Buy and Sell or Build a Mutually Beneficial Relationship?
By Colin Paroz
More and more we seem to be a society that likes things in nice neat packages. It might be the hamburger and fries that look taste and smell the same every time no matter the location. It might be those exact 30 minute bites of television that so many of us can’t live without or the 10 second grab from a politician that we use to form our political opinions and biases. This phenomenon seems to be spreading to the business world. I attribute the explosive growth of franchises and similar arrangements over the last decade to this trend. After all what is a franchise but a ready to run operation or "a business in a box"? It is also spreading to our professional service providers.
We can buy "accounting solutions" for our annual income tax returns, we have fixed price conveyancing, and for business advisers and management consultants, we are used to buying hourly or daily lumps of time. We sometimes have a focus on the process measure (time) rather than the desired outcome.
Some consumers of professional services have adopted the three quotes approach to selecting a provider. This is probably done with the belief that professional services are a commodity, in other words the product will be the same regardless of vendor. This approach works well for homogenous product groups such as electrical appliances or similar brand motorcars.
Things start to become more complex with unique products such as professional services. The business solution that I provide to a client for their needs will be different to those offered by my competitors. My clients must decide if my solution or product offering is suited to their needs. Only then can we discuss price and this discussion should be founded on the anticipated value of the outcomes.
When considering the procurement of a traded service we must look beyond apparent cost and consider the three financial aspects of the product-based relationship, price, value and risk. Let’s consider each of these in a little more detail.
Price should be considered as a short-term outlay which is to be spent with the expectation that there will be a return within a given period of time. Like most investments, it is reasonable to expect that the more we spend the greater the return on the investment.
Value is a measure of the return on the outlay. If you spend $ 50 000 on management consulting services, then you expect to get a bottom line return significantly greater than this. In simplest terms the value is the difference between the cost and the return. When considering professional service offerings a purchaser must avoid the temptation of simply comparing cost with cost and make the extra effort to evaluate the expected return on the initial outlay. Often a little more spent upfront will result in a significant yield later on.
The final consideration is risk. That is, the risk of not receiving the promised outcome. Consider the following example. You want to engage a professional service provider to design and install a management information system. Your expectation is that the package will cost you around $100000. You receive two proposals, one for $110000 and one for $20000. Which is the more attractive? Considered on price alone the decision is simple, but once we take risk of failure into account then the more expensive option probably offers far greater value for money.
A strategic and whole of organisation decision needs to be made regarding the procurement of goods and services. That decision is "do we buy on cost or value?" This applies as much to professional services as it does to goods and other products.
It is easy to focus on price as there is no need to really understand the product offering. There is also a short-term benefit in taking the cheapest price. Sophisticated consumers of professional services understand that value and price are not necessarily connected and risk minimisation is often a sound investment
So far we have considered the purchasing of professional services. What about those of us who sell professional services? For me, the message is clear. We are not necessarily in a price sensitive market. We must work with our clients to deliver value for money and demonstrate how we will maximise the probability of project or assignment success.
Is it possible to synthesise a mutually beneficial approach from both the buyers and sellers perspective? I believe the answer is yes provided the relationship is founded on mutually understood needs and expectations and value based outcomes that carry the maximum probability of success.
So, I leave you with this nice neat little package of thought on the matter of buying and selling professional services. 0f course, in the real world, its not necessarily that simple, but in our ordered world of high speed consumption, it will do for the moment!
Colin is a Senior Consultant with The Apex Consulting Group. To learn more visit our website at www.apex-cg.com
With kind regards,
The Apex Consulting Group
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