Output, Outcome and the Dilemma of Cost vs Value
Majority of IT organizations are focused on the cost-savings and budgets that are expressed in the percentage of total revenue.
These mental models and easy-to-manage metric have worked in the past. There is no reason why, the ones applying these paradigms, would want to change anything.
Yes, you guessed it right... because it “works”.
The underpinning mental models such as, “IT is cost of doing business”, or “IT needs skilled people to run the show” made sense before the isolation economy that emerged as a result of Covid-19 pandemic.
In a post-pandemic world, customers are digital savvy and digitally conscious, and expect businesses to provide digital services that makes their life easier. The share of customers that are engaged with digital products and services have increased, and will further increase with digital transformation efforts by various businesses across industries.
The pre-pandemic mental models are inept to handle the pace of transformation that is required to meet the new set of needs and expectations of customers.
The question is...
What are the new mental models that would help businesses cope with the ever-growing competition in the digital era?
Before we attempt to find an answer to this burning question, we must understand the difference between an output and an outcome.
X: What is an output?
Me: A product of an action.
X: What is an outcome?
Me: An impact of an action.
One may argue, that to generate an output, we need inputs. It is not very obvious to look at inputs as some form of action. Even a thought that inspire action, could be considered as potential energy waiting to be converted to kinetic energy that the action is.
In my earlier post about “Milestones”, I alluded to the traditional IT vendors who sell old wine in a new bottle, and preventing their customers from discovering the outcomes that would be beneficial for their business.
Does it mean that customers don’t know that they being distracted by their IT vendors by selling milestones?
No, absolutely not, but if you put yourselves in their shoes, you will realize that they do not have enough options to explore when it comes to the business and financial relationship with their vendors. Therefore, it is in their best interest to stick to traditional models like Time & Material (T&M), and Fixed Price (FP), and the newly invented Milestone Based Eyewash (MBE).
What should customers do, to get better business outcomes?
My post about “Milestones” describes an approach that customers can adopt to ensure that their IT vendors are on same side of the table and are equally invested in achieving meaningful and profitable business outcomes. It starts with exploring the user needs and figuring out a metric of value that can be maximized to make a positive impact of their business. This approach would work if the financial model to do business with an IT vendor is compatible, and inspires both parties to shift their focus from cost-saving and requirements alone, to satisfying the user needs and maximizing the business value.
However, there is a dilemma of Cost vs Value, that is holding them back from taking a leap and experiment with the new paradigm.
Cost plays a vital role in justifying the return on investment, and it can be very challenging for customers to shift their focus from “What works”, to “What will work better”, given the rapidly changing landscape of IT services industry, both in terms of “skilled people” and “satisfying the needs of digitally-conscious customers”.
I do not intend to undermine the importance of cost, because the outcome-based development inherently incentivizes the cost optimization, not necessarily minimizing it.
The customers who will be an early adopters of the outcome-mindset, will gain significant competitive advantage, while optimizing the cost.
It is not just the customers who need to adopt new paradigm of thinking in outcomes, but also the IT vendors who are delaying the inevitable.
At Worthum Business Solutions Pvt. Ltd., we help our customers realize meaningful business outcomes that positively impacts the end users and the society, by leveraging technology that complements humans, and not replace them completely. Our endeavor is to integrate technology with business processes that are focused on user needs. We build and operate software & IT systems that creates business value and ensures profitability for our customers.
We want our customers to be the winners in their digital transformation journey, and we are equally invested in them.
If you’d like to connect with to us regarding IT services for your awesome project, then write to us at contact@worthum.com or visit https://www.worthum.com/contact
If you like my point of view or would like to share your thoughts, then I invite you to my Twitter space called "The Outcome Minds" that happens every Wednesday at 6:30 PM IST.
You may reach out to me on twitter @andankar_manish.