Matt's Articles

Legal Agreements: A place for systems thinking

As an industrial engineer my training and work experience have caused me to look at life through a slightly different lens than most people. While waiting in a long line I find myself mentally walking through 5 Whys Analysis trying to root cause the problems that is creating the large queue. Is there a capacity constraint? Could it be a large variation in customer arrival times? Is it possible there is a lack of standards in processing? Airports are a special place for me. I often wonder if there is a cost effective aircraft design that would allow me to carry all of my luggage on board to alleviate all the luggage handling and labor time required or what is the cost benefit analysis behind security checks? I tend to see everything as a process system and I know that every system can be improved. As I ramp up my small business, I see opportunity in the business environment.

As a new business owner, I have made it a point to learn from other consultants in my field. Many of them have stressed the importance of contracts and understanding agreements with your clients. The danger we run into as practitioners is that we rush to begin solving the client’s problem without enough emphasis on the agreement with the client. It was no wonder to me that this is true after working with my lawyer to develop a standard Master Services Agreement (MSA). My standard MSA is 8 pages and over 5000 words long. To my lawyer’s credit it covers a host of potential risks, uses plain language, and explains what I do a very clear way. Still I have to reread sections at times to really make sure I understand the intent of the language. And when I compare my MSA to other consultants’ or company’s standard agreements the precise language it quite different. On goes my process systems hat.

The first step to analyze a process system is to establish the purpose from the customer’s perspective. If there is no customer or end user purpose than the activity is pure waste. The purpose of an MSA is to create a mutual understanding and legally binding “agreement” with another entity. Merriam Webster defines “agreement” as “harmony of opinion, action, or character”. This is a critically important purpose, both for my business and my customer. I seek harmony with my client in the actions that I perform for them. This is fundamental to the success of my business. Then, it occurs to me that if we are seeking harmony then why is it that the precise language in these agreements is so different? I asked my lawyer this question, and to his credit again, he patiently and succinctly answered my questions. He explained to me that different lawyers have different styles. These style differences are the result of education, experience in trial, variations in judgments received, variation in the court system itself, variations in interpretation, variations in risk profiles of the companies where they work or where they learned their trade. While this is not a full 5 Whys Analysis, it certainly a good start on a Cause and Effect Analysis. To combat all these varying factors and risks lawyers create custom language for each client and situation.

Where is Dr. Deming when you need him? From the lenses that I use to view the world this just adds more variation and results in an expensive system. Try this analogy, a carpenter could probably tell us how to design a custom chair to accommodate each variation in floor, room, posture and rear end. They could probably also tell us why it is so important that each chair be custom designed. The problem with this approach is that a custom designed chair for each person would require a large amount of time and effort resulting in far fewer chairs in the world and a lot more variation in quality. I like sitting on a chair even if the chair is not precisely designed for my bum. Standards have allowed the creation of a wide range of chair designs, accommodating many different needs, while still reducing the customization and resulting in reduced time and effort to build a chair. In return we have a world full of good quality affordable chairs. I suppose a chair is not as critical as a legal contract, but how about an automobile? Automobiles present many more variation challenges and life or death situations. In fact, it is automobile and aerospace manufacturing where much of process systems thinking emerged.  

As I break down my contract into its component parts I find that there are great opportunities for standardization. For example, why should one Force Majeure statement vary at all from another? Businesses are all mitigating the same risk. By using precisely, the same language we can verify the presence of the clause rather than expending a great deal more effort to investigate and verify the precise meaning. It is a simple case that validates the opportunity exists.

So, should I start building a massive database of legal language and hire a team of lawyer to develop standards? Probably not, I recognize that some form of this thinking does already exist. My early experience suggests that it falls far short of the potential. I also recognized that our legal system is the foundation of our ability to do business and I admit I am new to much of this. It is likely that I am oversimplifying the contract building process. Tinkering in this space could produce many unintended results, but legal costs are a large barrier starting a company. I would love to see an environment where it is easy for people to pursue their visions through business. With that goal in mind I think there is an opportunity for process systems thinking in developing legal agreements.