Value Engineering For Product Managers
A powerful skill that enables good investment decisions and pricing power.
As a product leader, I've always believed that value engineering isn't just for specialized teams - it's a crucial skill for every senior product leader. While some enterprise software companies boast dedicated value engineering or value consulting teams, the reality is that we're all expected to understand and apply these principles. Today, I want to share a hypothetical scenario that illustrates the potential power of value engineering in action.
The Hypothetical Challenge: 400,000 Calls and Counting
Imagine a large urban hospital grappling with an overwhelming volume of appointment scheduling calls - 400,000 annually, to be exact. Their current solution? A team of 100 human agents, each handling about 4,000 calls per year. At $40,000 per agent, they're looking at a $4 million annual cost just to keep appointments flowing. As a product leader, I see this as more than just a problem to solve. It's an opportunity to demonstrate the true value of AI-powered solutions in healthcare.
Proposing a Virtual Agent
In this scenario, let's consider proposing an AI-powered Virtual Agent capable of handling all 400,000 calls. This isn't about replacing humans with robots, but about smart allocation of resources and dramatically improving efficiency.
The Value Engineering Process
Here's how we could break it down:
Function Analysis: The core function is appointment scheduling. Simple, but crucial to start here.
Cost Evaluation: $4 million annually for human agents. A significant number in any hospital's budget.
Alternative Solution: An AI Virtual Agent, capable of handling all calls, 24/7, without breaks or sick days.
Innovation: Not just digitizing the current process, but reimagining it to be smoother and more intuitive for patients.
Potential Results: Beyond Cost Savings
The financial impact could be immediate and significant. By implementing a Virtual Agent, the hospital could potentially save the entire $4 million they're spending on human agents for this task.But the benefits could go beyond just cost savings:
Scalability: The system could handle sudden spikes in call volume effortlessly.
Consistency: Every patient interaction could be handled with the same high level of care and efficiency.
24/7 Availability: Appointments could be scheduled beyond office hours.
Data Insights: Valuable data on patient scheduling patterns could help optimize hospital operations further.
Lessons for Product Leaders
This hypothetical scenario reinforces some key principles of value engineering in product management:
Always question the status quo: Just because something's been done one way for years doesn't mean it's the best way.
Think beyond feature lists: True value often comes from reimagining entire processes, not just adding new features.
Quantify everything: Being able to show concrete potential savings makes a solution much more compelling.
Consider the ripple effects: The benefits of such a solution could extend far beyond just cost savings.
Engineering Increases Pricing Power
Value engineering significantly enhances a software provider's pricing power by shifting the focus from cost to value. Here's how:
Quantifying Business Impact
By employing value engineering techniques, software providers can precisely quantify the business impact of their solutions. This allows them to demonstrate concrete ROI to potential customers, justifying higher price points based on the value delivered rather than just features or market comparisons.
Pricing Based on Value, Not Cost
With a clear understanding of the value delivered, providers can implement value-based pricing strategies. This approach allows for pricing that reflects the true worth of the solution to the customer, often resulting in higher margins than cost-plus or competition-based pricing.
Strengthening Negotiation Position
Armed with detailed value analysis, sales teams can more effectively counter pricing objections. They can shift discussions from price to the overall business case, focusing on long-term benefits rather than short-term costs.By leveraging value engineering, software providers can move beyond feature comparisons and price wars, instead focusing on the tangible business value they deliver. This approach not only justifies higher prices but also builds stronger, more profitable customer relationships based on demonstrated value and mutual success.
The Takeaway
As product leaders, we're not just building software - we're solving business problems. By applying value engineering principles, we can conceptualize solutions that don't just meet requirements but have the potential to transform operations.Remember, every product decision is a business decision. By thinking like value engineers, we can ensure those decisions drive real, measurable impact for our clients. And that, colleagues, is how we truly add value as product leaders.This hypothetical case study serves as a powerful example of how value engineering principles, when applied to product management in healthcare technology, could lead to significant improvements in both operational efficiency and patient care.
Note: This is part of the curriculum for Director of Product Management.