They’re Lying in Wait
I am not the first professional negotiator to understand the inherent weakness of the reigning philosophy. Not at all. Many, many corporate opportunists and shrewd negotiators in every field understand that a gung ho, win-win negotiator on the other side of the table is a sitting duck. In fact, one increasingly popular, high-level corporate strategy in negotiation commonly known in the business world by the acronym PICOS was developed for the sole purpose of defeating weak win-win negotiators.
This an instructive story, which I’ll pick up in the early 1990s, when a man named Jose Ignacio Lopez de Arriotua was a main player in the procurement department for General Motors. (Many readers will remember Lopez for his subsequent highly publicized defection to Volkswagen in 1992 amid charges that he stole GM secrets. The federal government has indicted him for industrial espionage, but he’s fighting extradition from Spain.) Lopez and his
cohort at GM developed PICOS, or Program for the Improvement and Cost Optimization of Suppliers. (I’ve also seen it spelled out as Purchased Input Cost Optimization, so take your pick.) The advertised idea of this “costing method” was to help suppliers hold down their own costs in the design and production stage of the products they sold to GM. By holding down suppliers’ costs, GM held down suppliers’ prices and thereby GM’s own costs.
So what could be wrong with helping suppliers hold down their own costs? That’s win-win, isn’t it? It sure was – for GM, because when the rhetoric was stripped away, “cost optimization” was a politically correct euphemism for bludgeoning suppliers into submission. It was nothing more or less than a diligent, sustained, extremely effective way for the giant automaker to drive down costs by putting the squeeze on its thousands of suppliers, no matter the result to them. If a supplier went belly-up or couldn’t deliver under the negotiated terms, there was always another supplier who believed that it could somehow live with these prices. PICOS and its win-win rhetoric sounded good in theory, but it was and is devastating in practice for many businesses.
Today, several major business schools have developed similar programs for cost optimization or “supply systems management,” as they are also labeled, and I imagine many others will follow suit, because GM and other large corporations have had great success with them. The business school that teaches the win-win mantra in a course on negotiation might also teach, right across the hall, a course in “supply system management” that’s expressly designed to destroy the win-win model! Mindboggling.
Just a couple of weeks before writing this book I happened across an interview on one of Northwest Airlines’s audio channels with the CEO of a new company that develops software for “interactive electronic commerce.” This CEO was boasting about how the company’s procurement software helps their clients “dominate their suppliers.” That’s the quote, and that’s just the tip of the iceberg. The Net will facilitate the growth of huge buying cooperatives, multiM/ion-dollar initiatives that will allow competitors to combine their buying power in order to drive down suppliers’ prices and add another tool to their cost optimization arsenal: “If your terms aren’t good enough, we’ll put it up for bid on the Net.” I have no idea how this will all shake out in the years ahead, but I do know it represents more leverage for the big boys.