Friday, August 10, 2007

Cost of Doing Business .... Worth Part III

If a service is common, ubiquitous and necessary - then it is termed a cost of doing business. The market or potential is well known, there are plenty of other examples, whitepapers, case studies etc. As such it is much easier to identify the potential benefit of the service and hence its worth - it should also be much clearer over what is needed being a much more well defined problem space.

In such circumstances, the worth of the service is meaningless as all your competitors are using equivalent systems and you need such a system just to keep a level playing field. Any actual worth generated (additional sales or cost reduction) will be passed onto your customers or will simply help maintain your existing market share. Any growth, if there is any, will be over the laggards to this field and probably at best temporary.

In such cases, your focus should be cost alone - as standard as the industry has (either product, or utility based service) and as cheap as possible.

Unfortunately, the existence of so many whitepapers, case studies etc and the ease at which a potential worth can be calculated, makes it easier to often justify larger expense especially when the product is configurable to meet the individual requirements of the business.

About five years ago, I saw the sales sheet for one particular product as sold to around sixty different organisations in London. The product sold was identical, but the price (normalising to a standard number of licenses) varied from $100K to over $2M for the same thing!

It's a testament to the sales people involved, but it's the equivalent of :-

Customer: "I'd like to buy that TV"

Sales Rep: "Excellent, what's your name?"

Customer: "Simon"

Sales Rep: "That'll be $300"

Customer: "Actually my name is Peter"

Sales Rep: "That was naughty of you ... well then it's $100"

Customer: "What if I'm called Harry?"

Sales Rep: "$3,000 - would you like us to modify the knobs so they turn faster or slower according to your need?"

Sales Rep: "We have a whitepaper here on how this will improve your channel switching over Simon & Peter"

Customer: "Is it extra?"

Sales Rep: "I'll arrange for a visit from one of our consultants to determine your exact requirements"

Let's not also forget the dreaded upgrade cycle and also the abyss which is the non standard upgrade path, whereby those modifications you asked for (for reasons of improved channel switching or conforming to your current way of doing business etc) forever cost you more everytime you upgrade.

Unfortunately, all those whitepapers provide support to the potentially higher benefits of a common and ubiquitous service. This often make people feel more comfortable justifying higher expenditure from the ROI calculation ... which is exactly the wrong sort of behaviour desired.

The rule of thumb here should be cheap as chips, ideally cheaper than everyone else and no modification. You need the service in order to compete but your focus should be on price and standardisation - any thought of strategic value should be banished from your mind.