on November 24th, 2008

Dear Colleagues

A good engineering colleague, Terry Cousins, was scratching his head yesterday wondering how a day share trader could possibly add value by trading stocks on an hour-by-hour basis (and I am not referring to traders who buy a blue chip companies and invest for the long term). Terry owns a successful company which has manufactured and sold over 200 hi-tech products around the world. These are based on an eclectic mix of hardware and software, ranging from applications in power quality monitoring to rail alignment for large freight trains. He doesn’t find it comes easy, but he works extraordinarily hard to come up with new ideas and to improve on his current range of products. I must confess to being similarly bewildered at share traders and their “contribution” to the world economy.

As you all know, everything we do in engineering is on the basis of selling something we make, at a slightly higher price to the cost of the inputs (materials and labour). We can charge a higher price because we add value. The more value we add, the more we can charge. Admittedly there are short term aberrations such as having a good salesman flog more aggressively and creatively and thus achieving a higher price. But I really do believe, if you are selling rubbish (ie you do not deliver value), eventually you will get “found out”. And remember this applies whether you are a maintenance engineer working in a plant simply selling your services as a long term employee, or as a contract electronics engineer heading up the R&D division designing the next iPod – the value creation often associated with intensive R&D, learning and the
Eureka/>/> experience.

Now I am not even faintly suggesting that we become Fukhari Persian rug sales(wo)men but as technical professionals we often get confused between our product or service’s value and the price to our customer. Perhaps, this is because as engineers and technicians we are conservative animals and we generally undersell ourselves at the drop of a hat. But we do need to put far more attention into perceived value than simply real value.

The final value of the product is almost never equal to its cost. You might sell a product for $1000 as the cost of the labour and material inputs come to $900 – a $100 “profit”. The value to you is $1000. But the value to your customer is often considerably more than the selling price (as they are only then motivated to trade their money to buy it). To sell the product, you have to ensure that the perceived value of the product is far greater than the price they pay for it.

As George Torok explains; the following formula (we love these as engineers) relates to value:

Total value = real value + perceived value

Real value comprises the tangibles – the functionality of the product or service. This relates to what the product or service does in real, mechanical or analytical terms. In buying a car, you would compare it to the cost of practical alternatives such a bus/taxi/other car models.

Perceived value, on the other hand, is more difficult to measure directly as it relates to emotion and belief. These include ideas such as; image, credibility, beauty and security. I believe that to be ultimately successful in selling your product you have to put effort into building this into your product. Otherwise you will be on the treadmill of business where you put enormous effort into your product design, but where you do not reap the potential rewards for your service. A friend of mine, Clive Smith, illustrated this to me very well many years ago. They had put together an exceptionally effectively test suite of programs to validate their PLC (programmable logic controllers) coding for a large minerals processing plant, before they arrived on site. They delivered the PLCs to the client who was duly impressed with the performance and lack of bugs and decided on the spot she wanted to buy the test suite as well for any future development and asked the price. The suite had cost Clive’s firm $35k to write and he ended up selling it to the client for over $95k – mainly for the extra blanket of security and functionality the client would enjoy in future, in validating program changes before releasing them live.

Obviously, above all, as professionals always ensure that you deliver real value.

I believe words and phrases that could be used to describe a product or service with extraordinary value in the engineering world include:

  • Niche
  • Pioneering new technologies
  • Thinking outside the box / lateral thinking
  • Addressing a real need
  • Priced for massive savings
  • Simplicity
  • Cleanly designed
  • Simple to operate (look at the iPod)
  • Ultra reliable and robust
  • Easy to read documentation designed for a complete idiot
  • Long lived
  • Safe
  • High Quality
  • Functional
  • Usable
  • Timeliness of delivery
  • Addressing a real need
  • Beautiful
  • Aesthetically pleasing
  • Safe and additional security for user
  • Prestigious

And ensure you have a great salesman to communicate your message to the world by selling what you have created.

And as Bob Wells, says: Your true value depends entirely on what you are compared with.

So make your value creation – whether it be a service or product – truly outstanding and world class. Always.

  1. Thanks for your contributions to the commissioning tips document. We shall release an updated version later next week.

Yours in engineering learning


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