Abstract
Contracts are a powerful and often underutilized way to shape the business while involving all stakeholders. There exist stunning stories where an inspiring contract turns a lose-lose scenario into a successful relationship that fosters significant win-win behaviors. The latter will depend on contracting practices adapted to the level of coordination and the outcomes being sought. Inspiring contractual arrangements can drive a better outcome-based approach that is benefiting everyone. Every business is currently oriented toward value-centered outcomes; contracts can help sustain this approach by incentivizing the desired behavior to reward activities that create value, rather than simply reimbursing costs. Contract discussions should not be adversarial, but they should present an opportunity to align consumers' and providers' values while keeping expenditure under control. This chapter discusses real stories where innovative and inspiring contracting styles generate a vast value and realign the business approaches. This chapter is putting the concept and the story together.
TopBackground
This chapter utilize a story telling style to pass the ideas. It is collected from different published resources and case studies in different countries. One idea that is illustrated is going around the fact that the main drivers for the successful stories are trust and partnership to share risks and benefits. His is a response to (Lyons, Krachenberg, & Henke, 1990) question “Why then were the parties willing to push this dimension of trust and move from the traditional hierarchical relationships between buyer and supplier to the innovation of relational relationships?”. Similar idea is illustrated by (Axelrod, 1984) when he stated “As a result, relationships that encourage or mandate repeated encounters offer a means to develop and test the climate of trust, both internally and externally, that is a prerequisite of cooperation”.
Our first story originated in Ukranie and showing how to fight corruption with technology, transparency, and collaboration (Pradhan, 2018). Second story described in detail at (Frey & Schlosser, 1993) and illustrated how ABB and Ford reach the right goal through vested contract that pass multiple phases. Third story illustrated how the business architecture innovation done by TD Bank in cooperation with his partners lead to a win-win situation in which every partner is caring about the others according to (Vitasek, 2016). Fourth story described how the Dell/FedEx relation was transformed from an edge where no company “can squeeze out lemon from the contract” to huge mutual savings and sustained relationship as described by to (Vitasek, Manrodt, Kling, & DeBinedeto, 2018).
One more story discuss how McDonald's supply chain performs shine like a star even throughout troubles, according to (Ovenden, 2020) this is a miracle considering the scale of the task of catering for 69 million customers daily in 36,000 restaurants across 100 countries. The story of Ford $5 minimum wage, which was the news headlines in 1914 according to (Worstall, 2012) showed how Henry Ford launched his innovating employee contracting relationships to enhance his production lines. The idea of moving to partnership while questioning the “the sustainability of the in-house-invent-it-ourselves model” was discussed as Procter & Gamble started looking beyond P&G walls to produce highly profitable innovations that would drive P&G and the parties' value as illustrated in (Vitasek, Manrodt, & Kling, 2012). .
Toward the end of the chapter we discuss how the value based contracting is changing the medical insurance sectors utilizing a partnership model between organizations, employees and service providers as shown in Boeing program (Leader Health Report, 2020) and Intel case (Eggbeer, Morris, & Sukenik, 2016).
Key Terms in this Chapter
Pay-for-Performance: This can be used with a variety of payment models, from fee-for-service to bundled payments. They can incorporate efficiency metrics that are measured for hospitals and physicians.
Value-Based Contracting (VBC): Allow better direct collaboration with provider systems to design new benefit programs. This will apply the style of self-insured employers who are initiating the work directly with providers on profit, plan design, and innovative delivery system reforms.
Vested Contracts: An innovative contracting style the moves the contracting relation from confrontation to cooperation culture.
Transactional: A method of contracting based on measuring cost and quality parameters per transaction. This is an old method that is most common however, it is not suitable for plenty of innovative business scenarios.
Open Contracting: It's open-source software that enabled both government bodies and anyone else to have proper access to the information. Hence, on one hand, government bodies can conduct procurement deals transparently. On the other hand, information about contracts is easily accessible online in open data fashion for whoever needs the info (bidders, media, etc.).