<\/p>\n
\u0410\u041c\u0410\u041d\u0414\u0410 \u041a\u0415\u0420\u0421\u0418: \u0414\u043e\u0431\u0440\u043e \u043f\u043e\u0436\u0430\u043b\u043e\u0432\u0430\u0442\u044c \u0432 HBR \u041e \u043b\u0438\u0434\u0435\u0440\u0441\u0442\u0432\u0435<\/em>, case studies and conversations with the world\u2019s top business and management experts, hand-selected to help you unlock the best in those around you. I\u2019m HBR senior editor and producer Amanda Kersey.<\/p>\n If you\u2019ve ever managed a long-term partnership, you know how quickly a contract that once felt solid can start working against you. Circumstances change, and suddenly what was meant to create certainty is driving tension instead. In this 2019 episode of HBR IdeaCast<\/em>, host Curt Nickisch talks with two experts who argue for a different approach, one that helps leaders build agreements strong enough to handle the unknown.<\/p>\n CURT NICKISCH: Writing a business contract is like predicting the future. It\u2019s a series of if\/then statements \u2013 if this happens, then such-and-such party is responsible for that.<\/p>\n The idea is that neither side really trusts the other. So a contract, backed up by the highest legal authority, gives a company something that it can put its trust in. That\u2019s why a firm\u2019s lawyers include every little thing they can think of.<\/p>\n But the one thing we know for certain about the future is that it is uncertain. The most carefully-worded, bulletproof contracts can fall apart once they hit the reality of modern business dynamics. Inevitably, when one side gets the short end of the stick, since they can\u2019t change the contract, even subconsciously, they try to get even.<\/p>\n Our guests today show a better way to make complex deals between firms \u2013 a so-called \u201cRelational Contract.\u201d Instead of trying to spell out every scenario that could ever happen, this style of contract outlines guiding principles of the strategic partnership.<\/p>\n Oliver Hart is a Nobel Prize winning economist at Harvard University. And Kate Vitasek is faculty at the University of Tennessee. They\u2019re the coauthors, along with Swedish attorney David Frydlinger, of the HBR article \u201cA New Approach to Contracts\u201d. Kate, and Oliver, thanks for being here.<\/p>\n OLIVER HART: Thank you.<\/p>\n KATE VITASEK: Excellent, glad to share our work with you.<\/p>\n CURT NICKISCH: Oliver, let me start with you. You have spent a good deal of your career studying contracts and you won a Nobel Prize for some of this work \u2013 trying to figure out how to make contracts more effective. When did you realize that the traditional, classic contracting approach couldn\u2019t be improved upon and something new needed to be tried?<\/p>\n OLIVER HART: Well, for me it was an interesting journey. I actually \u2013 most of my work didn\u2019t have these notions of fairness in it. I was approaching this under the sort of standard economics assumptions that everybody was rational and self-interested.<\/p>\n That\u2019s what economists like to assume. But it turned out that although I made some progress on that with coauthors, and that\u2019s really the work that was recognized by the Swedes, I eventually hit a brick wall because in a way it\u2019s like what you were saying: Can\u2019t you always do a little bit better with a standard contract? Why can\u2019t you get all the way?<\/p>\n At some point I realized something must be gumming up the process. And I realized it was \u2013 I decided it was behavioral things like a concern with fairness and that kind of thing. Which was not the traditional approach. It was a hard sell. Because although behavioral economics has become very big, it\u2019s not so much the case in the contracting area.<\/p>\n The good news for me was that when I went to Sweden to get the prize, there was this Nobel week where you get all sorts of invitations \u2013 far too many, you can\u2019t do. But one that looked attractive was from a Swedish law firm. And it was David Frydlinger who invited me to come talk about my work.