I recently went to a ‘Clever Happenings’ talk. These are fascinating talks organised by Dr Jason Fox and sponsored by The Centre for Workplace Leadership, with different speakers every month.
The presenter on this occasion was talking about brand and sales. At one point he asked the audience, “What is it that a GP Doctor sells?” People shouted out hope, drugs and health to name a few. After canvassing the audience he thanked them and then disagreed with all of the suggestions made and said, “No, what a doctor actually sells is time!”
Now I understand this point of view and agree that in today’s business world this is true. But many of us sell more than time; we sell knowledge. The problem is, the world seems to have forgotten how to value it, at least in my world of construction consulting, or just maybe people don’t want to pay for it.
And paying for knowledge is an age-old problem. Even Wikipedia tells us “The idea that knowledge has value is ancient. In the first century AD Juvenal (55-130) stated, ‘All wish to know but none wish to pay the price’”.
When I was just a mere lad starting out in the building industry I was told the following story.
A bloke woke up one morning, went into his airing cupboard and noticed a massive dent in his copper hot water storage tank. Worried it would crack, he called a plumber. The plumber came out and had a look at the tank, looked at the dent and rubbed his chin. He went back out to his van, got a rubber-headed mallet and came back to the tank. He went to the opposite side of the tank from the dent, and with one big swing of the rubber-headed hammer, he hit the tank. As if by magic the dent just popped out perfectly. Job done. The customer was over the moon and asked the plumber how much he owed him. “£350,” the plumber said. In shock, the customer said, “£350? You’ve been here five minutes. How the heck can you justify charging me £350?” The plumber calmly looked at the customer and said, “£100 was for the call out and my time. £250 was for the knowledge of knowing where to hit the tank!” The customer paid.
That story has always stuck with me. I believe we have lost the art of defining the value of our knowledge or maybe ‘wisdom’ in this case and we get hung up on the value of time. Now don’t get me wrong, time is the most precious thing we have, we can never get it back, but we should never underestimate the value of our knowledge. So why have we got so hung up on time as the only value we have to offer, especially in the consulting world?
I think a lot is down to the fact of how consultants are procured and also the competitive nature in which consultants now compete. I have been in so many interview situations with clients where I’m asked, “What do you bring to this project?” To which I reply, “A great team, great experience, a long relationship of working with you and delivering projects on time and on budget.” To which I hear, “That’s all great Mark, but your fee is too high right now, so if you can reduce that then we can get on with the project!” It has become very tough to sell true value, especially in Australia and even more so in Melbourne.
I once worked for a large engineering firm. They worked on projects in the billions of dollars. They were working on a mine and a solution to keep stockpiles of material protected was put forward by another engineering firm. Their solution called for a warehouse to be built of gargantuan proportions. I don’t remember the exact numbers but the cost of the warehouse was enormous, around $800 million. The engineering firm I worked for was called in to come up with an alternative solution that was cheaper. Now rather than being smart and take on this challenge to bring an innovative solution with an innovative fee structure, the engineer just worked out how much time they thought it would take a number of their clever chaps to design a new solution. That fee was around $100K. Now the engineers came up with a genius design of a windbreak wall that was shaped so that minimal wind vortexes would be produced, so that the material would not blow away. The new wall was half the price of the warehouse, saving the client $400M!
Now, if the engineer had used his intellect, he could have said to the client, “We’ll charge you $100K for the time we spend on solving the issue, but we want 1% of the savings you make for adopting our solution.” If the engineer secured that agreement on this project, they would have earned $4.1 million in fees. Now just writing this makes me uncomfortable and I’m thinking that’s just too big a fee for this project! But is it really? It’s just 1% of the saving the client made. One percent! That’s nothing compared to what the project would have cost them.
Results and outcomes are not always that clear cut and our challenge as consultants is to find smarter ways of working, suggesting better ways to bring value for clients and being rewarded for the value of knowledge, not just the value of time. Time is ultimately a commodity.
A few years, ago one of my very bright team members, Hugh McGaw, wrote a paper on how the building industry should learn from the insurance industry in the way it procures fees and returns against risk. The insurance industry do this very well and set levels of reward based on complex algorithms, determined by the level of risk involved. The time element just doesn’t come into the value factor. It’s time we started to look at alternatives to the old time-based way of calculating fees and identified the true value of the knowledge we bring to our clients and projects.
Are we ready to step up to the challenge? I’d be fascinated to hear your opinions and ideas on the on the subject.