With unprecedented emphasis on squeezing-out costs whether in daily operations or capital investments in today’s climate, financial institutions must work to avoid an “always lowest cost” mentality when making technology decisions that impact their quality of service to clients.
Over time, one-time innovations tend to become more commoditized. New entrants seem to offer “the same” for less money. In 2005, I remember buying my first flat-screen TV, a 32 incher, for about $2,000. Today, the equivalent would cost a few hundred! Suffice to say, that commoditization leads to lower prices for many goods and services, and that is a good thing generally.
However, many technology solutions are more resistant to commoditization because they involve ongoing innovation over time. They often have elements of solution customization and significant post-implementation support requirements. In the context of a technology decision, these factors, beyond initial price, are the very ones that will determine the eventual success or failure of that investment. According to Mitch Razook, president and CEO of RLR Management Consulting, Inc. “Those financial institutions that take the least-costly route are often the same ones that have compliance issues, bad audits, technology performance issues and upset customers within a year, all because they focused on getting something for the best prices instead of the best quality.1”
Our recent experience indicates that RFPs are not always effective at getting to the heart of the problem. They often become just a way to comparatively shop price rather than a way to evaluate real performance capability. Before issuing another RFP, financial institutions should ask themselves “Is this really a Request for Proposal or simply a Request for Price?” Financial institutions might be surprised if potential suppliers are allowed to gather a few facts and actually make recommendations rather than to invest thousands in responding to questions that may or may not be important to the decision process.
Any low price alternative is certainly tantalizing, but institutions should take care to look behind the price for the more qualitative elements that separate the best alternative from the cheapest, especially when investing in technology solutions. This is especially the case when evaluating mission critical hardware and software solutions. For instance, you would never implement your company’s security infrastructure based solely on lowest price because it is so mission critical and not worth the risk. While price is still a consideration, it must take a back seat to fitness for purpose, highest quality and support level. The same logic should apply to other mission critical solution decisions as well.
Beware of Cheap Shoes
My view of “price” came years ago, somewhere along the way in a sales training class. The question of how to overcome a competitive offering with a lower price was raised. I wish I could recall all the specifics and give the deserving person credit for this, but the story stuck in my mind for my entire career, and I believe financial institutions could benefit from it as well by resisting the “cheapest price mindset.”
The instructor asked, “When shopping for shoes, do you always try to find the cheapest pair?” After a period of total silence, everyone in the class responded “No.” So the instructor asked, “Why?” That stimulated a brisk conversation and light bulbs began to click on.
The reasons put-forth to avoid cheap shoes could be summarized as follows:
• Cheap shoes may not fit as well and lack comfort
• Cheap shoes will likely not last as long
• The manufacturer of cheap shoes may not stand behind their product
• Cheap shoes might look good initially, but may not over time
Deficiencies with solution fit, reliability, overall quality, product support, service are the rough equivalents to these “cheap shoe” observations. These very same things could well be true of your technology solution choices when price alone is the deciding factor.
1Cost Considerations of Technology Choices, Mitch Razook, BAI Banking Strategies, May 4, 2016.
Robert Allexon is an Independent Business Analyst and Consultant. His career spans five decades in technology-based durable goods sales and marketing and he is an expert in cash automation.