Procurement Game Show Series (6): Greed and Deal or No Deal

Greed is not only one of the Seven Deadly Sins, it is also a game show hosted by Chuck Woolery. Greed is the selfish desire to obtain wealth and material possessions at the expense of another person's welfare and this is the premise of the show. Contestants are at first brought together as a team and inevitably pitted against each other. They can choose to for the benefit of the team and ensure wealth for everyone, or they can allow their avarice to take hold and only focus on the best outcome for them.

Unfortunately when considering a deal both from the buyer and the supplier side there are elements of Greed that become part of the equation. The buyer often is focused on getting the best deal -- which is appropriate. The problem occurs when the buyer attempts to extract a pound of flesh and tip the scale significantly so that the supplier is left bloodied and bruised. Although a short term monetary benefit might be derived for the buyer, if the focus is on the long term a mutually beneficial partnership is what is desired.

Which brings us to Deal or No Deal! This new game show phenomenon has a very simple premise. The contestant pickS a case which he/she believes to contain $1 million. The odds are 1/26...which when considering is not that bad!

However, the game begins when the contestant starts to eliminate the competition one by one -- choosing cases which they hope contain the lowest possible dollar amounts. As their "luck" continues the Banker offers increasingly more money to have them "sell their case" because the odds become greater that it contains a substantial sum. As the game progresses and more and more cases are opened and as the offers climb, contestants are risking huge sums of money cheered on by the audience, and as well, as what they deem to be their lucky streak and actual investment in the process.

Isn't this what also happens in a business deal. As competition is eliminated one by one, and the odds start to favor a "Deal" there is an increasing reticence to walk away and say "No Deal" -- even when it is evident that the "No Deal" option is the best alternative.

The question becomes, particularly for the supplier, as to a Deal at what cost. In a recent Harvard Management Update an article entitled "So How Well Are Your Customers Serving You" by Anne Field provides a case in point. In the article Sunil Gupta, the Meyer Feldberg Professor of Business at Columbia and a visiting Harvard professor suggests that the old 20/80 rule (20% of your customers generate 80% of your profit) is a thing of the past. It has been replaced by 20% of your customers generate 220% of your profit, while the bottom 20% may provide a negative profit of 100%.

How, as a supplier, do we allow ourselves to focus on the deal and not the monetary benefits. In some cases I have heard sales reps. say --"As long as we get the deal the profit will come"; "We can always sell more profitable business once we have the deal"; or "We can't let our competition win this". Perhaps this can be seen as reasonable and rational. In some cases it is a strategy to go in with a loss leader, but this is not usually where it ends. The supplier often allows scope creep, and to a certain extent has already positioned the company as willing to do anything at any cost -- just to maintain the client.

This is when a client becomes costly to maintain, and allowing your competition to lose money on them might be a welcome strategy.

The cases are opening, the risk is increasing and if you open one more case you could lose more than a few thousand dollars, you might have allowed flawed thinking to put you in a position to lose your business. So the question is: