Design of contracts

The design of a contract should seek to reduce and eliminate costs and risks, and not simply move them around from one side the other. The beautiful contract is free of false choices and compromises.

O-P/E=N highlights the relationships between key factors driving net value, so each may be systematically targeted to improve yield in terms of net value and price and reduce the total cost of utilization. Increasing the price can reduce net value for the customer and increase the deficit. Cutting costs can reduce the quality of user experience and increase the drag. Simply offering a higher quality of experience may increase the TCU and actually reduce net value. Indiscriminate cost-cutting simply to reduce price can adversely affect the quality of outcomes and the quality of experience. Which in turn adds to the value deficit, increasing margin pressure in sort of a vicious cycle.

The relationships between all these key factors are nonlinear, therefore service design is nonlinear optimization problem, which means it can get wicked. One way to create slack in the system or more margin is to focus on the design of outcomes. The design for outcomes focuses the quality of the performances and affordances that eliminate, or reduce, shortcomings and shortfalls in customer assets. Not all outcomes carry the same weight of purchasing power, therefore it is important to first focus design efforts on those outcomes that have the greatest potential to add value from the customer’s perspective.

It is necessary to rank outcomes, based on underserved needs by giving greater importance to those that are more important and less satisfied. After a point there are diminishing returns from the further improvement of fulfillment. That’s when efforts should focus on improving engagement for a better quality of experience. The design of dialog and interaction through touch points and interfaces needs to reduce TCU by enhancing the overall quality of experience through the four stages of the contract, but particular during engagement and fulfillment.