All I want is a tin of Beans!!!!!

All I want is a tin of beans!!!!!!

A simple request we deal with everyday… right?

As we all know there are a myriad of choices:

• Store brand beans. The same sorts of ingredients, generally ok but we all know its not quite what we wanted, and the recipe won’t change.
• Branded beans. High quality, reliable, no variation (like the odd coloured / tasting bean in the store brand). Recipe only going to improve
• Premium beans with sausages or whatever choice of addition you like.

So how does this relate to Services. Simply put the value of “Value add” seems to be disappearing. Most of us would not buy the cheapest product because we know, ultimately, it’s a false economy, and yet this seems to be a message that does not seem to permeate into real life in many sectors and procurement exercises.

Yes, we are all under cost constraints, yes, we want value for money, but does this mean cheapest is best?

For example (back to the beans) we are all tempted by a bargain so if store brands off 24 tins for 12 the temptation only grows (certainly from a procurement cost per tin perspective) but and this is a big BUT: We know that cheapest does not equal best value and we know we (and the family) won’t be as happy but on a pure cost per tin basis to the competition. It’s a no brainer.

It is not until you open the first tin and realize it’s not what the family (the business) wanted or needed and unfortunately, they now have 23 tins of the stuff left which they will have to eat!

This situation becomes worse if one in the family (the business) says I want sausages in my beans!  So, you must purchase sausages (at the price of 4 tins of beans). Another wants burgers in the beans…. And so, it goes on (and we still have 23 tins of beans no one wants but lets not talk about those. What is lost therefore is the true cost of buying the cheapest over the long term.

This is a growing curse across the industry where consumers of Services are constrained from buying the best fit because the cheapest is the benchmark.

Intangibles like flexibility, agility, commercial maturity, relationship, and dare I even say the partnership aspects seem to be undervalued within the market today.

None of us would necessarily buy the cheapest car, what we would do is look at the best car and spend that little bit more to get the reliability based on reputation and experience. What we don’t do is buy the cheapest thing with 4 wheels and an engine, realizing later that a radio was required.

So how do we handle this? The first step surely must be a better and more informed decision on supplier choice, but this is where the process invariably fails.

• Who should be defining the requirement?
• Who will be paying?
• What constitutes value for money?
• If a staggered differentiated supplier delivery (1 for design 1 for build 1 for run)  and yes this can happen, what are the transitional costs between these parties? (which can be both time and money).
• What are the possible variations in requirement over time? How am I going to handle technical debt (e.g. standard patching and upgrades)? Do I need CI / CD, a hybrid or a traditional model to meet the short- and long-term business objectives?
• Do I want innovation? Do I want automation? Am I prepared to make a longer-term deal to drive this forward with the supplier as a mutual investment?
• Which suppler offers the best value against all of these? Value being NOT just the simplistic ￡n per month but the “what if costs”, have they shown a level of flexibility in the past (or based on references) can they adapt to changing demands by agreeing to flex obligations. Are they going to charge me for a new pencil every time I need one or will they sharpen my existing one for free?

The challenge facing most companies are not insurmountable but are historic. Silo’d budgets between the business and the IT department, procurement operating in a generic environment where the lowest is the best and where no tracking of value over a contract term takes place as separate statements of work are used on different POs which invariably are not added into a final cost.

It may well be that you are happy with the tin of store brand beans which is fine if all you want is the bare minimum that doesn’t really make you happy but “does the job”.

The time must come when we as an industry look at the value chain for procurement decisions not just on initial price at the start but the projected cost and value over the life cycle of the Service.

Many companies have achieved this by taking a step back and looking afresh at what the BUSINESS needs from IT:

• How is IT really supporting the core BUSINESS OUTCOME?
• Does it need speed and agility (does it really?)?
• Does it need traditional break fix with containment of technical debt (that is OK not  everything needs to be Agile and fast)?
• What warranty does the business REALLY need?
• What mechanism of measurement (smart KPIs business aligned rather than how many bugs did you fix this month?).
• What have we already got? Holistically? Have I ended up with 6 suppliers 2 help desks (with no one sure why we have 6 and 2?)
• Does the approach of "not having all our eggs in one basket" when it comes to the supplier base really, really make sense and is there the SIAM and overall maturity to deal with that model?
• Have a got the command and control in place? How do I properly manage my suppliers in a dynamic and effective way?
• Are my processes slow and not in line with the BUSINESS needs for quick resolution and restoration on core components? Are my processes and support arrangements in line with business criticality (e.g. a critical apps on a platinum supported server connected to a switch on bronze support??)
• Do I know what these components are? Do I have an auto-discovery and audit process for the CMDB, or has this become an overhead of little value? Can I map my IT asset to a business process?
• Do I need / have monitoring tools to PROACTIVELY protect the BUSINESS?
• What do we REALLY (yes REALLY) spend?
• How much do we LOSE in the current model? Lost business changes to improve efficiency? What is the drag factor, loss due to our current thinking?
• What incidental costs are on other cost lines? For example (that guys doesn't cost anything - he works for the company already.....)
• Are my suppliers working with me or against me? Do they get access to my strategy are they supporting it and working with me to drive things forward, or do I keep them in the dark and expect.... something to happen....
• How am I driving reduced costs longer term through innovation and automation? And not just through making suppliers do things more cheaply year on year with no investment? How am I incentivizing my supplier base?
• Am I doing short term contracts as this gives me more control and options? Is this true? Am I losing the longer term advantages (as above)
• Am I doing things in a timely manner to work with suppliers to get the best VALUE?
• How do I pool and contain cash internally?
• How do I justify spending cash internally?
• Are business cases being tracked and really delivering the promised benefit?

I personally, am all for paying a bit more for my beans (and most other things in my life) there is no such thing as a true commodity except for things like toilet paper (and even then you have choices!). There is and will always be a choice between a pure ￡ based value proposition and one that drive improved value generation and business alignment by looking at the true cost (opportunity costs etc) rather than the old school price tag on the cheapest tin of beans.

The procurement and management processes must adapt and change to deliver the agility and promise that todays business needs. This cannot be achieved utilizing yesterdays thinking and processes. Perhaps this is all part of the death of “do leadership” which has been replaced by an ever-increasing volume (and dare I say it vacuum) of “thought leadership”. As we all know thought leadership is of no value at all if no one is going to DO anything.

**The opinions contained in this article are those of the author and do not reflect those of any other individual or organization.