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Cutting Costs: How Commoditization Compromises Quality


Two deadly plane crashes within five months have rocked Boeing and the aviation industry. Hundreds of people have died.

And why?

Boeing’s recent expensive example of why the price you pay is oftentimes a clear indication of the quality of the services you receive was realized when it was learned that the aircraft manufacturer had been paying engineers $9 an hour to work on their 737 MAX model, which has since been grounded after two devastating crashes.

The cost in this case was paid with the ultimate price: the loss of life; but commoditization, even when it’s not deadly, is still costly. Quality, livelihood, business, even supply and demand, are all compromised when the market is unable to distinguish key attributes – and true capability.

Responding to a constrict in the price consumers are willing to pay for a product or a service does not solve the need for it – rather, it only introduces new, less capable options to the equation. The demand is technically fulfilled so the dynamic of the supply changes. Cheap, inadequate resources become the new demand while fairly priced services seek alternate buyers. Or, suppliers refuse to compromise their services for a quick sale and the demand goes unfulfilled. The latter leaves buyers in a position to adjust their expectations and either seek a different service all together or pay the rate that’s been set.

It’s not an easy balance to strike, but as the market continues to flood with resources and services claiming capabilities they cannot ultimately deliver on it’s an important conversation to have.

The Quality Line

Our economy today is primarily a services economy. That is, the provision of services rather than the production of goods, like manufacturing, or agriculture, makes up the majority of our economic value and output. Services, like marketing and design, ecommerce, software and computing, financial services, professional services – like LABUR’s services – and consulting, account for 74 percent of GDP in high-income countries, including in the U.S.

Why does this matter?

Services are subjective. There are, of course, generally accepted industry standards and best practices, but the benchmark of quality is much more fluid than it is when comparing a product or some other tangible deliverable. What might be generally acceptable by one organization might be completely unacceptable to another. Online reviews and even pricing can be used to assess value and quality, but unfortunately both can be manipulated to suggest higher quality or more value than what can actually be delivered. When it seems too good to be true, as would be the case if you could find a good engineer willing to work for $9 an hour, it likely is too good to be true.

So, how do you assess quality in a services economy? Here are a few recommendations:

  • Ask for referrals. We do this when we assess both new clients and consultants. And, don’t just take their word for it, or only look at what’s being said online, collect your own feedback. Due diligence, due diligence, due diligence.
  • Establish service level agreements. Do your homework and know what acceptable will look like for your organization. Metrics and sources of measurements are critical.
  • Align your organization with people and service providers who share your values. Hold them to the same standards you hold for yourself internally. All too often I see organizations work with companies and individuals that are not a good representation of them. Pick your partners wisely.

Commoditizing services – that is, not distinguishing the attributes and therefore economic value of services – in order to save money in the short-term only ends up costing organizations in the long run, as I’m sure Boeing now has a point of view on.

It’s important to go through an evaluation process. Put projects out to bid, go through an RFP process, but when it comes time to assess and select a services provider, whether that be an individual or a company, ensure your process accounts for quality. Because when it comes to services, everything is not always as it may seem.