<\/p>\n And it resonated with what he was doing in practice, part of which was with Kate. And so we joined forces. It was serendipity actually.<\/p>\n CURT NICKISCH: That\u2019s great. So why is the best contract not good enough?<\/p>\n OLIVER HART: It turns out writing good contracts is, is very difficult. When we\u2019re talking about longish term relationships, or anything other than a simple transaction, which is over fairly quickly. However much time you spend trying to think about all the things that can happen, you\u2019re never going to cover them all.<\/p>\n KATE VITASEK: So, if you think about it from a businessperson\u2019s perspective, business happens. We live in a dynamic world, and it is going to change. So, no matter how much you think about what you want to write in that contract, it\u2019s obsolete day two, day 20, two months in, two years in.<\/p>\n So, a great example would be in the article we talk about Island Health and the Canadian government, one of the health authorities, and their doctors, the hospitalists. The government passed a law for medical assistants and dying. No one knew that that law was going to happen. Well, that put a new workload on the doctors.<\/p>\n It wasn\u2019t in how they paid the doctors, so how are we going to deal with this new situation that no one thought about? And so, you get into this back and forth tit for tat. Well, that\u2019s not in the contract, I\u2019ll have to charge you for it. And you get in these little battles, and if you don\u2019t manage them fairly it creates a negative cycle of tit for tat, and people get frustrated with that. And it\u2019s no one\u2019s fault. Business is dynamic.<\/p>\n CURT NICKISCH: So, you together have helped develop a framework and a toolkit for businesses to create these kind of relational contracts. What\u2019s important to understand about this kind of contract?<\/p>\n OLIVER HART: What we are really arguing in this article is that a better approach is to acknowledge that you can\u2019t cover everything in the contract, and try to figure out procedures you\u2019re going to use to deal with situations which the contract doesn\u2019t cover.<\/p>\n KATE VITASEK: And the process is equally as important as the end point. So, step number one, is laying the foundation, and having a candid discussion about what type of relationship do you want. Do you want to have a transactional relationship, or do you want to have a relational contract? And they are different animals.<\/p>\n And once you have this ah-ha moment that we\u2019re in a relationship, and I need to approach how we get to the contract through the lens of a relationship, then and only then, can they continue with the process to co-create a shared vision.<\/p>\n Where is it we want to take this relationship. How, what do these guiding principles mean? The guiding principles are social norms. We didn\u2019t event them, right? Honesty, reciprocity, they\u2019re known and well researched social norms that are proven to make societies work better.<\/p>\n All we\u2019re doing is having the parties manifest them as the rulebook of the relationship. So, when business happens, how do we apply these guiding principles. Then we actually align the expectations, and interests, we get to the meat of the deal, and then we put, and package it with our governance mechanisms. How do we stay aligned, what are the governance mechanisms to keep us in economic equilibrium as business happens.<\/p>\n CURT NICKISCH: It strikes me having a job is a relational contract in the sense that you don\u2019t really have a lot spelled out. It\u2019s very spare when you look at, you know, what your hiring contract says, and your work can take you in many, many different directions. And that\u2019s a relational contract that just isn\u2019t too, too specific. And that\u2019s maybe one of the reasons why that, you know, it\u2019s more ambiguous, but that\u2019s also part of the strength of it.<\/p>\n KATE VITASEK: Right, and when your personal goals are aligned with the business, you can do some really cool and innovative things. You\u2019re passionate about your job. And if you\u2019re treated as, you know, arm\u2019s length, you\u2019re just a transaction, and I\u2019m paying you per hour, you tend to get disconnected with that work, and you lose a lot of the innovation, the passion, the commitment for that.