Seven wastes of negotiation
The Toyota Production System (TPS) was created by Toyota’s chief engineer Taiichi Ohno to eliminate waste, called “muda.” Waste — as opposed to cost, is the enemy on any production line: a process that is inherently necessary must add value, even if it is expensive[1] so you should be cool about paying a fair value for it.
|
The design of organisations and products
|
Processes which do not add value are inherently wasteful. The job is to eliminate waste, not cost per se. To get rid of waste, you have to know exactly what waste is and where it exists. Ohno-sensei categorised seven types of waste and for each one, suggested reduction strategies.
Even though he was talking about a physical manufacturing line, Ohno-sensei’s categories of waste cross over pretty well to the contract negotiation process, a fact which seems to have escaped every management consultant who has ever ruminated on the issue. A lot of them have.
Summary
The seven wastes, as applied to contract negotiation, are these:
- Overproduction: Negotiating contracts that are never ultimately executed, or which are, but where there is low (or no) order flow. Cars which you can’t sell.
- Waiting: Any point in the negotiation process where you are waiting for continuing the negotiation: drafts to client; questions to sales; escalations to risk.
- Transport: Any unnecessary hand-offs to other departments (or the client) is the equivalent of transporting stock in trade in a physical manufacturing process. Keep it to a minimum by sequencing the production inputs.
- Over-processing: Unnecessary complexity in product design and manufacture that doesn’t have any practical application for the client or utility for your risk management team. Hint: this is the gorilla in the room.
- Inventory: Work in progress that is not finished product on the shop floor. In a negotiation, that is the client agreement for the time between inception and execution. The longer that average period the larger the inventory. You can’t make any money out of a product while it’s still in the factory.
- Motion: The longer and more convoluted a contract is the longer it takes to read, understand, comment on and conclude. All other things being equal, any unnecessary formal complexity will add time and effort to the job. Short, utilitarian, Spartan contracts. Easy to handle. Robust.
- Defects: Products that don’t work as billed and which may require replacement or re-tooling. Consider the factors that lead to defects: complexity in the product design and manufacturing process. Which is more likely to break down, and what would you rather fix: a Range Rover Evoque, or a 1982 Toyota Hilux?
On machines, humans, and the relations between
Here is wisdom, taken directly from the Toyota site, which you might think explains the dissatisfaction of reg-tech and outsourcing:
- Machines and robots do not think for themselves or evolve on their own. Rather, they evolve as we transfer our skills and craftsmanship to them. In other words, craftsmanship is achieved by learning the basic principles of manufacturing through manual work, then applying them on the factory floor to steadily make improvements. This cycle of improvement in both human skills and technologies is the essence of Toyota's jidoka.[2] Advancing jidoka in this way helps to reinforce both our manufacturing competitiveness and human resource development.
It’s about your people, not the management consultants you hire
Sure, you can sluice the waste out of your Augean stables — there’s nothing more satisfying than a spring clean — but the Toyota methodology is very clear that long term, things will revert to how they were unless your organisation commits, through its permanent staff, to a continual process of self-improvement. This is a skill — a disposition, that you won’t get from dropping a hundred grand on a six-sigma black belt for three months to fix everything for you.
The reasons for this are as obvious as they are routinely ignored: projects, priorities, processes and people change, and the path of least resistance is to layer a new process over an old one. That kind of short-termism is exactly the environment that created the baffling complexity, redundancy and waste in the first place: barnacles quickly accrete unless your people are permanently committed to process excellence. Train your staff to be constant gardeners, and you won’t need periodic visits from McKinsey to dig you out of holes.
See also
- Innovation and the innovation paradox