Choosing suppliers to work with can feel like playing Russian roulette on a tightrope for many a business owner. In an ideal world, if money were no object, there wouldn’t be any question – quality every time, and only the very best would do.
But as we all know, money very definitely is an object, a great big barrier in the way of our aspirations and best laid plans. Quality is all well and good, but not if it bankrupts us in the process. With our accountant’s head on (or with our real accountant breathing down our neck), we continually have one eye on the balance book, on the current liquidity of the business, the health of our capital reserves and protection of future margins.
In other words, we often compromise on quality to get a better price.
This trade-off between quality and price is known in marketing circles as the customer value proposition. It is a marketing term because it is used by businesses to define how they ‘position’ a product, or how they will try to dress up the balance between cost and quality/benefit in an appealing way when selling to customers.
But purchasers themselves make a value judgement equivalent to CVP whenever they buy something. In its plainest terms, it boils down to a simple question – is it worth it? Or, to flesh that out a little more, will the benefits I get from buying this product (or service) outweigh the sacrifice I have to make in paying for it?
A fine balance
As we started out by saying, this value judgement can leave business buyers between a rock and a hard place, and especially when it comes to choosing an IT partner. As anyone who has ever run a business well knows, technology is expensive – and proportionally more so for small businesses, which on average spend around 7% of their revenue on IT.
For such a significant overhead, you simply have to get it right. Go for the top-of-the-range cutting edge solution from the biggest name vendor, and you could end up overstretching yourself and putting the financial stability of the whole company in jeopardy. Opt for the bargain basement budget offer, and you could end up with something that is so poor that it actually damages how effectively your business is run, and ultimately ends up costing you more putting it right.
This underlines a couple of the unique challenges in IT purchasing. One, technology has become so fundamentally important to how most businesses operate that you can’t really afford to get the decision wrong. Companies the size of Vodafone, Woolworths and HP have learnt that lesson the hard way, to the tune of millions of pounds. Two, no one ever seems quite sure what IT really costs. The upfront ‘book price’ for purchasing a system or subscribing to a service might seem very attractive, but the TCO – total cost of ownership, i.e. true running costs over the full product lifecycle – could end up being many times higher.
Two out of three ain’t bad
Of course, in today’s world of cloud computing, you are just as likely to be signing up for an ‘over-the-top’ IT service delivered via an IP connection as you are buying hardware and software to run yourself – perhaps even more so. And this has muddied the waters even further, as cloud-based IT solutions have dramatically reduced the capital expense of accessing even the most sophisticated solutions, transferring CAPEX over to OPEX.
There is one word that we should pick out from this switch to cloud computing and throw in with quality and price in our customer value conundrum – service. Indeed, this article has a slightly different take on the quality-price binary matrix – it suggests that for any purchase you make, you should weigh up price, quality and service, and pick two out of the three. Written by a web developer, it argues that for IT the decision should always be quality and service.
Wise words, we’d say. A low subscription price for a new tech platform for your business might look good on the balance sheet short term. But if the quality of the product can help you make incremental gains in efficiency and productivity over time, and the service provided by your partner can add value in the form of optimising the benefit you get from the platform, in the long term even the money people will see the benefits.