From Where I Sit: You Get What You Pay For
By Tim Springer
Published in the December 2006 issue of Today's Facility Manager
During a recent question and answer session following a conferencepresentation, I was taken aback by one of the inquiries. The underlyingissue caused me to ponder a troubling trend in business today. Thequestion referred to a tool I built for a client who graciously allowsme to use it in presentations. The tool enables the user to frame theconversation in business terms about facilities and illustrate how thiscan affect the bottom line.
The tool is the product of several months of intensive work andrepresents the culmination of decades of hard won experience. Withsignificant indignation, an attendee at this free session asked, “Whywon’t you just give us that information?”
This episode forced me to pause and consider several things: Whywould someone expect to be given something that is valuable for free?Would they still value it if it were free? How have we gotten to thispoint in the FM world?
The simple answer to these questions lies with a common practiceamong vendors and dealers of office products. Historically,information, knowledge, and intellectual capital have been regularlygiven away as part of the sales process. So it isn’t surprising thatend users have become conditioned to expect something for nothing.
Unfortunately, the practice that began as an effort to educateconsumers and provide added value to the sales process has morphed into“consultative selling,” where knowledge based services are given toprospective end users. The vendors hope for—or in some cases require—acommitment from the end user to purchase the product.
While it may seem like a deal to the end user, two things are ofconcern. First, the upfront cost may appear to be free, but in reality,the cost of providing the service is buried somewhere in thetransaction. Second, the nature of the information provided, ofnecessity, must support the purchase and use of the product or it woulddefeat the purpose. So while it may appear to be objective, it isalmost always biased in favor of the provider’s product.
Giving away intellectual capital to make a sale of a physicalproduct has become common practice. This creates the perception thatinformation is free, but the true value of the information may actuallybe greater than the value of the product.
As troubling as this trend may be, it is merely an indicator ofdeeper and more disturbing purchasing practices. Based on evidence fromfriends and colleagues in various arenas, including some that havelittle or nothing to do with facilities, the message from the frontlines of business is clear: purchasing practices have been polluted andcorrupted. Consider the following examples. (Note: the names have beenremoved or changed—not to protect the innocent, but to avoid lawsuits.)
“Straw man” RFPs. A large corporation sends out RFPs(request for proposal) for strategic facility planning services forfour consecutive years. Each successive RFP reflects lessons learnedfrom prior years; in fact, some of the language is lifted verbatim fromproposals submitted in prior years. Strangely, none of these RFPs werefunded.
The logical conclusion is that this large, multinationalcorporation has opted to “learn for free” from the intellectual capitalprovided in good faith—and at significant expenditure of time andresources—by those responding to its RFPs.
Sadly, this seems to be a growing trend, as two other majorcorporations have done the same thing this year. In thisparticipant/observer’s opinion, this practice is highly unethical.
Sharing confidential information with competitors.Intellectual blood, sweat, and tears go into every proposal.Traditionally, information provided in proposals is covered bynon-disclosure agreements.
Apparently for some, non-disclosure doesn’t mean what it used to. Iknow of several companies that have taken to sharing bids for serviceswith all who submit proposals in order to “negotiate” their price.
Customer loyalty is quaint. Cost is king. Some organizationsabandon long-term relationships with providers in the search formarginally lower cost. This ignores the value of learning and knowledgeabout an organization that comes from working together over time.
For example, a top-notch design firm developed and nurtured along-term relationship with a major client. It provided excellent,competitively priced design services for 15 years. Suddenly the firmwas “given an opportunity” to bid, along with 10 other firms, on designwork for that organization. The firm was notified it had lost thebusiness to a competitor based on a bid that was just a few cents lessper square foot. Regardless of how good the selected bid was, thelearning curve for the new firm would be steep, costing time andresources and raising the probability of avoidable errors andinefficiency.
Change order profits. In response to lowest bid, commoditybased purchasing, some service providers have adopted the practice of“buying” business by bidding at a rate well below that needed to make aprofit. They structure the scope of work very narrowly in expectationof numerous and frequent change orders. They charge a premium forchange orders to ensure profit on the back end.
While this may be legal, it seems ethically dubious. As a plannedapproach, it relies on calculated ineffectiveness and resemblestime-released extortion.
How have things gotten so out of hand? I believe several influencesfrom society at large have affected the conduct of business:
The “Big Box” effect. When everything is available at lowprices all the time, everything is viewed as a commodity. In acommodity based setting, every decision is based on cost; it is thedifferentiating factor.
So, if a consumer can go to a Big Box store and get a deal, or bidonline for reduced price merchandise, it is understandable why businessbuyers always expect low prices and use online competitive bidauctions.
People expect the best they’ve ever encountered. Forexample, auto companies began “zero percent financing” and “cash back”rebates to spur sales. The problem is that people have come to expectit. Similarly, giving away intellectual capital to sell productsestablishes expectations that all intellectual capital should be free.
Ends justify means. Examples of “perp walk” managementabound from Wall Street to Main Street and both ends of PennsylvaniaAvenue. Ethics seem to be in short supply. Challenging practices thatbenefit short-term business performance is extremely difficult.
Drive toward standardization . Simplification throughstandardization is an effective practice. However, this practice can bepushed to the extreme. People are different. The jobs they do, and howthey do them, vary greatly. Yet, the drive toward standardization hasresulted in a “one size fits all” mentality with regard to facilitiesand workplaces.
Commoditization. The result of the aforementioned situationis that everything is treated as a commodity. Thus, even servicesrelying on specialized skills or distinct deliverables are forced intoa priced based commodity purchase system, with the drive for lower andlower first costs.
So, what can be done?
Realize the difference between first cost and life cycle cost.Few people drive the lowest cost automobile or live in the cheapesthouse they can find. In part, this is because most people understandthe difference between a low cost, cheaply made car and one that issafe, comfortable, and reliable.
The same thing is true of facilities. You truly do get what you payfor. Quality, whether in a product or a service, sometimes costs moreup-front but saves money over time.
Value intellectual capital. Which is more expensive andvaluable? Computer hardware or computer software? If you tally the costof software, it is many times that of the hardware on which it runs.Even though hardware continues to increase in power and shrink in size,it is still worth less than the knowledge based product—the software.
The same thing is true of facilities. Intellectual capital—theknowledge about facilities—is worth more than the buildings and all thefurnishings inside.
Flex facilities muscles. In many organizations, facilitiesmanagers are the ultimate decision makers—if not the biggestcustomers—of purchasing departments.
In my opinion, facilities managers have both the opportunity andresponsibility to challenge and change the something for nothing,commodity based approach to purchasing. It won’t be easy, but changeseldom is. I am reminded of something a former boss once noted, “Thosewho succeed by a paradigm have little incentive to change it.”
That’s the way I see it from where I sit, but I could be wrong.
Springer ispresident and founder of Geneva, IL-based HERO, inc. andfrequently writes and speaks on a wide variety of issues affectingorganizations, work, and workplaces. For past columns from Springer, go to From Where I Sit and for future musings from Springer, visit his Web site.
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