“Aquila non capit muscas – The eagle does not hunt for flies” Queen Christina of Sweden (1626 –1689)
M.M.Hassan “Eagle, rabbit, hunt, wildlife” Creative Commons
The Pareto Principle (or 80/20 rule) “asserts that a minority of causes, inputs or effort usually lead to a majority of the results, outputs or rewards.” In the commercial space, this means we should focus our efforts on the top twenty percent of items that drive value to our organisation. Therefore, contract negotiations, meeting agenda, commercial terms, and all other contract matters should focus on these top issues, but is this case in practice?
Successful collaboration requires all parties to focus on common goals, seek win-win outcomes, and champion continuous improvement. Sadly, many collaborative relationships falter because they get bogged down in trivial issues that ultimately have little or no impact on the joint objectives. The adage “don’t sweat the small stuff” should be at the forefront of everyone’s thinking so we are not distracted by issues or risks that are inconsequential. In this month’s blog, we explore strategies that allow us to focus on value creation and not get side-tracked by meaningless issues.
Focus on the Purpose
In our previous blogs, we emphasised the need for a clear and shared vision of success. Our vision should be our North Star that steers us to success. With a common purpose, we should be far less distracted by trivial issues and matters. This is precisely the point Malnight, Buche and Dhanaraj make in their paper; Put Purpose at the Core of Your Strategy, where the authors identify that high performing companies “let purpose be their guide”. All decisions and interactions must keep this principle in mind so that we focus on value creation and do not waste time on administrivia. Where issues do arise then parties should simply ask the question ‘so what’? If an issue has no tangible impact on the delivery of the purpose or vision, then we should not be expending resources on this issue.
Adopt a Collaborative Attitude
Quite often disputes and issues arise because of a lack of trust, a lack of understanding of counterparties’ views, and cultural momentum whereby we are locked into out traditional black letter law way of doing business. For successful collaborative ventures we need to be open-minded and recognise that all parties want mutual success.
This is the theme of Gino’s paper, Cracking the Code of Sustained Collaboration, where she observes that:
In successful collaborations, each person assumes that everyone else involved, regardless of background or title, is smart, caring, and fully invested. That mindset makes participants want to understand why others have differing views, which allows them to have constructive conversations.
With such an attitude, we are far less likely to be suspicious and cynical of each other’s motives. This means that trivial issues will not become the focus of discussions and we can devote our energies to more productive endeavours. Of course, this approach will only work if we have the right team who are committed to collaboration. This means we must be very careful in our selection process from both the buy side and sell side.
Craft an Effective Commercial Framework
Many commercial frameworks introduce unnecessary checks and balances that add no value. Countless boilerplate contracts demand detailed reports, plans, and weekly meetings that are often unnecessary. These should be avoided for the following reasons:
- The cost of reporting can be high. It is the customer that ultimately pays this cost;
- Reporting diverts critical resources away from the core objective of delivering outcomes; and
- Where errors occur in reports, reports are delivered late, or they omit contractually agreed content then corrective action must occur. Contract managers must intervene, otherwise they may waive rights under the contract. This is a catalyst for disputes and adversarial relationships.
We should therefore craft a commercial model that minimises the reporting effort, encourages shared systems (with a single source of truth), and embrace a disputes and issues resolution process that encourages resolution at the lowest level possible. Similarly, we need a remuneration model that does not allow cash flow to be jeopardised to suppliers for inconsequential acts or omissions.
This does not mean we abandon all reporting under our contracts. Accurate and timely reporting is essential for many items, especially where we use Performance Based Contracts with Key Performance Indices linked to profit. Rather we need be very careful we do not ask for information that will never be used. An effective strategy here is to specify a minimum level or reporting (preferably with real time access using shared systems) and then identify desirable information.
In addition to ensuring only the essential information is required in our contracts, we also need to make sure our contracts are:
- Simple and unambiguous so we do not waste resources with interpretation issues;
- Under tight configuration management so there is no confusion on what the contact baseline is;
- Outcomes based, and do not specify how the work needs to be done; and
- Flexible so that change can be implemented quickly and fairly.
Consistent with the Pareto Principle, we need to focus our efforts on the value drivers. Associated with this, we need to filter out the noise in our contract relationships by ensuring; all parties share a common vision of success, we approach the relationship with the right attitude, and we have a commercial framework that eliminates noise or mitigates distractions.
 R. Koch, The 80/20 Principle: The Secret of Achieving More with Less (1997) p 4.
Richard Carlson, ‘Don’t Sweat The Small Stuff – and it’s all small stuff’ (1997).
 Thomas W. Malnight, Ivy Buche, and Charles Dhanaraj “Put Purpose at the Core of Your Strategy” Harvard Business Review (September – October 2019).
 Francesca Gino “Cracking the Code of Sustained Collaboration: Six new tools for training people to work together better” Harvard Business Review (November–December 2019)
 World Commerce and Commercial “Ten Pitfalls to Avoid in Contracting” (2015).