Beyond the wall of contract text - Visualizing contracts to foster understanding and collaboration within and across organizations

Abstract

In an increasingly networked world, contracts are the glue of business. Contracts are not only legal safeguarding instruments to limit parties' opportunism, as argued by transaction cost economics (TCE). They can be managerial tools to create shared understanding and cooperation among the cross-professional stakeholders who plan, negotiate, and implement contracts – within and across organizations. However, contract documents often do not work well for this purpose: they are long, complex, and hard to understand. As a result, costly misunderstandings arise, since contracts are not optimized for their everyday users: business and technical audiences. The proactive law approach stresses the importance of clear cross-professional communication through contracts to prevent legal problems and seek win-win opportunities. A practical manifestation of this principle is contract visualization – the use of diagrams, images, and visually structured layouts to make contracts more searchable, readable, and understandable. The aim of this study is to provide empirical understanding of the emerging concept and practice of contract visualization – by rigorously testing the propositions about its benefits, by exploring it as a practice unfolding in real life, and by identifying viable approaches for managers and legal counsel to engage with visualization. I chose a mixed methods approach to explore this emerging topic. The quantitative component of the research comprises three experiments, which show that visualized contracts support superior comprehension performance (speed, accuracy) and user preference, compared to informationally equivalent textual contracts. The qualitative component of the research – a single case study – explores how and why an operation and maintenance service sales team decided to employ visualization in their contracts: visualization was sought as a solution to cross-professional, inter-organizational and temporal knowledge gaps, as it allows information to be clarified and positively frames the emerging business relationship. Two conceptual studies exploring visualization approaches (design pattern libraries and automation) complement the empirical studies. The research contributes to the scarce and insufficiently rigorous empirical literature on contract visualization, and to the literature on the psychological effects of contracts and microdynamics of contracting. Theoretically, it suggests a theoretical shift from a TCE-view of contracts to a knowledge-based view of contracts, where the knowledge created and shared through contract documents is a source of competitive advantage. Moreover, it extends the application of cognitive load theory beyond the educational psychology field. The research also has practical implications for global business: visualization was found to especially improve contract comprehension among non-native speakers of English.