsu’s transportation and logistics consulting practice. So, I could not wait to start Kate’s new book, “Vested Outsourcing (VO).” In the end, I can only judge if a book has been good or otherwise based on the condition it is in after the read. Yikes! With all of my notes, checkmarks, and underlines I have made to highlight important points, I can say that this book has been beaten to hell…my personal two thumbs up.

    As Kate points out in much of her work that I have followed, this journey to achieve bigger and more sustainable business outcomes with outsourced partnerships sure ai n’t easy. Very early in “VO,” we read loudly that unclear expectations and misaligned interests short circuit the outsourcing relationship’s impact. The primary antagonist to reaching this improved level of value is easy to identify, however: the transaction or activity based partnership model that it exist between provider and client. You can simply look at these contracts and read them for yourself. The building blocks for an underachieving ROI are found instantly as you open the document and exist almost on every page with “costs per this” and “costs per that” points accompanied by the famous “assumptions” to hone everyone’s focus on a narrow set of attributes rather than establish accountability for business outcomes.

    For those of us who live on either side of the outsourcing relationship, we bond very well with Part 1 of “VO” as it details many of the shortcomings of today’s traditional model which focus mostly on transactions and activities. In fact, we can almost put names, faces, and places to each of the 10 Ailments that Kate describes in Chapter 4 (in many cases, it would be our own names!). Kate’s research thoroughly describes the multiple dimensions to our pains and challenges and how they drive our ROI underachievement by delivering commodity level results…..even as service levels might be met.

    As I read through this section, I recognized these challenges as what we often see with transportation and logistics process and systems implementation outsourcing. While we all know our target outcomes very well, we engage at a transaction level as partners. Typically we should rally around outcomes such as reduced transportation costs, improved asset and workforce utilization, increased customer satisfaction and reduced IT support and maintenance costs. While there may not be anything sexy about this list, each of these components has hard financial metrics that impact operations earnings for our companies. Well, as my 8 year old son, Duncan said, “Just change the friggin’ model.”


    As we see in Part 1, there are quite a few hurdles to bypass in order for a better way to evolve in outsourcing relationships. Given the fact that we all know change is never easy, “VO” does something very import to capture our attention. The book answers the important question for us all, “Why should we care?” Quite simply, Kate helps us understand that having the outsourcing partners work together to align interests, they can actually create a bigger payoff for each party. Instead of the “one winner-one loser” notion found in the zero sum game rules of today’s model, VO opens our eyes to the vested outsourcing model as a better collaboration framework linking bigger rewards with higher outcomes.

    While “bigger is better” appeals to our core human nature and often drives our MBO’s, “VO” reminds us very pointedly that this model is not for everyone. Kate walks us through the steps to establish a vested outsourcing partnership with appropriate caution and clear description from beginning to end. In this process we learn about the 5 Steps: Lay the Foundation, Understand the Business, Align Interests, Establish the Contract, and Measure Performance. None of them are easy. Kate takes extraordinary effort and time to keep topics and rationale at a very relevant level for us so that we can follow the path and ultimately apply the steps. Additionally, VO provides helpful tools in each section to help evaluate criteria to make better objective decisions. While I found each section very informative and highly interesting on their own, collectively, they do, indeed, add up to a better way with bigger promises.

    In the end, I have to admit that I have been a vested outsourcing “homer” for quite some time given my passion and belief that transportation and logistics outcomes differentiate companies as leaders. So, I knew “VO” would be a good read for me. What caught me off guard a bit and made this book truly outstanding, however, was how much of its framework we have applied in our approach with clients as best practices. Quite simply, I remember well one of the contributing authors, Mike Ledyard, telling us that vested outsourcing is the epitome of Lean as it challenges partners to remove all waste in each step as they focus on achieving higher outcomes.

    I highly recommend “VO” to everyone involved with outsourcing and especially my transportation and logistics colleagues. I has been a terrific influence throughout career and has earned its spot on my desk right next to Dale Carnegie’s How to Win Friends and Influence People.

    Thank you, Kate and team, for being our champions.