Cox, Andrew. Win-Win? The Paradox of Value and Interests in Business Relationships.

Cox, Andrew. Win-Win? The Paradox of Value and Interests in Business Relationships. Earlsgate Press (www. earlsgatepress.com), 2004, 296 pp.

Managers often enter into business relationships that fail because the expectations of the parties were not met. Examples alluded to in this book include a manufacturer whose suppliers failed to deliver on the original terms of the agreement and an electronics component supplier whose buyer terminated an expected long-term relationship after obtaining technical competence from the supplier. The book also describes a strategic partnership that Honda had with British Aerospace to collaborate with Aerospace's Rover subsidiary. Honda thought it had a right of first refusal to buy Rover if British Aerospace later decided to sell it, and was surprised when the firm sold Rover to the highest and quickest bidder instead of giving Honda the chance to acquire it.

This book calls attention to the role of power in business relationships, which the author feels is too often ignored by other business writers who promote "win-win" business strategies. Power is said to exist when asymmetric outcomes occur that favor one party more than the other. According to the author, a comprehensive understanding of power relationships between buyers and sellers is required to develop a science of business economics and management. He goes on to assert that social science disciplinary boundaries are partly to blame for the lack of clarity about the power concept in the business management and economics literature.

Cox states that the primary reason for writing the book is to try to explain why win-win relationships are rare in business. He focuses on three issues: (a) win-win outcomes properly defined are simply not feasible in vertical buyer and supplier relationships but may work in horizontal ones, (b) business relationships sometimes appear to be successful in that they are sustained over long periods of time, but in fact close examination may show that the parties are not really achieving what would be regarded as winning outcomes; and (c) managers often suffer from "false consciousness" or the failure to fully understand their interests and the power and leverage that the relationship may give the other party. According to Cox, economists and resource-based business school thinkers are never likely to agree on anything because economists focus on eradicating the "evil" of market power while the resource-based school studies how to exercise that power.

The book contains a preface, seven chapters, and a twenty-five-page list of references. Chapter 1 covers the complexity of commercial outcomes in business relationships. Chapter 2 describes types of inter-organizational business relationships. Chapters 3 and 4 discuss win-win possibilities in horizontal relationships and vertical buyer-seller exchanges. Chapter 5 addresses the difference between commercial versus operational outcomes. False consciousness is the topic of Chapter 6. Chapter 7 focuses on interests, power, and mutuality in transactions. This last chapter argues that power and opportunism are not forms of market or transactional failure, but legitimate tools to be used by managers in all types of transactional exchange.

The author's exploration of the power concept relies heavily on several key terms and dichotomies that are used throughout the book. Readers will need to be clear on those terms' definitions for his logic to make sense. The analysis distinguishes between horizontal relationships such as joint ventures and strategic alliances, and vertical relationships between buyers and sellers. Commercial refers to goals such as increased profitability, market share, product differentiation, and reduction in cost. Operational goals include things such as capacity utilization, cycle time, quality, and responsiveness to customers and/or suppliers. The dichotomy referred to in the title is win, partial win, versus lose. A party in a relationship wins when they have the ability to maximize rents, with complete market closure and the maximum share of revenue possible (i.e., 100% of the buyer's available demand). With respect to a vertical relationship, a supplier achieves a partial win when they earn rents or at least normal returns but cannot fully close the market to others; a buyer has a partial win when functionality increases operationally and cost is reduced, but when some of the rents are left to the supplier. A loss for a supplier is when returns are negative in the short term or close to zero over the long term; for a buyer, a typical loss is when there is a decrease in functionality when costs are also increasing.

A win-win (used synonymously with ideal mutuality) refers to a situation where it is feasible for both parties in a discrete exchange transaction to simultaneously achieve everything they ideally desire operationally and commercially; this is what most people would normally see as the "fairest" outcome. The author seeks to improve on the conceptual clarity of the win-win concept by outlining tables with the various permutations of the win, partial win, versus lose dichotomy, together with the commercial versus operational distinction with respect to horizontal and vertical relationships. Tables demonstrate the pairs of symmetrical and asymmetrical outcomes that are possible in a two-party relationship.

A distinction is made between objective and subjective interests. Objective refers to economically rational or profit-maximizing goals. Subjective goals are the other goals of individuals and organizations such as those in Maslow's hierarchies of need. The argument is made that managers can subjectively believe they are receiving value when in fact from an objective viewpoint they are being taken advantage of by their relationship partners. Differences between subjective beliefs and objective outcomes can be blamed on opportunism by the other party, which occurs more frequently in buyer-seller relationships than in horizontal business relationships.

Commensurability of the interests of parties in an exchange refers to whether both parties can achieve wins. Interests are commensurable in a horizontal relationship where the parties have combined to produce the same product, so a win-win outcome is possible because both parties are in the same supplier role although they may still disagree about how to allocate the profits. In a vertical relationship, on the other hand, the interests of the buyer and seller are not commensurable so a win-win outcome as defined above is not possible.

The author argues that while the Coasean transaction cost perspective provides answers to questions about how a firm's managers should make decisions about the firm's boundary and how to manage relationships with suppliers, it does not explain why the firm exists in the first place. A firm must own and control some critical assets if it is to earn a return, although transaction costs may be minimized by outsourcing a significant share of current internal activities. While the Coasean transaction cost economizing perspective provides answers to questions about how a firm's managers should make decisions about the firm's boundary and how to manage relationships with suppliers, it does not explain why the firm exists in the first place. A firm must own and control some critical assets if it is to earn a return, although transaction cost assumptions may be minimized by outsourcing a significant share of current internal activities. He argues that the Coasean perspective is guilty of "post hoc, ergo propter hoc" reasoning. While there is no doubt that firms do spend a considerable amount of time and effort considering the need to economize on the costs of transactions, this normally only occurs after the initial decision to create them.

Despite an extensive reference list, the author begins many of his arguments with statements that "most people," "most writers," or "most managers" believe or do this or that about the win-win concept or other things, with no documentation. A few very brief examples, such as the Honda example described above, are mentioned that involve specific industries and well-known companies, but the details are very sketchy. More empirical examples would help make the distinctions clearer.

The book appears to be aimed mainly at practitioners rather than academics, although some practitioners may find it difficult to wade through some sections such as Chapter 5's lengthy list of feasible and infeasible outcomes in different business relationships. Practitioners may also be disappointed there is not more practical advice on how a firm can protect itself from abuses of power in business relationships. Academic economists may wish that the author would have addressed related topics such as contract incompleteness and game theory. Despite these flaws, the book does bring an interesting focus on the power issue. It would be an interesting read for those interested in transaction cost economics, and for economists and business managers simply seeking to understand each other better.

William Lazarus

University of Minnesota