One of the greatest economic breakthroughs in history was this: the realization that value is imputed, not intrinsic. This stems from a debate that has gone on for as long as scholars have studied the concepts of trade and production: Does an economic good have value in-and-of-itself, or is value purely based on perception? Put more simply, is value objective or subjective?
This is the difference between selling a good or service on the basis of filling a customer need vs. pleading “…But I worked so hard on it!” without a thought for customer need. Critical thinking time: Which viewpoint do you think produces more success in the marketplace?
The Austrian economist Carl Menger settled this difference in 1871 with the publication of his magnificent work, Principles of Economics (page 120, chapter 3):
The value of goods arises from their relationship to our needs, and is not inherent in the goods themselves. With changes in this relationship, value arises and disappears. For the inhabitants of an oasis, who have command of a spring that abundantly meets their requirements for water, a certain quantity of water at the spring itself will have no value. But if the spring, as the result of an earth-quake, should suddenly decrease its yield of water to such an extent that the satisfaction of the needs of the inhabitants of the oasis would no longer be fully provided for, each of their concrete needs for water would become dependent upon the availability of a definite quantity of it, and such a quantity would immediately attain value for each inhabitant.
This value would, however, suddenly disappear if the old relationship were reestablished and the spring regained its former yield of water. A similar result would ensue if the population of the oasis should increase to such an extent that the water of the spring would no longer suffice for the satisfaction of all needs. Such a change, due to the increase of consumers, might even take place with a certain regularity at such times as the oasis was visited by numerous caravans.
…Value is thus nothing inherent in goods, no property of them, nor an independent thing existing by itself. It is a judgment economizing men make about the importance of the goods at their disposal for the maintenance of their lives and well-being.
Menger made it clear: value is not inherent in any good or service, but rather stems from value scales based on individual subjectivity. The subjective theory of value has generally won the academic debate, seeing as businesses that understand subjective value have consistently dominated the marketplace.
You know the phrase “One man’s trash is another man’s treasure”? We get that from the understanding that value is subjective. I won’t value that glow-in-the-dark velvet painting of Elvis, but I’m sure there is a unique character out there – somewhere – who does. I’d throw it out. They’d pay top dollar for it.
This is a concept that every businessperson needs to understand: Value is a wholly subjective quality imputed by customers. The most successful business organizations are those in tune with values of their customers. The better they can meet those values, the better they will perform. On the flip side, woe betide the business organization that loses focus on filling the needs of customers.
THE IT PERSPECTIVE
When it comes to IT Service Management, these concepts are more applicable than you might realize. Let’s take a look at the ITIL Service Design definition of “Service” and “Service Management”:
A Service is a means of delivering value to customers by facilitating outcomes customers want to achieve, but without the ownership of specific costs and risks.
…Service Management is a set of specialized organizational capabilities for providing value to customers in the form of services.
As you can see, Service is not merely about doing something for a customer, and Service Management is not just about doing it with a smile. At the risk of sounding cliched, Service is about specific solutions – “Get me from A to B” – and Service Management is how you’re facilitating the completion of that solution. And as the ITIL definitions make clear, it’s all about value; no value, no point to any of it.
ITIL breaks this down even further for us by describing how service value is made apparent to customers through utility and warranty, twin concepts that describe how useful the service is and how well it accomplishes it’s goal.
- Utility is how well a service can meet the needs of target users. Does it provide the features, ease of use, cost, and other requirements? This is known as being “fit for purpose”.
- Warranty is how well the service meets the requirements in practice. The service may be designed to provide 24/7 access, but in daily practice is so unreliable that users hate to work with it. This is known as being “fit for use”.
The demonstration of utility and warranty is key in achieving desired valuation from customers. When presenting utility, it must be made clear to customers how well the service in question is able to solve their problems. Can the Help Desk solve issues in a timely and efficient manner? Do they have the answers that users need to problems they face everyday? If so, they are “fit for purpose”.
But can the Help Desk be reached when needed? Do they staff enough personnel to handle call volume? If they’re “fit for use”, then the answers to those questions will be “yes”. Not only does the purpose of the service need to be in line with what the customer requires, but it also needs to perform up their expectations. Valuation is an ongoing process, and smart customers will not tolerate a waning utility and poor warranty for long.
Perception is reality – in the eye of the beholder, of course. This fits in nicely with the subjective theory of value, in which customers build valuation entirely around their perception of what you have to offer. This is why warranty should be closely measured through relevant metrics to demonstrate value – some of the most common metrics being availability, capacity, security, and continuity of service. If you can use relevant metrics to show customers how well your IT service is achieving their goals, it will aid in increasing customer perception of service and value.
Customers possess supreme market authority. They alone determine value and make sovereign decisions to purchase. The smart businessperson thinks this: “What can I offer the customer that they will value?” The less smart businessperson thinks this: “…But I worked so hard on it! Doesn’t that mean anything?” Not if the customer doesn’t value your efforts.
IT Service needs to appeal to customer needs and demonstrate value in order sell effectively. The enterprising IT Service professional is focused on providing specific value, identifying customer needs and how to best meet those needs. Services and service management should be designed to produce specific outcomes to be most effective and valuable to customers.
Bottom line: value is subjective and formulated at customer discretion. Extend this thinking into your daily activities as an IT professional and you’ll be surprised just how much further it can get you!
Categories: The IT Philosopher