Assignment task:
Last week we looked at the complex and well-litigated area of traditional contract formation. However, in an era when businesses increasingly have to depend on their suppliers to lower costs, improve quality, and drive innovation, sometimes traditional contracts don't work. They often undermine the partner-like 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.
Step One: Review
Article: A New Approach to Contracts posted at Harvard Business Review
Step Two: Make note of the theoretical underpinnings of formal
Step Three: Provide a detailed explanation as to whether a traditional transactional contract or a formal relational contract, as described in the article, would work best in the company where you are presently employed. Why would one work better than the other? What is it about your company that affects that choice?