Wednesday, August 04, 2010

Is Frugalnomics Today’s Number 1 Buying Factor?

Before the bursting of the technology bubble, IT purchase decisions were driven by steady upgrade and replacement cycles, mingled with occasional bouts of euphoria, as with the Internet race, and panic such as the Y2K crisis. The choice as to which IT investment to make was based most often on a need to keep up with, or get ahead of the “Joneses”.

Because these IT investments during the go-go 90s were not analyzed for bottom line impact, having been tied to a business case in less than 10% of the proposals, many organizations did not make the best investment decisions and did not realize any lasting financial gains. When the bubble burst, a significant backlash resulted in a permanent change called Frugalnomics, a scrutinizing of each investment to deliver quantified bottom-line impact. The difference in IT today is that cool doesn’t count, and saving money is all the rage.

We now see this change reflected in all B2B buying decisions, as the global recession is forcing organizations to be as skeptical as ever on risk vs. reward decisions. Businesses worldwide have returned to the basics. Revenue growth is scarce. The global economy is more competitive. Fewer easy growth opportunities mean less room for mistakes. Fewer customers mean each customer is more important. Lower profit opportunities in a given market mean less discretionary spending. Saving money is a requirement

As a result, the following strategic values are key today:

• Vision. Companies must quickly show a profit in the face of challenged revenue opportunities. With limited revenue growth opportunities, this has meant a focus on creating and sustaining cost savings to drive good bottom-line results.

• Control. Executives who pin their companies’ failings on the market, the economy, or some other external cause are passé. Accountability is key, and all investments need to be analyzed for risks and rewards.

• Growth. As market conditions improve, the winners will be ahead of the curve, investing in the foundations to capitalize on future growth opportunities and fundamental business changes. Organizations that find ways to cut operating costs more than the competition, and then allocate a higher percentage of budgets to innovation have an advantage in catching the next wave.

As a result, we are seeing unprecedented executive demand for quantifying the business value of most investments, with executives demanding that more than 90% of all B2B investments demonstrate a contribution to savings, growth and bottom-line impact.

As well, now more than ever, is a passion for "time to value". Frugal executives are demanding that most investments deliver tangible impact in less than 12 months from initial investment. This focus on quicker returns assures that any investment deliver a payback in close to the same budget period, reduces risks, and helps to drive important savings / growth needed now vs. in the future. The challenge in the short payback period decisions is that too much focus on the short term can leave a company ill prepared for when the good times return.

B2B solution providers must be prepared to tackle the Frugalnomics issue, or face paralysis in buyer decisions, extended sales cycles, and a dramatic competitive shortfall. We find that with less resources than ever, although buyers require business cases to justify the vast majority of purchase decisions, the buyers are unable to generate the evidence themselves, with more than 65% indicating that they lack the time, skills, knowledge or tools to perform business case analysis.

This has resulted in an increase of typical B2B buying cycles from nine to 18 months, and proposal approval rates dropping over 60% since 2007.

Consequently, B2B providers are being called on by buyers to provide rapid, yet credible business case analysis that accurately conveys the impact that can be expected from deploying the vendor’s solution. In fact, over 81% now expect B2B vendors to provide an ROI business case or Total Cost of Ownership (TCO) competitive comparison with any proposal. The frugal buyer logic – if you have something to sell me, you should be able to prove the impact to my bottom-line, and stand behind the results.

Frugalnomics represents a fundamental shift in decision making towards quantifiable bottom-line impact for any B2B investment, in all markets. As a B2B sales enablement or marketing professional, are you prepared to meet this new challenge and address the number 1 buying factor?

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