Hidden Switching Costs

It seems all service providers these days talk about "knowledge transfer." All sincerity aside (and I don't doubt their sincerity), what these service providers don't talk about (perhaps because the ones doing the talking are too removed from their service delivery process) is that the bulk of the knowledge transfer is from you, the client, to THEM. So why don't more companies challenge these assertions? Surely they know that it isn't really happening, right? Admittedly, I am a little puzzled by this. In the end, I think the answer lies in the fact that the issue of reverse knowledge transfer is as hidden and hard to quantify as it is pervasive.

Why do I say that? Certainly not because companies like ours are immune from it! For starters, when I talk with technology executives they invariably acknowledge their consternation at having to re-plow ground with new consultants/engineers they have already covered with the ones they most recently worked with... from the same company. It seems the previous consultant/engineer picked up a lot of knowledge about the client's business and technology environment; knowledge that is essential for the effective, efficient delivery of the service they are providing. While this knowledge is being re-supplied by the client to the engineer/consultant, the meter is running. At several hundred dollars an hour (the cost of their time and the consultant/engineer's time), this amounts to a significant hidden cost center within companies.

Just think for a moment... If the problem is this pronounced working with different people from within the same organization, how much more pervasive is it when working with different people from different companies? It is no wonder so many clients choose to work with just one service provider rather than multiply the cost of this reverse knowledge transfer across multiple service providers! The prevalence of this practice across our industry lends additonal credence to my position that this problem is ubiquitous.

When a disproportionate share of knowledge transfers to the service provider and not the end user, high switching costs are inevitable. What do I mean by 'switching costs?' Basically, switching cost is the tangible and intangible cost associated with changing service providers. Compounding this issue is the fact that many service providers view these higher switching costs as good for business because they serve to protect their revenue stream. I call this the industry's dirty little secret, but that is a subject for another day...