Win / Win Business Relationships: Fact or Fiction

1. “Win/Win” business
relationships:
Fact or fiction?
Kent B. Henschen, Business Consultant at The Evans Group LLC
Julie Chavanu, Marketing Analytics Consultant at The Evans Group LLC

2. Win / Win: the feel good term of the century
www.theevansgroupllc.com
Win/win: it’s the feel good term of the century. We all want to win. We all want to be
“one-up” on the next guy. We all want to feel like we are a success in every situation.
We want to feel good about our professional and personal relationships. And we all know the
pain of a loss. But, is there truly a “win/win” opportunity in business human interaction?
Striving for a win/win is natural and idealistic, but in real business terms a true win/win is not
achievable.
Win/win is an ego booster, particularly for the winning loser. Stated in a different way, win/win
is an ego driven response for the one on the losing end. To propose a win/win situation is to
already admit defeat and put one’s self in a losing position. To be the “winning winner” and
allowing your opponent to believe they have also won is being humble and politically correct;
if you’ve just outdone a client, it is best to allow them to believe they too have won.
In reality a “win/win” is only a false perception; the actual result is a “settle/settle,” simply a
negotiated settlement.
Imagine this scenario:
Trevor, a salesman, goes to a known manufacturer of equipment for the O&G industry to offer
them the best widget they have ever seen. It’s expensive yet it shines brighter than all the
competitor's widgets because Trevor convincingly speaks to the customer. Trevor knows that
in actuality the widget the customer is currently using was purchased for next to nothing; it’s
not a great widget but it does what the customer needs it to do. Trevor needs a new account
to meet his quota, so he goes in with the pitch and the mind-set that he’s not coming out
without the sale. He puts on the best pitch-show of his career. He knows he has the customer
in the palm of his hand. He negotiates; he drops his price to meet the customer demand. The
customer is sold and decided to pay a bit more, knowing that the new widget is better than the
one they are currently using.
So this situation is a win/win, right?
Wrong!
Trevor got his sale but the price he sold it for is below the margin he could have received from
some smaller customers just up the street. Trevor got his sale, a win for him initially, but it’s
his company who lose on that one. Even if at first the company believes the sale is a coup
because they got the big client, ultimately the company is receiving a much lower sales
margin from a customer who will demand more and cost more to service. The company will
be hounding Trevor about the low margins on that account for a long time to come.
Can they make it up in the future? Maybe, but unlikely, and they have set the stage for the
same low-margin sales with that high maintenance client for the foreseeable future.
The customer wins right?

3. Win / Win: the feel good term of the century
www.theevansgroupllc.com
They think so at first. The engineers are ecstatic about upgrading the widget, which didn’t
initially pose a problem. The new widget will help their integrated product last much longer
than the older widget did - essentially extending the life of the product. But, is it in the
company’s best interest to have a product that lasts ten years when the market only requires
five years? Probably not; they didn’t need a new widget, the one they were using was working
fine. Although they can now market that they have a better widget on their equipment, their
sales people are going to have a hard time trying to sell the higher cost when there was no
perceived issue with the old one. Worst case, the customer may think that there really
was an issue with the old one and want to know if they are going to have a problem
with their existing equipment. Their customers will realize that they are now required to
pay more for a product that has features that really don't provide additional benefit.
Before you begin to think that this is an improbable scenario, think again. This happens all the
time. The widgets may be different, but the results are the same. Drop the price to make the
sale, add bells and whistles to a product that isn’t perceived as needing them, and now the
customer has to pay more to get more than they actually require. It’s a downward spiral.
Was it perceived as a win/win? Yes, by the first-person parties involved and in a short term
perspective. Was that the actual result? No, and it never is.
If the parties involved would independently understand that the potential for win/win doesn’t
exist, the ultimate outcome for all parties will be better in the long-run..
Is there a win/win in real world business?
In real world business negotiations a win-win scenario cannot exist, due in large part
to information asymmetry or information failure - when one party in a negotiation has
more or different information than the other.
“There are many examples of information failure associated with economic transactions,
including the following cases:
1. The job applicant who fails to reveal at a job interview that they do not have a
particular skill for the job.
2. The estate agent, who exploits the fact that a potential buyer of a property has
very little knowledge about the property, and any possible problems.
3. The cigarette manufacturer, who does not inform smokers of the true health risk
of smoking.
4. The buyer of a financial product, who is unaware of the true level of risk, as in the
case of derivative products.
5. The seller of a pension, who misleads purchasers about the financial value of the
pension. Indeed, widespread pension 'miss-selling' by large UK insurance
companies, occurred at the end of the 1990s.” (1)
An extension of information asymmetry is the principal-agent problem. “In an increasingly
complex world, individual decision making often relies on the advice given by experts, and a
potential principal-agent problem can occur whenever decision makers rely on advice from
others with more knowledge than they have.” (1)

4. Win / Win: the feel good term of the century
www.theevansgroupllc.com
Last year, Apple tried to solve their principal-agent problem by requiring that executives hold a
significant amount of company stock. For example, executive officers are required to hold
three times their annual salary in stock, making them not just agents of the company, but
principals as well. The idea being that with that much stock, it would incentivize management
to act in the best interests of the shareholders. (2)
Another reason that a win-win scenario cannot exist is an extension of the information
asymmetry problem, which is each party has different motivations for participating in a
transaction. It is not possible for parties to understand the full motivations of the other party,
which are derived from the entire life experiences of the participants. These motivations may
not necessarily be malicious, but different from the other negotiating party.
“Win/Win” = “Settle/Settle”
Mark Twain once said, "It’s easier to fool people than convince them they have been fooled."
It’s about perception: the best companies, the best managers, the best sales people are the
best because they are the best at controlling perceptions. Marketing is perception and those
who are the best at controlling perception are always the winner. They may allow their
opponent (the customer/client/ supplier) to perceive that they too have won, but there is only
one winner and the opponent is always the loser.
In the book “The 7 Habits of Highly Effective People” habit 4 is “Think Win-Win.” Stephen
Covey quickly explains, “Win-win sees life as a cooperative arena, not a competitive one.
Win-win is a frame of mind and heart that constantly seeks mutual benefit in all human
interactions. Win-win means agreements or solutions are mutually beneficial and satisfying.”
(3) Mr. Covey’s position is that it is honorable to seek a win/win, and without a doubt he is
correct, it is honorable to do so. He notes further that, “1. Integrity, 2. Maturity, 3. Abundance
Mentality: a belief that there is enough for everyone” are the three necessary traits of “a
person or organization that approaches conflicts with a win-win attitude.” (3) This is an
honorable approach, but he acknowledges in these characteristics that win-win is perception,
“a frame of mind and heart that constantly seeks mutual benefit in all human interactions.”(3)
In reality “Win/Win” doesn’t exist in the business world. In fact, “settle/settle” is the more likely
outcome of business transactions.
If the perception by both parties is that they have each won all or part of something in the
process then that is the true heart of a win/win result - a perception and not a reality.
“Stay hungry. Stay foolish.” - Steve Jobs
(1) http://www.economicsonline.co.uk/Market_failures/Information_failure.html
(2) http://www.forbes.com/sites/timworstall/2013/03/01/solving-the-principal-agent-problem-apple-insists-thatexecutives-
must-hold-company-stock/
(3) https://www.stephencovey.com/7habits/7habits.php