Price Does Not Equal Value

It’s been an interesting couple of weeks for us in work, one that has made me acutely aware of the fact that it is so hard to accurately describe value – holistic, intangible value.  As a lean thinker, this phenomenon is not new to me of course. Often we spend a great deal of time improving process and service experience, making things better for customers, and for the staff delivering that service, to be challenged at the end of the initiative “ah – but did it save us any money though?”.   Statements like this just make you want to scream.  Within services, the only key way to save money, is to not employ as many people.  Yet what good is it to involve staff in improving a system, to then sack them as a consequence of their hard work? What’s the point of sacking good people when people are the machines that actually deliver the value that makes your service memorable? The best tactic to survive and thrive, of course, is growth. Positive, dynamic, growth. Growth of your market, growth of your esteem, growth of your prices. None of which can be achieved without investment.

Investing in the future is the only way to survive. Unfortunately, therefore, this means that it’s the ultimate paradox. Just when you need to save money, you have to spend more. 

Our family used to go to a lovely restaurant in a village in Cardiff, the food was so amazing, truly excellent, but yet they struggled. Number 1 problem for me, it always felt cold in there. And this is someone who comes with their own personal layer of insulation.  They didn’t have any central heating, so they used electric heaters, but you could never shake off that cold feeling. My Mum and Dad would say to me “want to come with us for a meal at x today?” and I’d say, “The cold one? Do we have to?” They’d say, “but the food Sarah!”, and I’d sigh, and I’d join them after putting on a jumper.  (Thanks Mum and Dad for the millions of free restaurant meals by the way 😀 ). The last time we went, it was not only cold, but you were acutely aware that they only had one waiter, doing everything, and the service was just shocking. This was in no way this poor chap’s fault, he just had far too much to do. The food was great (although I still suffered from the ‘why do men always get the best steaks?’ phenomenon… grr.. women … start noticing this and let’s rise up and do something about it. It’s an epidemic. #worsesteak #womenpayformealstoo #exceptwhenIgooutwithmyparents) but yes, it was just all far too slow, too difficult to get any attention. 

I thought to myself, “they won’t be able to keep going for much longer, they’re at the end” … they shut within a month. 

The food was so good, I seriously think that all they needed was central heating, employing more waiting staff (and a bit of a fresh look at the décor which was incongruous to their offer). Investment would have saved them.  

I’d hazard a guess that just getting central heating could have been their “tipping point”. I’ve just googled “Tipping Point Business” and can see that Malcolm Gladwell (brill author) has written a book entitled just this!!! *adds to reading list. A tipping point is the trigger that can turn a struggling business into a successful one.  This pivot can happen after a myriad of different things… after they invest in better outside furniture, a brand refresh, or sending a celebrity a gift pack who then endorsed their brand. 

And yet so often, our ability to invest is limited by others, those who are constrained by the ideals of traditional cost accounting.   When working in the Lean Enterprise Research Centre, I worked alongside John Darlington, a great guy and advocate of ‘Flow Accounting’, an approach devised to overcome the limitations of traditional cost accounting measures. He described the problem of cost accounting so brilliantly, he said “if you ran your home the way that we run our businesses, you’d never buy a new kitchen, you’d work out it was cheaper to have takeaway chips every night”.  

This analogy is genius. 

Too often our decision-making capability is bound within the confines of a one year budgeting cycle. Departments feel encouraged to ‘spend spend spend’ (pointlessly) towards the end of the financial year in order to protect their budgets for future years but are unable to make a significant one off investment within the confines of their one year budget. A large cost, such a brand new kitchen, does not make sense within this one year of financial activity.  Outsourcing chips every night at £1.75 a go represents a massive cost-saving compared to the £10k investment and inconvenience required to build an fab new kitchen within a one year cycle. You wouldn’t ‘make the money back’ within that year.  Yet within that low-cost decision, no value is paid to the huge negative health consequences that will result from daily chip shop chips, coupled with the massive irritation (and lingering smell) of the daily chip shop queue.  The chip shop chip decision is not sensitive to the fact that a fantastic new kitchen would add a tremendous amount of value to your home (if and when you sold it) and, perhaps most importantly, the ongoing delight that would be brought to the whole family now enjoying this delicious new space. The amazing chats over homecooked meals that would now be had! Family bondingtastic!  Who knows, maybe these family meals would even be followed by a hilarious board game or two? (hmm.. let’s not go too far). My point is that a brand new kitchen saves lives. 

That’s not my point. 🙂 My point is how dangerous it is to view everything in mere financial terms. Value is so much more complicated than that. And praise be for senior leaders who get that.