"Reduces Opex"


My favorite phrase when it comes to a new product or technology. Reduces Operational Expenses. It sounds so wonderful. It is almost always untrue.

What most people mean by "Reduces Opex" is:

Our analysis of how you are doing something with the stuff that you have will take a larger Opex than if you change our to our solution.

There is no analysis if the purchasing all the new equipment to replace the old equipment is more than the Opex savings for a number of year. An alternate meaning is this:

Our analysis of how we think you should do a new business allows us to reduce your Opex over your current paradigm.

All of these Opex Reductions make all kinds of assumptions. One that they don't make is that there is an actual Opex Reduction. As I said most of the time they mean, a reduction in the increase in Opex. It is one of the reasons that these kinds of business cases never fly with customers. Opex Reductions means personnel cuts. Anybody who tells you different is not being honest.

One of the challenges with this is that people don't like to admit it or understand it. I was on a panel with a guy named Nan Chen from the Carrier Ethernet Forum. I said, "Well, Carrier Ethernet can help Enterprises reduces Opex. IT departments can lay off the person who knows about the T-Carrier Telco Interfaces." Nan said, "We are not about layoffs." I said, "What do you think Opex Reductions are?" An audience chuckle ensued.

But in reality, most companies can attribute about 70% of their Operating Expenses with headcount. Outside of that the biggest expense that is easily changed is the cost of travel. Which is why Travel restrictions are the first things that happen in belt tightening. Something to know as an employee!

People make Opex based arguments for products and services all the time. Why? It is simple. They want to keep their pricing up. If you can use an Opex Argument to justify your pricing, then you can claim a lot more money for your product.

The alternatives to this are a Capex or price savings over an existing product or the ability to create new revenue. The former situation can be responded to by the existing vendor lowering their price. Alcatel used to do that to AFC all the time. We would show up with a better widget and Alcatel would beat us by dropping the price on their existing one. They made less money but they had to spend almost no effort to beat us. The last reason to sell is the best and most precarious. The customer has to believe that they will make more money and that this new money is either significant or easy to get.

So as you focus on your message to your customers think about how you are going to achieve their goals through your product or service. Unless you think you can have them "Reduce Opex" absolutely, then don't use it as an argument!

Have a great weekend!

Jim Sackman
FocalPoint Business Coaching
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