Total Cost of Value
Last week I was working on a proposal for a client. We understand the value we need to deliver and we’re going to bring in some external tech to deliver a complete solution. There are several options for the client to chose. What’s interesting about this part of the process is that my role has gone from seller to buyer. Any good seller looks at the deal from buyer’s perspective. But when you actually become the buyer, your vision is narrowed even further. You focus not only on what it’s going to cost but what is it going to give. It strikes me that when looking at total cost, what’s really important is understanding the total cost of value. What does it take not just to get and operate the tech, but to get the total value that can be extracted?
It’s not just ownership
A traditional measure for software investments is to focus on the total cost of ownership. Those calculations often include everything from the cost of the software to the internal costs to operate the tech. This measure is valuable for IT managers to understand how much the investment is going to cost in the long run. But from a business person’s perspective, this approach often misses important cost elements that help extract value. Do you have the right staff in place to utilize the tools? Will you have to add resources? What priority trade-offs do you have to make to get the benefits?
Value is the goal
As a provider of technology, I know that I have to demonstrate value to get a sale and I have to deliver value to get the renewal. For me delivering value starts with whether my solution does what I claimed it can do. That’s the easy part. I also have to assess whether the client is ready to capitalize on the insight and capabilities that I’m delivering. Are they able to extract the value that I’m promising? That’s a bit more complicated.
Every step forward in insight requires a response. Some of that response is managed through automation. But some of that response requires humans to take actions. Are their people who will help with start-up activities? Are there people who will monitor and respond to alerts? What opportunities will be forgone to allow those people to be free? Are there any additional hidden costs required for value realization? What is the total cost of value for this opportunity?
Did I just shoot myself in the foot?
Making those hidden costs visible is critically important to the evaluation process for the buyer. However, as a seller it also makes me cringe a bit. If a buyer is only thinking about the cost of the shiny object I’m able to quote an appealing price point. However, it only tells half the story. If I leave that other half out, the buyer isn’t going to get the value. That’s worse for me in the long run.
Buyers need to be savvy enough to know that their total cost of ownership needs to incorporate all the costs that get them to value. Make sure the business team’s expenses are in there in addition to the technical team’s costs. Focusing on this total cost of value will ensure that you’re going to get the good stuff your vendors are promising.