Confusion reigns: ‘win-win’ and power in business relationships

This week we have seen Pfizer’s proposed take over of Astra Zeneca reported prominently in the media with commentators and politicians queuing up to declare the takeover as ‘against the strategic national interest’ and making reference to ‘Pfizer’s predatory asset stripping record’. It is another interesting David and Goliath story of corporate takeover based, to a significant extent, on the relative power of one player over another (although to be fair, AZ, with $25bn in revenues last year, is clearly no ‘small fry’). It will be interesting to see how it plays out, particularly in respect to the influence government has over this acquisition transaction.

Many commentators are expressing their opinions and one by the respected business journalist Stefan Stern popped up on Twitter:

In the tweet Stern makes a somewhat cynical reference to the phrase ‘win-win’, an idea that has become ubiquitous in recent years amongst politicians, business leaders and those involved in the procurement and sales professions. It says something when such a phrase, whilst so easily tripping off the tongue, falls prey to dismissal by people who seemingly have a better understanding of business than the rest.

Indeed, the topic came up in a few new articles written in response to my recent tweeting of a paper written by the International Institute for Advanced Purchasing & Supply’s (IIAPS) Chairman Andrew Cox entitled ‘The Problem with Win-Win’ and, not for the first time, I’ve been struck by how commentators regularly appear to misunderstand Cox’s argument and that they all too often revert to (inadvertent?) misrepresentation of what he is actually saying.

Critics of Cox suggest that he has a tendency to ‘make sweeping statements designed to provoke a reaction’. On the contrary, Cox’s language is deliberately precise and those who have read his books will know that he’s not averse to repeating the logic of his argument time after time after time to ensure the point gets through.  He is particularly clear in his definition of a ‘win’ in business-to-business relationships: a ‘win’ being objectively defined as the ability for one party to a transaction to make ‘above-normal’ financial returns, usually based on the successful closing-off of the market opportunity to competitors. Any procurement category manager who has had to negotiate with a monopoly supplier will know exactly what Cox means by this.

Notice that, in discussing ‘win-win’, Cox doesn’t promote any particular ways of working, principles of relationship management (SRM, Strategic Account Management – SAM) or other modes of operation; he is simply talking about outcomes; and those he says can be objectively defined.

In an article by Peter Smith on his excellent Spend Matters blog site, Peter cites an example of a consultancy road-testing a new methodology (an undoubtedly useful thing to do) with a client for no immediate financial return (i.e. the service is being provided free of charge). Although this represents some sort of gain for the supplier, it cannot be, by Cox’s definition, a true ‘win’.  Objectively, the supplier would ordinarily desire to be paid an above normal return for such work, the clue being in that the supplier wouldn’t aim to make a habit of doing such work for free. Therefore, this (hopefully) one-off event represents a ‘partial-win’ for the supplier, whilst the supplier’s client will undoubtedly bask in the achievement of winning free support. Both parties are happy, at least to some extent, with this transaction, but it is not a win-win.

It’s that word ‘power’ again….

One of the reasons I have found Cox’s writing so compelling during my years as a procurement practitioner and consultant is its logical precision and, as the central core of his work has been on the topic of win-win and relational power & leverage, there is evidence aplenty of the efficacy of his prescriptions for how to succeed in relationship management.

Cox asserts that power is at the heart of all transactions between buyer and supplier as (objectively) each wishes to maximize the gains for themselves and their organisations which is of course, by simple logic, impossible for both to achieve. Continuing this logic it is therefore correct to say that all commercial transactions are contested, and so the challenge for the players involved is how do they get as close as possible to their inherently desired goal of maximizing their respective outcomes and achieve a ‘win’.  It’s a tough ask and, in the real world, the result is usually a partial win for both, especially so in long-term relationships where repeat sales and purchases are made.

Now here’s the paradox of Cox’s argument and the basis for confusion amongst commentators around what he means by power and ‘winning’ in practice: despite asking practitioners to focus on understanding (and exerting) power, at no stage does Cox recommend that we (as buyers and sellers) should eschew cooperation and collaboration in our business dealings.  If it happens to be in the business interests of the buyer (for example) to make investments in the relationship via the practices involved in supplier development, then the buyer should go right ahead and do so.  The final return on investment calculations will ultimately determine whether such an approach was worthwhile.

Similarly, if in preparing for negotiations participants follow the ‘principled’ method and work collaboratively to ‘make the pie larger’ so that both parties can make greater gains than they otherwise would in following a ‘zero-sum’ approach, then that’s just fine. Once again, the results will most likely be ‘partial win – partial win’ and will certainly need to be if the relationship is a long-term one.

Oh, I hear you cry, that must mean that Cox is just a purist pursuing an academic argument over the concept of win-win but no, his point is a serious one: buyers and suppliers should take far more care than they do in forensically analyzing the specific power circumstances present in their business relationships. To repeat, it’s not about operating in either a collaborative or adversarial manner per se, it is about making wise decisions about which operating and negotiation practices work in the best interests of one’s organisation, and what it means to ‘win’.  This is why we see ‘world-class’ procurement (and indeed sales functions) deploying a segmented and varied approach to their business relationships, and not some vanilla solution based on some singular collaboration-based manifesto.

Returning to Stefan Stern’s tweet, perhaps we’ve reached the stage where the phrase ‘win-win’ has been hijacked to the point where practitioners on the front line really don’t believe in it anymore.  It has become a cliché, a mantra, an ideal for which there is no firm foundation. To my mind, spouting ‘win-win’ has echoes of the foolishness of declaring your business relationships left, right and centre as ‘strategic partnerships’, a bogus idea if ever there was one.

Does anyone seriously believe in the assertions of the CEO of Pfizer that any deal with Astra Zeneca would be a genuine ‘win-win for companies and stakeholders alike?  Of course not: concessions will be made, assurances sought and offered, and any radical restructuring put off until media and state attention recedes.  In the end the deal is the deal, and the most powerful can expect to do well.

So, coming back to our procurement theme, if you’re a category manager in a corporate procurement operation then recognise that offering a ‘win-win’ doesn’t quite have the impact in your negotiations as it might have done some time ago. Perhaps it’s now time to forget the platitudes, instead understand relational ‘power’ and if you’re lucky enough to have some, deploy it wisely.

As the old saying goes….caveat emptor.  It really is as simple (and complex) as that.

One thought on "Confusion reigns: ‘win-win’ and power in business relationships"

  1. Tim Noble says:

    David, you hit the nail right on the head – Professor Cox’s arguments have an unusual academic rigour that looks at what the term “win” actually means as well as challenging the more naive or idealistic amongst us before being seduced by the intuitive attraction of so-called “win-win” solutions. There are many approaches to gaining favourable outcomes, but in an inherently competitive process (such as a general election as much as in a negotiation or tender, maybe?),it stretches credulity to imagine that either party (such as in a coalition, maybe?) would have opted for a partial-win outcome that does not fulfil all their objectives at the outset…..Tim Noble

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