Home > From Where I Sit > December 2006

FM And Purchasing: You Get What You Pay For

Before The Sale, How Much Is Too Much To Expect From Vendors?

By Tim Springer, Ph.D.

During a recent question and answer session following a conference presentation, I was taken aback by one of the inquiries. The underlying issue caused me to ponder a troubling trend in business today. The question referred to a tool I built for a client who graciously allows me to use it in presentations. The tool enables the user to frame the conversation in business terms about facilities and illustrate how this can affect the bottom line.

The tool is the product of several months of intensive work and represents the culmination of decades of hard won experience. With significant indignation, an attendee at this free session asked, “Why won’t you just give us that information?”

This episode forced me to pause and consider several things: Why would 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 this point in the FM world?

The simple answer to these questions lies with a common practice among vendors and dealers of office products. Historically, information, knowledge, and intellectual capital have been regularly given away as part of the sales process. So it isn’t surprising that end users have become conditioned to expect something for nothing.

Unfortunately, the practice that began as an effort to educate consumers and provide added value to the sales process has morphed into “consultative selling,” where knowledge based services are given to prospective end users. The vendors hope for—or in some cases require—a commitment from the end user to purchase the product.

While it may seem like a deal to the end user, two things are of concern. First, the upfront cost may appear to be free, but in reality, the cost of providing the service is buried somewhere in the transaction. Second, the nature of the information provided, of necessity, must support the purchase and use of the product or it would defeat the purpose. So while it may appear to be objective, it is almost always biased in favor of the provider’s product.

Giving away intellectual capital to make a sale of a physical product has become common practice. This creates the perception that information is free, but the true value of the information may actually be greater than the value of the product.

As troubling as this trend may be, it is merely an indicator of deeper and more disturbing purchasing practices. Based on evidence from friends and colleagues in various arenas, including some that have little or nothing to do with facilities, the message from the front lines of business is clear: purchasing practices have been polluted and corrupted. Consider the following examples. (Note: the names have been removed 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 for four consecutive years. Each successive RFP reflects lessons learned from prior years; in fact, some of the language is lifted verbatim from proposals submitted in prior years. Strangely, none of these RFPs were funded.

The logical conclusion is that this large, multinational corporation has opted to “learn for free” from the intellectual capital provided in good faith—and at significant expenditure of time and resources—by those responding to its RFPs.

Sadly, this seems to be a growing trend, as two other major corporations have done the same thing this year. In this participant/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 by non-disclosure agreements.

Apparently for some, non-disclosure doesn’t mean what it used to. I know of several companies that have taken to sharing bids for services with all who submit proposals in order to “negotiate” their price.

Customer loyalty is quaint. Cost is king. Some organizations abandon long-term relationships with providers in the search for marginally lower cost. This ignores the value of learning and knowledge about an organization that comes from working together over time.

For example, a top-notch design firm developed and nurtured a long-term relationship with a major client. It provided excellent, competitively priced design services for 15 years. Suddenly the firm was “given an opportunity” to bid, along with 10 other firms, on design work for that organization. The firm was notified it had lost the business to a competitor based on a bid that was just a few cents less per square foot. Regardless of how good the selected bid was, the learning curve for the new firm would be steep, costing time and resources and raising the probability of avoidable errors and inefficiency.

Change order profits. In response to lowest bid, commodity based purchasing, some service providers have adopted the practice of “buying” business by bidding at a rate well below that needed to make a profit. They structure the scope of work very narrowly in expectation of numerous and frequent change orders. They charge a premium for change orders to ensure profit on the back end.

While this may be legal, it seems ethically dubious. As a planned approach, it relies on calculated ineffectiveness and resembles time-released extortion.

How have things gotten so out of hand? I believe several influences from society at large have affected the conduct of business:

The “Big Box” effect. When everything is available at low prices all the time, everything is viewed as a commodity. In a commodity based setting, every decision is based on cost; it is the differentiating factor.

So, if a consumer can go to a Big Box store and get a deal, or bid online for reduced price merchandise, it is understandable why business buyers always expect low prices and use online competitive bid auctions.

People expect the best they’ve ever encountered. For example, auto companies began “zero percent financing” and “cash back” rebates to spur sales. The problem is that people have come to expect it. Similarly, giving away intellectual capital to sell products establishes expectations that all intellectual capital should be free.

Ends justify means. Examples of “perp walk” management abound from Wall Street to Main Street and both ends of Pennsylvania Avenue. Ethics seem to be in short supply. Challenging practices that benefit short-term business performance is extremely difficult.

Drive toward standardization . Simplification through standardization is an effective practice. However, this practice can be pushed to the extreme. People are different. The jobs they do, and how they do them, vary greatly. Yet, the drive toward standardization has resulted in a “one size fits all” mentality with regard to facilities and workplaces.

Commoditization. The result of the aforementioned situation is that everything is treated as a commodity. Thus, even services relying on specialized skills or distinct deliverables are forced into a priced based commodity purchase system, with the drive for lower and lower 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 cheapest house they can find. In part, this is because most people understand the difference between a low cost, cheaply made car and one that is safe, comfortable, and reliable.

The same thing is true of facilities. You truly do get what you pay for. Quality, whether in a product or a service, sometimes costs more up-front but saves money over time.

Value intellectual capital. Which is more expensive and valuable? Computer hardware or computer software? If you tally the cost of 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—the knowledge about facilities—is worth more than the buildings and all the furnishings inside.

Flex facilities muscles. In many organizations, facilities managers are the ultimate decision makers—if not the biggest customers—of purchasing departments.

In my opinion, facilities managers have both the opportunity and responsibility to challenge and change the something for nothing, commodity based approach to purchasing. It won’t be easy, but change seldom is. I am reminded of something a former boss once noted, “Those who 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 is president and founder of Geneva, IL-based HERO, inc. (www.hero-inc.com) and frequently writes and speaks on a wide variety of issues affecting organizations, work, and workplaces. To share your insight regarding facility planning, send him an e-mail at tim.springer@hero-inc.com.

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