Peter Price and Valerie Value
21/04/19 - 14:46 Filed in: Procurement
If you listen to sales people, they will tell you about Peter Price. They meet Peter all the time. He might work in your organisation. Here's how you recognise Peter;
"Can you sharpen your pencil?"
"The spec is the spec. Let's talk about your price…"
"I understand that you believe your solution is special. Now about your price…"
"Have another look at your pricing"
"If you can't give me the pricing I need, I'll have to look elsewhere"
Main metrics are price savings
It's all very well us procurement practitioners talking about 'strategic procurement', but I cringe when i hear some of the stories about encounters with Peter. Now there are times when all of us have channelled our inner Peter, not because we wanted to, but because we had to. The budget wasn't there. We were under time pressure. I plead guilty, too.
For us to have credibility as a profession, we have to be able to add value over and above navigating procurement governance or chiselling rates. Even Mr Magoo could see that artificial intelligence and machine learning will eliminate the role of Keeper of the Mysteries of Procurement Governance, and even existing technologies can create and harness competition quicker and more efficiently than Peter.
Valerie equates value to the benefits realised from a procurement project as a ratio of the cost of realising those benefits. Imagine we described the benefits realised from a procurement as being 'above the line' and the cost of realising those benefits as 'below the line'. Peter operates almost exclusively below the line. Valerie understands the business, and the business impact of the procurement.
This means that she can engage in discussion about whether a higher priced alternative is 'worth the extra', because she is aligned with stakeholders who can make a judgement as to whether the extra functionality is worth the extra money. By this stage, Peter has used up aphorisms about 'sharpening your pencil', and 'looking at your pricing' and has resorted to asking the other party to 'come to the party'. Some party. It makes us look like amateurs.
To be constructive, I have created a model to track whether we are more like Peter or like Valerie.
In the model, 'above the line' refers to business benefits and 'below the line' refers to the cost of acquiring the benefits. To the left of the central vertical line is 'claiming value'; the "I win / you lose" world of negotiating. Peter lives in the red zone, chiselling price. Valerie might be here too, but she is also likely to want to set negotiating objectives focused upon non-commercial matters. In the example above, Valerie has identified exclusivity as a business benefit. It may benefit the buyer, either disproportionately or completely.
Valerie and Peter may talk about reducing total cost, and in the example six sigma, lean or other cost down/ cost out initiatives are represented as sharing value, as neither party has to give up something, and both parties may benefit. And in the green zone, Valerie is all by herself, trading concessions in order to get a win/win outcome.
So there you have it, Valerie and Peter used as the personification of old school tactical purchasing and value-based procurement. I have created a blank template for you to use in your next negotiation. Simply print out the template, and put a dot in the relevant section of the graphic each time you make a statement. If you have dots all over the place by the end of the negotiation, well done! And if you have dots mostly in the red zone?
Can we have a word?