<\/p>\n CURT NICKISCH: And so, it\u2019s the same with like a supplier that you\u2019re invested in for a long time, and a business who does not want to have to switch suppliers?<\/p>\n KATE VITASEK: Yeah, and dependency \u2013 you talked about switching \u2013 in the perfect world we have zero switching costs. You know, if you can just got to Amazon, and just switch suppliers because you didn\u2019t get what you wanted, that\u2019s great.<\/p>\n But in these more complex, especially service-oriented type things where you don\u2019t have a spec, or you need innovation, you need that supplier to make investments on your behalf, so the more dependency, the more strategic impact, and the more risk, we can actually work together in a highly transparent manner to reduce risk, to mitigate risk, to eliminate them instead of shifting them.<\/p>\n OLIVER HART: So, your employment example is a very good one. And I think what we see in some employment situations is a corporate culture which is very important. And just ways of doing things in that company that are sort of entrenched and that protects people against bad treatment. That\u2019s just not the way we do things here.<\/p>\n CURT NICKISCH: I heard a story about W.L. Gore where the managers will often say to somebody, is this a good deal for the supplier? Like the values of the company, in that sense, and the company culture are built in to how they try to do business. But it sounds like relational contracts help you take that kind of culture and help you build it into a, into a joint agreement, or into the culture of a long-term strategic relationship.<\/p>\n KATE VITASEK: Yeah, we like to use an analogy that your contract is a playbook, right? It\u2019s not just this legal document, and many people are afraid of the legal document, and they want to put it, you\u2019ve heard it, put it in the drawer. The perfect contracts are the ones we put in the drawer and ignore.<\/p>\n OLIVER HART: It\u2019s also about seeing this deal of a way of creating some surplus, you know, when the parties sit down together and talk about their vision, they are really thinking in those terms, as opposed to just I want as much as I can get, and I don\u2019t care about you. I want to minimize what you get so that I can get more. It\u2019s more about how can we make the pie bigger, and then, you know, and also come up with a reasonable way of dividing it?<\/p>\n CURT NICKISCH: I love this idea of disruption almost of the way contracts have been done. What kind of financial benefits do you see here? And can you give some examples of relational contracts in practice, where there\u2019s been a payoff like this?<\/p>\n KATE VITASEK: Yeah, for example, Dell and FedEx had been working together for eight years.<\/p>\n CURT NICKISCH: So, this is a computer manufacturer and a shipper.<\/p>\n KATE VITASEK: Yep. Especially back in the day, Dell manufactured computers. FedEx wasn\u2019t necessarily a shipper, they were the reverse logistics supplier. So, think about your Dell computer broke, and it goes off to be repaired. The entire repair process, all aspects of that were with, at the time, a company named GENCO, which is now part of the FedEx family.<\/p>\n And if you look at their baseline for their cost, they had what they called a cost per box. Right? And so, they would negotiate, bid it out, and FedEx would always win. They\u2019re the best supplier. Like FedEx won again. And so, they tried to have the hammer.<\/p>\n So, Dell being a big company could put these competitive pressures on FedEx, and so, yeah, I don\u2019t want to lose the work so I\u2019m going to lower the price a little bit every year, right? Dell\u2019s demanding 2 percent, 3 percent, 5 percent, 10 percent every year, oh the economy is bad, we have to do this.<\/p>\n CURT NICKISCH: All of the sudden you have a client that you can\u2019t live without that is actually costing you money.