I often talk about the need for insightful governance as an essential part of business frameworks. In fact, it’s what Vested’s Rule 5 is all about. So I was happy to learn about the work of two scholars from Italy’s University of Salerno who have taken this idea a vital step forward.
Giovanni Vaia and Aurelio Tommasetti are fellow academics and the authors of a recent paper, ‘The Role of Contracts and Informal Relations in the Governance of IT Outsourcing Processes‘.
Vaia and Tommasetti write that “the governance of IT outsourcing processes needs the development of complex informal relationships in support of the contracts.” They examine the concepts of “technological dynamism” and “market evolution” in the IT outsourcing sector. In a nutshell, they are writing about what should be radically common sense: that companies that outsource and their service providers face a high degree of uncertainty both in managing and innovating business services.
Their call to action is for adaptation and flexibility in IT outsourcing. Specifically, they advise companies to treat suppliers as strategic partners that are “pushing towards a harmonious and cooperative relationship based on trust and commitment.” They go on to make this interesting and valuable observation: “The more the IT services are outsourced, the more long-term relations last and the focus is on results and trust rather than on the contract.”
Vaia and Tommasetti compare several cases of what they call “static” contract management, or “traditional classic contracting”, with “dynamic” contract management, or dynamic contracting.
It is this latter point that I find compelling, because they basically describe a Vested approach: “The [dynamic] contract does not ever specify what it is necessary to do any time exactly, but it often defines only the aims to achieve and the procedures to follow (or the methods of revision of the main parameters which regulate the contract); the necessary adjustments due to events produced during the relation are regulated time by time, considering the whole development of the relation until the event (these adjustments often concern the amount rather than the price). Finally, the contract guarantees the observance of most contractual terms rather than the legal system, with the fixed incentives and any following agreements.”
While the article is written in classic scholarly language (it’s a tough read for the average practitioner), they are describing a Vested collaborative and flexible framework. Simply put, a contract, whether it involves IT companies or other types of outsourcing endeavours, is more than a formal piece of paper with strict terms and conditions. It creates a relationship among the parties, including less formal interactions. This is very true in the realm of collaborative outsourcing, such as the Vested business model, where a partnership is based on a new mindset of trust and working together to share value.
I also like how Vaia and Tommasetti state that the role of “informal governance” becomes highly important because trust becomes the essential driver to help manage the relationship, something that a rigidly controlled contract can’t easily do. They argue (again radical common sense) that trust allows companies to base the relationship on rules “characterised by flexibility and ability to adapt in order to manage the technological and business uncertainty, to start processes of knowledge exchange, to focus the growth of systems according to the real need of the company and the structural capabilities.”
This is very much along the lines of the topic of our next book on Vested, Getting to We: Negotiating Agreements for Highly Collaborative Relationships, on which I collaborated with Jeanette Nyden and David Frydlinger. The book will be published by Palgrave Macmillan this year.
Thank you Vaia and Tommasetti for bringing some academic diligence to a concept that is so vital to today’s business agreements. Sometimes the world needs academics to “bless” what is common sense!