We all say we can spot a best value when we see it, but can we really? Did you know that the Lincoln Navigator is basically a Ford Expedition with a Lincoln emblem and trim, but it costs thousands more? That Kroger’s peanut butter is equal in quality to Skippy and Jif in taste tests yet costs 30% less? These examples of value mismatches when we opt to purchase higher cost alternatives instead of products, services, and technologies that have functionally equivalent lower cost alternatives available are costing your organization thousands of dollars of unnecessary costs annually. Why, when we need to save every dollar possible, when revenues have shrunken and resources have dwindled, do value mismatches still exist in organizations today?
Value mismatches exist in organizations by the thousands due to these three incontrovertible reasons that are holding back huge savings opportunities:
- Price Thinking
Price thinking has created most value mismatches in our corporations. The reason for this is that few organizations look behind the requisitions they are processing to understand the functional requirements they need, then search for lower cost alternatives that can meet those functions at a significantly lower cost. The search for alternatives stops at BEST PRICE in most companies today, thus holding back enormous savings from happening.
- Believing in Myths
With few exceptions, organizations believe that their employees’ resistance to change is the reason why they aren’t saving more money on the products, services, and technologies they purchase. This is a myth! The real reason for resistance is that organizations aren’t offering their staff the best value alternatives to what they are buying now. Rather, they are offering alternatives that have a lower price tag than what they are purchasing now. Positive change can only happen when BEST VALUES are offered to your staff. Then, they will welcome the change being offered with enthusiasm!
- First Best Idea Wins
When organizations do search for alternatives they often stop their search when they find the FIRST BEST IDEA that saves money over their current price or cost, as opposed to searching for the second, third, and fourth best idea that will really drive down the total cost or life cycle cost of the commodity under investigation. The FIRST BEST IDEA is rarely the lower cost alternative in any value analysis study. To be truly cost effective, you must push on the second, third, and fourth best idea to make dramatic savings happen.
All the above reasons for value mismatches have one common thread woven through them – PRICE THINKING vs. BEST VALUE THINKING. That is the overriding explanation of why we have thousands of value mismatches in organizations today. Now, how can we change this price thinking to best value thinking?
No major purchase of any commodity should ever be made without first understanding the functional requirements of the purchase. Otherwise, you will leap to the BEST PRICE THINKING first as opposed to conducting a value analysis study to determine BEST VALUE. Best value is determined by investigating your customers’ required functions with them, then meeting their requirements reliably at the lowest possible total cost. This requires an exhaustive search for alternatives. Then and only then can a product, service, or technology purchase be deemed a BEST VALUE in your customers’ eyes.