<\/p>\n KATE VITASEK: Exactly. And so, when it gets so bad, these, these shading and shirking happens where you\u2019re not acting as fairly, or you try to get even. And so, the relationship was very unhealthy.<\/p>\n CURT NICKISCH: So, what did they do?<\/p>\n KATE VITASEK: So, they reached out. One of the executives in the supply chain group, a vice president of the supply chain was familiar with our research and said, we\u2019ve tried other ways, it\u2019s not working, let\u2019s pilot this vested methodology, give it a try.<\/p>\n And so, they had a two-day offsite meeting in Dallas, it was kind of a funny story. It wasn\u2019t in Austin, and it wasn\u2019t in Nashville, they met in a neutral place, and discussed trust, and why their contract wasn\u2019t working. And so, they committed then that they would look at their relationship then very differently, and they followed the process.<\/p>\n In nine months, they had reduced the cost, the total cost of ownership reflected through the cost reduction by 40 percent right? It is absolutely amazing. And why can they do that? It\u2019s because now they\u2019re being transparent.<\/p>\n So, it\u2019s not FedEx looking at just their four walls, and Dell looking at theirs. They\u2019re looking at the total cost of ownership, they\u2019re looking for all this, you know, the friction, and they\u2019re developing co-creating projects to eliminate the friction.<\/p>\n We call them ponies. Right, everybody wants to find a pony when they\u2019re a kid.\u00a0 They\u2019re saying wow, what if we could go do these big ideas, how would we work together to go do that. So, they\u2019re contracting around the behaviors, it builds trust. So, every single metric that they looked at improved.<\/p>\n CURT NICKISCH: Oliver, when you hear Kate talk about that, you hear a lot of emotion, right? In this business relationship. So what stops people from doing this?<\/p>\n OLIVER HART: Very good question. I think they need to be nudged into it. It\u2019s a, I would like to think that people just haven\u2019t realized it,<\/p>\n CURT NICKISCH: I\u2019m jumping in here because this remind me a lot of the old adage, in the day, nobody got fired for buying IBM. It\u2019s like nobody got fired for saying let\u2019s have the lawyers look at this.<\/p>\n OLIVER HART: Yes, that\u2019s right. Very good, yes. It\u2019s the way they\u2019ve done it. I\u2019ve even been involved in legal cases as an expert where I\u2019ve seen contracts that very, very sophisticated firms write with each other which I find incomprehensible. I defy anybody, you know, it\u2019s just not clear what on earth it all means.<\/p>\n So, you know, why do they do it that way? Does it really have to be done that way? I think the answer is no, but I think people haven\u2019t systemically thought about alternatives. So, what I think is potentially exciting about the work we\u2019re doing is because it combines practice and theory, I think it\u2019s that combination that may get people to take this stuff more seriously.<\/p>\n KATE VITASEK: Yeah. I have a saying, the only person that likes change is the wet baby. And the better we are at something, the more expert we get, the less we want change. These companies have policies, you must use our standard terms and conditions, you need a special waiver. You\u2019ve got politics and processes that are wrapped in dogma of 20, 30, 50 years.<\/p>\n So, where people have chased the perfect contract, it\u2019s only until it\u2019s impossibly broken that they\u2019re willing to change. Dell, one of the executives said this is radical common sense, how come we don\u2019t do it? We have policies that actually prevent us from it. This is fluffy. Contract for the relationship, really? Where\u2019s my statement of work?<\/p>\n CURT NICKISCH: Yeah, what about, let me ask a lawyer question then here. What happens if this goes to court? Like how do you say that somebody didn\u2019t follow those guiding principles?