I’m often struck by the notion of getting a “good deal.” What does that mean in practical terms, when we make decisions in our personal and professional lives? Many of us contend with this daily, whether it is in deciding small things (where to have dinner tonight), big things (which car to buy), or things that will have a direct bearing on the direction of our career (so, how much is that policy admin system in the window?). We need to make thoughtful calculations that get us to a better place by balancing risks, rewards, excitement and the fear of the unknown. And we need to do it with speed, given the pace of our experience today. Economic advantages can indeed be fleeting things.
So what is the difference between “cheap” and “value”? In short, they are very different ideas when it comes to making investments. Confusing them can have many dire and long-lasting consequences.
I came to this realization honestly enough. I grew up in a family that laughed about how my grandfather “could squeeze a nickel so hard that the buffalo would cry.” We all got the message: it was a lot easier to spend money than to make it, so have your wits about you when making important financial decisions. Being a smart, well-educated investor makes a huge difference when final outcomes are assessed.
It is that outcome component that is really at the core of the difference between “cheap” and “value.” A low initial price tag may only represent the down payment on what may prove to be a decidedly poor investment. “Cheap” may mask ongoing support costs, issues with operability, or even the viability of the vendor bringing a product to market. If a price appears to be too good to be true, then one of two things is true: either you have supernatural negotiating skills, or there’s something hiding under a thin veneer that needs to be peeled away. I start peeling every time something fails a basic sniff test.
Value gets at a different dynamic. It doesn’t look at the sticker price so much as it does the economic “puts and takes” over a lifetime of use. Understanding what that useful life might be, and how the investment is going to earn out over time, is critical to getting this calculus right.
Some of the worst cars I’ve ever owned were the cheapest to acquire and the most miserable to own. Conversely, I got some of the best value from vehicles that had a higher sticker price, but were more engaging to use day-to-day, based on comparable functionality.
Technical investments work much the same way. To get to a real “value” conversation you really need to understand both the TCO and the usability of the solution concurrently. At a recent ACORD conference, a presenter ruefully noted that we “overvalue what we can measure while undervaluing what we cannot.” This is why value calculations can be such a challenge. Moving forward, we will find ourselves grappling with issues that are difficult to put hard edges on today. On the other hand, presuming that our planning horizons extend beyond next Tuesday, that’s exactly what CIOs and their teams need to do. They need to help business partners bring the future into somewhat clearer focus and facilitate seeing around corners, while helping to quell the systemic noise and determining how finite investment pools can create best value for their carriers.
Value is a much more exciting concept than cheap is. It requires real thought and the ability to demonstrate thought leadership in difficult economic times. The Great Recession may be over, but the competitive environment of the future shows no signs of lightening up. As the budget battles of 2014 start to heat up, it’s a great time to beware of the cheap–and extol the virtues of value.