Business System Consultation Center - Our Business System ColumnVol.73 2017.07.01 Takahashi Minoru

Is there a future for companies that never stop complaining about system costs?

Thank you for your interest and continued support.
This is Takahashi from the Marketing Plan Research Laboratory.


“We’ve decided to switch vendors because our current vendor’s fees are always too high,”
We often receive such inquiries and propose system replacements.


In fact, since we can usually provide a more affordable quote compared to that vendor,
we are grateful for such requests. However,
but why did the original vendor keep providing these “so-called high-priced” quotes
time and time again?


While this may sound like I’m defending my fellow industry professionals to some extent, I’ll outline my reasons below.


① The Cost of Ignorance (A Legitimate Dual Pricing System)
This is the same business model as restaurant chain “coupons.”
　　(A) For “savvy” customers who look up and bring coupons, they offer the item for 400 yen
　　(B) For customers who are unaware of the coupon or uninterested in discounts, the item is sold for 500 yen
The original vendor is doing something similar to the above scenarios A and B,
In terms of system procurement, this means
　　"We had been continuously paying the cost of our ignorance regarding the original vendor."
　　"If we had presented the original vendor with a fair competitive quote, they might have adjusted the price to the lower rate (A)."
I speculate that this might be a possibility.


② The system was built using technology that the original vendor was not proficient in
Vendors (system integrators) each have their own strengths and weaknesses.
From an outsider’s perspective, all system integrators may seem the same, but the differences between companies are vast
—the difference is as great as that between metalworking and food processing (or, to put it positively, their "unique strengths").
When a vendor accepts an order for a system that requires technology they are not proficient in,
　　・They have to hire subcontractors
　　・Managing subcontractors is extremely difficult
　　・We need to hire additional contractors to cover for absences or fix mistakes (since our in-house staff cannot handle it)
As a result, management costs skyrocket, and this is directly reflected in the quote.


③ Simply put, the original vendor’s operating costs were too high
Vendors (system providers) each have their own business circumstances.
For example, salaries and compensation may be too high, they may own rather than rent office space, or accounting and auditing costs may be excessive.
The larger the company, the more enormous the costs of maintaining the business become.
This is also directly reflected in the quote.


However, none of the points listed above (1, 2, and 3) are unique to the systems industry.
Explaining this to the president would be like preaching to the choir,
and we believe this is not a matter we should be addressing from our position.
Instead of simply saying it’s too expensive,
but rather, why not calmly discuss the reasons behind this internally to try to understand the situation?


That's all, Thank you for reading.

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