<\/p>\n KATE VITASEK: So, fantastic question. Because it\u2019s your playbook, and it\u2019s the mechanisms for the relationship, we find it actually keeps people out of court because now they have a way of solving problems. They have an expectation to put the elephant in the room, to be transparent, to be honest, to act consistently, to accept the fact that, you know what, business will happen, we will be in disputes.<\/p>\n So, rather than fight it, we\u2019re going to embrace the fact that we have to have mechanisms to get through this, and to stay in economic equilibrium. The deal is not about the price for the point and time, it\u2019s about the relationship, and how we unlock the potential of that relationship, and solve problems because it will happen.<\/p>\n OLIVER HART: And one of the things that Kate, and David, and the others have found is that, is that the parties will actually refer to the guiding principles. So, I\u2019ll say, or you\u2019ll say, look, we\u2019re in this situation, it wasn\u2019t covered by the contract, and you agreed to be equitable, or to be loyal, or to show this.<\/p>\n And I might have forgotten that I did say that, but when you point to it, this is one of the reasons it\u2019s good to have it written down as part of the contract, that you can point to it, and I\u2019m going to say: ah, that\u2019s true, I did do that, and now I\u2019m going to therefore adjust my behavior. And that can keep us out of litigation.<\/p>\n But the other thing is, if you imagine going before a judge, or a jury, whatever, I mean, the fact that we use these words, they can take those into account into deciding what the right outcome is. So, in that respect, these things are potentially enforceable. But personally, I think their main role is when we\u2019re resolving the things ourselves.<\/p>\n CURT NICKISCH: Yeah, you\u2019re forced to say this doesn\u2019t feel equitable to me for these reasons, and you have to talk through that problem.<\/p>\n KATE VITASEK: Right, and you\u2019ve committed to transparency. I can check your numbers, you can check, right? And so, it creates an environment that\u2019s very conducive to work on the optimal situation.<\/p>\n So, in these contracts, we call them vested because you\u2019re vested in each other\u2019s success. The best outcome is when we create the optimal solution, we expand the pie, we share the pie. Or if it\u2019s a losing situation, we lose together, or we win together. You\u2019re far in a better situation if you\u2019re in the same boat both bailing instead of one party winning at the other party\u2019s expense, then you start to get crazy behaviors that just, they\u2019re exponential in cost, and psychological damage.<\/p>\n CURT NICKISCH: Does this work across country lines where legal relationships and laws get even more complex?<\/p>\n KATE VITASEK: Yeah, actually most of the deals that we see are very large complex deals, maybe global in nature, definitely cross-country. Telia, the Swedish telco cross-Nordics, so different laws, and the more complex it is, the more that this makes sense.<\/p>\n OLIVER HART: Corporate culture can trump national culture. Because people have asked me, can this works let\u2019s say within a, between an American company, and a Chinese company, or an American company, and an Indian company. And I think your feeling is, or David\u2019s feeling is, yes it can. Because you can activate these norms, even if people come from different backgrounds.<\/p>\n KATE VITASEK: Absolutely. Culture, country culture does play some regards, so the Nordics for example, much more into these kinds of behaviors. You know, when we teach a class over there in the Nordics they go wow, of course we should have been writing our contracts this way. But in the U.S., it\u2019s more this is not the way we\u2019ve done it. But you have a company ethos that says innovation\u2019s important to me, yes, we\u2019re in these relationships\u2013<\/p>\n CURT NICKISCH: We need to move fast.<\/p>\n KATE VITASEK: \u2013we need to, we need to do this. It\u2019s our culture to embrace flexibility. And they only had the traditional way. You know, don\u2019t fight the buggy whips. You\u2019re in buggy whip manufacturing mode. The automotive industry is coming. We\u2019re in the 21st Century, and we have to embrace a more dynamic way to address these complex contracts.