I am often accused of being obsessed with uncovering value when in the discovery and dialogue step (sometimes known as the sales process) of a consulting engagement.
One of the key statistics I cite is from the Standish Group and their research on small and medium business information technology projects – 47 percent of SMB IT projects cost 190 percent of the original estimate. I often round it and say, “half cost double.”
This of course leads me to suggest using the McKinsey and Company mantra, that unless the consultant can help uncover three times the value of any price they would propose for a solution, then the consultant will not even propose a solution. In addition to being sound business advice, it is also quite a disarming comment for a consultant to make.
Well, there is more distressful news on this front this week. In an article in PCWorld by Chris Kanaracus entitled Widespread Discontent Persists with ERP Projects, the author opens with following citation of a recent study conducted by Panorama Consulting Group, “More than half of companies that implement ERP systems end up garnering no more than 30 percent of the business benefits they expected.” To round this one I would say, “half get a third.”
Now, I will not vouch for the veracity of these numbers. I believe that business is art, not science, and any attempts at making it science are of the pseudo variety.
That said, combine these two thoughts together and you have a pretty good explanation of why no decisions and other forms of stuck sales are so prevalent in this industry.
Think about it, we are in a position where prospective customers have (at least some form of) documented “evidence” that:
- half cost double
- half get a third
If you do not assist a customer in developing a perceived value in dollars, the following will (perhaps has) happen:
A company budgets $30,000 (software and “services”) for a new ERP solution. It ends up costing double, $60,000. Since the provider never got a solid understanding of value from the customer, the customer assigns the original price to be the value number, again, $30,000. A year goes by and the customer only feels like they gain one third of the value they thought they would get, $10,000.
To sum it up, spent 60K, got 10K. Oh yeah, let’s upgrade!