While nearly all customers would likely describe themselves as “cost-conscious,” it’s generally more accurate to call them “value conscious.” Cost is really only a means of quantifying value, after all, and customer trends consistently prove that – all other factors being equal – savvy customers will choose the product or service with the higher perceived value, even if it’s not the least expensive.
As a result, organizations that can successfully focus on value tend to enjoy a more productive relationship with customers, and tend to avoid the downward spiral of competing strictly on cost.
The Shared Services Paradox
The concept of shared services has been a cost-controlling and efficiency measure in many organizations for decades. It is increasingly popular even now because of the cost savings the approach boasts. But there’s a flaw in that limited view, and it’s sometimes more apparent to the customer than to the organization itself.
While there are many reasons for a shared services arrangement to result in lower costs – favorable cost location, standardization, specialization, and economies of scale, just to name a few – there’s another side of the story that can work against this reduction of cost.
These benefits look quite promising….on paper. They don’t translate nearly as easily in reality, and they’re not easy to communicate to outsiders, including customers.
On top of that, the transition to shared services will often result in short-term inefficiencies due to communication challenges, loss of perceived flexibility, and other change issues that can outshine the cost benefits and sometimes result in lower productivity, during the short term.
Over the longer term, it becomes imperative to show incremental cost reduction every year, leading the shared services model to feel like a treadmill you can’t get off. So, there’s a natural limit to the appeal of this “cost-focused”model.
Which is not to say that adopting shared services is a poor strategy. But it can’t be viewed as just a cost-savings methodology and nothing more.
How customer value enters the shared services equation
Reducing cost is only part of the overall value delivered by adopting a shared services model. When you consider the value added by using shared services, the results for the customerare much more positive.
The net incremental value added could be based on operational productivity, improved quality of operations, higher revenue, or lower risk, for example. These benefits can and should outshine the reduction in cost achieved because they’re more readily perceived and understood by the customer.
When all is said and done, the customer sees a higher value product at a lower cost, not just a lower cost product.
This change in perception – from a question of cost to a question of value – provides companies in highly competitive markets with more room to maneuver without cutting already thin margins even more.
Discovering, measuring, and proving total value provides the impetus for transitioning to a shared services model and helps address the significant change management challenges that go along with it. Plus, it keeps each service unit operating as a commercial business that continuously looks for opportunities to provide new services and improve value for their customers.