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In an era when businesses increasingly have to depend on their suppliers to lower costs, improve quality, and drive innovation, traditional contracts don't work. They often undermine the partnerlike relationships and trust needed to cope with external uncertainty. The remedy is to adopt a totally different kind of arrangement: a "formal relational contract" that creates a flexible framework designed to foster collaboration in complex strategic relationships over the long term. These contracts, which are legally enforceable, specify mutual goals and establish governance structures to keep the parties' expectations and interests aligned. They are especially useful for complex purchasing arrangements, outsourcing, strategic alliances, joint ventures, franchises, public-private partnerships, large construction projects, and collective bargaining agreements. Crafting a formal relational contract involves five steps: laying the foundation, co-creating a shared vision and objectives, adopting guiding principles, aligning expectations and interests, and creating systems for staying aligned.

This case concerns Microsoft's attempt to completely restructure its major global finance processes and operations through what the authors call a Vested Outsourcing agreement. In February 2007, Microsoft signed an outsourcing agreement with Accenture, with an original contract term of 7 years at a value of US$185 million. This was extended 2 years later, to 2018, with expanded scope, and a total contract value of $330 million. Called the OneFinance initiative, the effort outsourced nearly all back office finance transactions spread across 95 countries to service provider Accenture under a new kind of outsourcing model. Under the agreement the parties operate under incentives to improve performance and deliver increased value year-over-year, while sharing in the risks and rewards of doing so. The case focuses on the rationale for this distinctive approach to outsourcing and transformational change, and provides details of the definitions of work, measurements, pricing models and governance structures adopted. The fine-grained account of the OneFinance outsourcing arrangements provides an opportunity to identify the distinctive principles and practices adopted by the parties. Readers can compare and contrast the case with other outsourcing deals and assess the challenges in choosing the supplier and the approach. The case also invites an assessment of the risks being incurred, the inherent implementation and operational challenges and how they might be met. The case also raises questions about what levels of success might be achieved, and what conditions would need to be present for success. Finally, the case raises the issue of whether, and if so how, this distinctive 'vested' approach could be adopted elsewhere.