Vested Model: Transforming Facility Management Outsourcing

Published on 4 Oct, 2023
handshake between two partners under a vested model

Asset owners or managers are constantly striving for greater efficiency, lower costs, and maximum profits. The process of outsourcing various service providers for different agendas can be tiring and might not reap the benefits you were expecting. The vested model is one approach that has gained popularity in recent years. It presents better results as compared to the traditional outsourcing model. In this article, we will discuss what a vested model is, how it works, and give an illustration of how it may be used in a beneficial and effective way. 

What is a Vested Model?

The Centre for Executive Education at the University of Tennessee oversaw a research programme that gave rise to the Vested Model in the early 2000s. Kate Vitasek and her colleagues attempted to address the drawbacks of conventional outsourcing models and move away from a transactional and competitive mindset towards one that was more collaborative and value-driven.

A vested model is a kind of outsourcing agreement that goes beyond the typical "buyer-seller" relationship. Instead, it establishes a collaborative partnership between two or more organizations that share the project's risks and benefits. In a vested model, the parties commit to work together towards a shared goal. With each side accepting responsibility for specific outcomes while upholding transparency and open communication.

Vested Model follow the following Five principles:

1. Focus on outcomes, not transactions: 

The Vested Model encourages both parties to accomplish specific goals rather than focusing on transactions. As a result, instead of simply fulfilling a contractual obligation, the buyer and the service provider work together to achieve a common objective.

2. Focus on the what, not just the how:

Vested Outsourcing focuses mainly on defining what needs to be accomplished rather than imposing how a project should be accomplished. As a result, suppliers are able to contribute with their expertise and creativity, resulting in better solutions and outcomes.

3. Flexible and scalable governance:

The governance structure must be both adaptable and flexible of the Vested Model in order to meet the changing needs of both parties. Hence, the governance structure has been developed to support the achievement of outcomes rather than control the service provider. It promotes open communication, collaboration, and shared decision-making between the parties concerned.

4. Clearly defined and measurable outcomes: 

The involved parties define and measure outcomes in a clear and objective manner. By doing this, everyone is on the same page and it is possible to monitor the advancement of the set objectives.

5. Incentives that drive the right behaviors:

Incentives are linked to achieving the desired objectives. This ensures that everyone benefits from the partnership's success and that both parties are driven to strive towards a common goal.

Vested Model: How does it work?

Facility management outsourcing has been a widely used business practice for decades. It enables businesses to concentrate on their core strengths while outsourcing non-essential tasks to external service providers. Previously outsourcing was mostly required for cost-cutting measures. However, the entire business environment is evolving, and factors like ESG and total cost of ownership are becoming increasingly relevant. These changing needs are making it extremely difficult for the current model to sustain for long. The present scenario requires that the relationship between the service provider and asset owner go beyond a demand/supply basis and actually add value. The need is to have partnerships based on collaboration, trust, and agility. 

To adopt the Vested Model, there must be a shift in mindset. If you are an asset owner looking to implement this model, you must move away from the traditional transactional mindset and adopt a collaborative one. Therefore, you should be willing to share information, risks, and rewards with your partner. Additionally, you should be prepared to invest both resources and time into developing a strong relationship with your partner. You should have the following in mind as you proceed to the Vested Model:

1. Identify the problem and define the goals:

If you are an asset owner considering outsourcing to Facility Management, you should first decide what problems you want to solve and goals you want to achieve. There may be several areas to consider, for instance, your primary objective is to reduce the Total cost of Ownership (TCO) for hard services.

2. Define your end objective: 

Once you have identified your problem, you should define your end objective along with how you are going to achieve that objective. The aim of the partnership must be distinct, well-defined, and accepted by both parties. For instance, a typical objective would be to reduce maintenance costs by 20% over the course of three years without impacting reliability and availability.

3. Determine the criteria for evaluating the performance:

The next step is to decide how the partnership's performance will be assessed after the objective has been established. To do this, a modified Service Level Agreement (SLA) must be developed, one that includes targets and key performance indicators (KPIs) for achieving the partnership's objectives. In order to motivate both parties to meet their goals, financials may also be tied to the KPIs. To make sure that the Vested Model is achieving its key objectives and that the partnership is a success, the KPIs must be regularly evaluated.