<\/p>\n CURT NICKISCH: Oliver, and Kate, thanks so much for coming on the show to talk about this.<\/p>\n OLIVER HART: You\u2019re very welcome.<\/p>\n KATE VITASEK: Excellent, and as we like to say, change the world one deal at a time.<\/p>\n CURT NICKISCH: That\u2019s Oliver Hart, professor of economics at Harvard University, and Kate Vitasek, faculty at the University of Tennessee. They are coauthors, along with the Swedish attorney David Frydlinger, of the HBR article \u201cA New Approach to Contracts: How to Build Better Long-Term Strategic Partnerships.\u201d<\/p>\n AMANDA KERSEY: HBR \u041e \u043b\u0438\u0434\u0435\u0440\u0441\u0442\u0432\u0435<\/em> \u0432\u0435\u0440\u043d\u0435\u0442\u0441\u044f \u0432 \u0441\u043b\u0435\u0434\u0443\u044e\u0449\u0443\u044e \u0441\u0440\u0435\u0434\u0443 \u0441 \u043e\u0447\u0435\u0440\u0435\u0434\u043d\u043e\u0439 \u043f\u043e\u0434\u0431\u043e\u0440\u043a\u043e\u0439 \u0441\u0442\u0430\u0442\u0435\u0439 \u0438\u0437 Harvard Business Review. \u0415\u0441\u043b\u0438 \u044d\u0442\u043e\u0442 \u044d\u043f\u0438\u0437\u043e\u0434 \u043f\u043e\u043c\u043e\u0433 \u0432\u0430\u043c, \u043f\u043e\u0434\u0435\u043b\u0438\u0442\u0435\u0441\u044c \u0438\u043c \u0441\u043e \u0441\u0432\u043e\u0438\u043c\u0438 \u0434\u0440\u0443\u0437\u044c\u044f\u043c\u0438 \u0438 \u043a\u043e\u043b\u043b\u0435\u0433\u0430\u043c\u0438, \u0430 \u0442\u0430\u043a\u0436\u0435 \u0441\u043b\u0435\u0434\u0438\u0442\u0435 \u0437\u0430 \u0448\u043e\u0443 \u043d\u0430 Apple Podcasts, Spotify \u0438\u043b\u0438 \u0432 \u043b\u044e\u0431\u043e\u043c \u0434\u0440\u0443\u0433\u043e\u043c \u043c\u0435\u0441\u0442\u0435, \u0433\u0434\u0435 \u0432\u044b \u0441\u043b\u0443\u0448\u0430\u0435\u0442\u0435 \u043f\u043e\u0434\u043a\u0430\u0441\u0442\u044b. \u041f\u043e\u043a\u0430 \u0432\u044b \u0442\u0430\u043c, \u043e\u0441\u0442\u0430\u0432\u044c\u0442\u0435 \u043d\u0430\u043c \u043e\u0442\u0437\u044b\u0432.<\/p>\n \u041a\u043e\u0433\u0434\u0430 \u0432\u044b \u0431\u0443\u0434\u0435\u0442\u0435 \u0433\u043e\u0442\u043e\u0432\u044b \u043a \u043d\u043e\u0432\u044b\u043c \u043f\u043e\u0434\u043a\u0430\u0441\u0442\u0430\u043c, \u0441\u0442\u0430\u0442\u044c\u044f\u043c, \u0442\u0435\u043c\u0430\u0442\u0438\u0447\u0435\u0441\u043a\u0438\u043c \u0438\u0441\u0441\u043b\u0435\u0434\u043e\u0432\u0430\u043d\u0438\u044f\u043c, \u043a\u043d\u0438\u0433\u0430\u043c \u0438 \u0432\u0438\u0434\u0435\u043e \u0441 \u043b\u0443\u0447\u0448\u0438\u043c\u0438 \u043c\u0438\u0440\u043e\u0432\u044b\u043c\u0438 \u044d\u043a\u0441\u043f\u0435\u0440\u0442\u0430\u043c\u0438 \u0432 \u043e\u0431\u043b\u0430\u0441\u0442\u0438 \u0431\u0438\u0437\u043d\u0435\u0441\u0430 \u0438 \u043c\u0435\u043d\u0435\u0434\u0436\u043c\u0435\u043d\u0442\u0430, \u043d\u0430\u0439\u0434\u0438\u0442\u0435 \u0432\u0441\u0435 \u044d\u0442\u043e \u043d\u0430 HBR.org.<\/p>\n This episode was produced by Mary Dooe and me, Amanda Kersey. On Leadership<\/em>\u2019s team includes Maureen Hoch, Rob Eckhardt, Erica Truxler, Tina Tobey Mack,<\/p>\n Ramsey Khabbaz, Nicole Smith, and Anne Bartholomew.<\/p>\n \u041c\u0443\u0437\u044b\u043a\u0430 \u043e\u0442 Coma Media. \u0421\u043f\u0430\u0441\u0438\u0431\u043e \u0437\u0430 \u043f\u0440\u043e\u0441\u043b\u0443\u0448\u0438\u0432\u0430\u043d\u0438\u0435.<\/p>\n<\/p><\/div>\n #Contracts #Strengthen #Strategic #Partnerships<\/p>","protected":false},"excerpt":{"rendered":" AMANDA KERSEY: Welcome to HBR On Leadership, case studies and conversations with the world\u2019s top business and management experts, hand-selected to help you unlock the best in those around you. I\u2019m HBR senior editor and producer Amanda Kersey. If you\u2019ve ever managed a long-term partnership, you know how quickly a contract that once felt solid […]<\/p>","protected":false},"author":1,"featured_media":3177,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"footnotes":""},"categories":[9],"tags":[],"class_list":["post-3826","post","type-post","status-publish","format-standard","has-post-thumbnail","hentry","category-management"],"acf":[],"yoast_head":"\n