by Bob Caravella
Bob Caravella is one of the industry’s leading experts on value engineering. He built and led the business value engineering and consulting practices at Mercury Interactive and HP Software – including value model engineering and enabling the worldwide sales teams to carry on meaningful value conversations with customers. He is a member of the DecisionLink Management Advisory Board
As sales leaders run the gauntlet for what is soon to be the end of the last quarter of the year for many companies, we’d like to introduce you to Customer Value Management (CVM), a beacon of hope for, among other things, building business cases to close business. In part one of this two-part blog series, we explored the definition of hard and soft benefits, and how to become your customer’s trusted advisor on value. In this final part, we explore how to reposition the nature of a benefit, deal with push back and the expectations gap, and how to ensure you’re asking the right questions.
Reposition the nature of the Benefit. Sometimes it makes sense to think of a benefit in a different way. For example, instead of defining the benefit in terms of ‘FTE (Full Time Equivalent) Labor Savings’, define and position it as ‘Cost per Event’. Thus, if a call center call currently costs $5 per call, and you can claim a 20% productivity improvement, then the Cost per Call is reduced to $4. On one million calls per year, that’s a $1M savings.
Deal with Push Back. Expect buyers to push back on the productivity ‘doing more with the same’ scenario. This conversation usually turns on three possibilities.
Natural attrition or terminations – For buyers looking to reduce costs, turn productivity improvement into actual FTE (headcount) reduction. FTE reduction can be handled by terminations and natural attrition. For example, If you are in an environment (such as a call centers) where attrition is very high, you can argue that there is no need for a 1:1 replacement during a churn event. However, avoid quantifying productivity savings that are highly splintered and distributed, like two minutes saved per person over 1,000 people. It’s too easy to challenge this claim and impeaches the credibility of the overall business case. Quantify productivity savings only if it can be meaningfully aggregated for a given process (i.e., a substantial chunk of time is saved).
- Reduce future hiring needs – For high growth companies, this can be treated as FTE cost avoidance.
- Opportunity cost – More projects making their way through the queue, reallocating resources to growth initiatives rather than keeping the lights on. Keep in mind that this may be more challenging with organizations and in countries that don’t understand opportunity cost well.
Service delivery people need to bridge the ‘expectations gap’ between the buyer and seller. If not careful, a service delivery person can get caught up in the expectations debate between buyer and seller. As a service delivery person, be sure to:
- Set measurable baseline expectations at proposal time, gain agreement on the baseline collection of metrics that will be used to measure success, and periodically measure value realized
- Establish a trusted advisor relationship with your sales team to ensure the proposal or project plan is closely aligned to your client’s business goals. For example: scaling up without adding resources, or reducing downtime to generate more revenue.
Ask the right questions
- Two questions help frame the hard vs soft discussion with a buyer. First, what could they do with the time saved? And second, what is the next best alternative? Sometimes FTE savings are hard to discuss, but when framed in the lens of ‘what would it cost to outsource the work to a service provider,’ it makes quantifying the benefit more compelling.
- What business drivers are you measured on? For example: number of new customers, call center calls, security breaches, IT staff size, etc.
- What additional goals cannot get accomplished without increased productivity, such as handling backlog, reducing project idle times, or preparing key deliverables?
- What would you do with the extra time if you can save X% on Y tasks? Response to this question may lead to positioning improvements in terms of increasing gross margin and revenue. These are clearly the most impactful areas, but highlighting efficiency gains that free up smart people to do solid analysis can lead to very positive and impactful outcomes.
- What are your company-stated business goals with respect to productivity gains? How do you treat direct (hard) versus indirect (soft) benefits in your business case?
- Are you only interested in saving real dollars by FTE reduction either from attrition or layoffs? Or are you willing to ascribe a financial value by repurposing labor to more strategic pursuits through process optimization?
- Challenge your buyer; ask ‘what if you could generate more revenue with the same resource?’
- Do you subscribe to ‘lean principles’ in making a business case? The Lean method is a philosophy centered around eliminating waste and providing the best customer experience. Using lean techniques creates more value for customers with fewer resources.
- For example, consider a solution that delivers a 20% productivity improvement for a call center agent. Having 20% more time doesn’t necessarily mean downsizing; it can mean having the potential to achieve more. In today’s labor market, it is often hard to recruit qualified people, so perhaps that call center agent now has the time to train staff for higher skilled, higher value positions. Value added work comes in many forms that can drive incremental profit for the company.
- What would your buyer do with 20% more time? How many more customers can be helped, and how much happier will they be? What is a customer interaction worth to your organization? What is a rough, plausible dollar figure? When a 20% productivity increase supports a company-stated business goal it is easier to sell up the management chain.
Bottom line: Value comes in many forms, and benefit discussions can take many directions. It is essential to build the right relationship with the customer to understand their needs and have the conversations that allow all parties to understand where benefits become value and how that value can be measured.
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