How much, for instance, can the FM company optimise the maintenance schedule while still achieving the previously discussed objective and the end goal? What degree of flexibility would they have in doing so?

Clear communication channels should be set up to identify and address reliability issues promptly. The service provider must present solutions that will help in achieving the predefined goals. Ultimately, maintaining a high degree of reliability is essential for the success of a Vested outsourcing partnership. If the reliability is not maintained, then it will negatively impact the outcomes and it will be difficult to retain your customers.

4. Choosing the right partner:

When adopting the Vested Model, choosing the right partner is crucial. It is essential to choose a partner who shares the company's goals and objectives and is eager to collaborate and share risks and profits to ensure the partnership's success. The ideal partner should be able to show maturity in their digital stack, indicating their ability to leverage technology for better outcomes. In addition, they have to have successfully completed smaller projects or partial facility management contracts in the past using similar models. It is also crucial to evaluate the partner team's capabilities in every aspect, especially technical skills, as this directly affects the success of the partnership. By carefully considering these factors, you can select the right partner.

The Benefits of Vested Model for your business:

  1. Having a partner rather than simply a vendor can provide you more assurance as you navigate the changing and uncertain times. In a partnership, both parties can contribute to a shared goal while exchanging resources, knowledge, and skills to achieve greater outcomes. 
  1. There are numerous opportunities for collaborative innovation. There is no longer a motivation for FM companies to experiment and innovate because there is no upside for them. Once you show them an outcome, it will motivate them to innovate. The end objective will be met in a quicker, better and more cost-effective manner.
  2. In a traditional model, the procurement takes place on an L1 basis, where the services are chosen depending on the lowest cost. However, this model is not sustainable and necessitate significant changes. 

    Contrarily, the vested model focuses on performance-based contracts that take into account the technical proficiency and skills of the service provider. It guarantees that the service provider have the skills and expertise required to deliver high-quality services. This results in increased customer satisfaction and value for money. Additionally, it encourages a long-term partnership between the buyer and the service provider. This leads to a more collaborative and mutually beneficial relationship.

Successful Application of the Vested Model:

Compass Group and AstraZeneca

On the basis of the "Vested" contracting model, Compass Group, a leading food and facility services company worldwide. They formed a partnership with the pharmaceutical company AstraZeneca. The partnership focuses on integrated facilities management with a workplace experience component. The partnership aims to broaden AstraZeneca's current scope of operations by including hard and soft services, as well as foodservice, across all of its North American facilities. The Vested approach encourages mutually beneficial business partnerships in which both parties have a vested interest in the other's success. This partnership intends to benefit both businesses equally while enhancing AstraZeneca's facilities and having a more positive impact on people, patients, and the environment. The collaboration places a high importance on connecting with the community, sustainability, health and well-being, diversity and inclusion, and technology.

The WELL Health-Safety Rating for the Gaithersburg campus was recently renewed by the Compass Group team; AstraZeneca facilitated the certification in 2021. The Vested Model will assist both companies in transforming their business relationship and pave the way for long-term mutual success.

Johnson & Johnson (J&J) and Sodexo

For nearly a quarter-century, Johnson & Johnson (J&J) and Sodexo adhered to a traditional outsourcing partnership centered on cost reduction. Since the contract model was based on traditional outsourcing with the purpose of delivering continuous savings, neither party was invested in the success of the other. Both faced considerable obstacles with this kind of outsourcing. 

A new outsourcing partnership between J&J and Sodexo was established using the new Vested Model. In order to create an agreement that is mutually beneficial, both sides focus on shared values and goals. J&J solely pays for the outcomes of the operation. Sodexo gets compensated for the value of the services it provides rather than for specific tasks completed. This collaboration focused more on clearly defined outcomes than on transactions.

In conclusion, the vested model is an excellent method of outsourcing that has had tremendous success in the facility management industry. Businesses can gain significant advantages from outsourcing their facilities management (above beyond what they now receive) by focusing on outcomes, aligning incentives, building a governance structure, settling on a plan for pricing, and creating a win-win partnership. The Vested Model requires a shift in mindset, but the benefits of this model make it a reasonable investment for businesses wanting to improve the standard of their facilities management services.