The "time value of money" – the fact that a dollar today is worth more than a dollar tomorrow – is an intuitive concept deeply entrenched in our business culture. The "money value of time" also gets a lot of attention; it's generally recognized, for example, that getting a new product out ahead of competitors' offerings often defines the difference between success and failure.
Lately, though, I've been flabbergasted by the extent to which some of the largest and most respected technology companies squander time, apparently oblivious to the impact that their subpar practices are having on their businesses. What's particularly striking to me is the contrast between the companies that are most nimble and those that are most sluggish. Even restricting the comparison to companies in the same sector (hello, chip suppliers!), the time-to-action difference between the quickest and the slowest can be six months. Really: half a year. Wow. These days, entire products get developed in half a year. If your company is one of the laggards, you are giving your competitors a six-month head start on important initiatives. And in exchange for that delay, what are you gaining? Absolutely nothing, in my experience.
The procurement process often seems to be a particular black hole of infinite delay for laggards. Once the decision has been made to purchase equipment, license software or IP, or to buy services, the procurement process kicks in. To be clear, I do understand and respect the need of any company to be methodical in its purchases, in order to ensure that it's paying a fair price, that its rights are protected, etc. But what seems to be happening in many companies is that increasingly complex requirements and procedures are being put in place in a misguided attempt to "legislate" good deals. In other words, companies are instituting elaborate policies in striving to ensure fiscal success. But our industry is complex, and companies procure many different things under many different circumstances. Trying to legislate good deals is kind of like trying to create good chefs through complicated recipes.
For the sake of concreteness, here's one example of a purchasing policy that starts out sounding reasonable, but quickly becomes counter-productive. This particular policy says, "We don’t commit to a project until we know all of the costs." At first blush, such a statement seems completely reasonable. By means of analogy, you don’t want to buy a car if you can’t afford the associated insurance, gas and maintenance. But such a policy quickly collides with reality. Technology companies run on innovation. Innovation, by definition, carries risk. Risk cannot be legislated away. So if you're buying research into a new technology, for example, it's simply not realistic to expect to know the full cost of that research before spending any money. Putting it another way, insisting that the full cost be known up front sounds sensible, but try it with a plumber the next time you have a leaking pipe, and you'll rapidly receive a reality check.
Numerous other examples exist; companies that have embraced the approach of trying to legislate good deals employ many such policies. The results are not good. Sometimes, promising initiatives are simply abandoned because they can't be made to fit into the policies. Other times, weeks and months are wasted searching for ways to get around the policies; instead of doing productive work, engineering managers and marketing managers spend time coming up with creative workarounds to satisfy the letter of the policies but not their actual intent, or lobbying for exceptions. Meanwhile, their competitors are getting real work done. All of this extra effort and delay could perhaps be justified if it resulted in a better deal – a lower price or better terms. In my experience, though, this almost never happens. On the contrary, the extra delays, paperwork, and uncertainly tend to increase suppliers' costs, which of course get passed along as higher prices.
Has your company been hampered by the pursuit of "good deals," or have you benefitted from the "good deals" aspirations of your competitors? In either case, I’d love to hear from you. Write to me at editor@InsideDSP.com or leave a comment on this page.
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