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The Hidden Force Working Against Pricing

I seem to be talking a lot about entropy these days. In fact, I think I actually used the word at least three times in a recent webinar session. Why? What does entropy have to do with pricing? And why am I talking about it so much right now?

While there are a few different definitions of the word, for my purposes, entropy is the natural tendency of any system to gradually decline into disorder or devolve into chaos. Entropy is a natural force that left unchecked will cause any system to gradually fall apart or spiral out of control.

We see this force very clearly with mechanical and biological systems.

If you don’t maintain and paint a steel bridge regularly, it eventually rusts and falls apart. If an automobile doesn’t receive regular maintenance, it eventually breaks down. If we don’t maintain our yards or gardens, they eventually return to the chaos of the wild. And of course, if we don’t maintain our physical health, our bodies break down sooner rather than later.

Well, this same entropic force is always working against our internal business systems and processes, too. And with so many major disruptions and distractions over the last few years, it’s not too surprising that many Pricing teams have been neglecting the “maintenance” required to hold entropy at bay.

So how does it happen? What does it look like?

Let’s say you’ve worked really hard to put a robust exception handling process in place. Everyone involved in working and approving deals has been trained on this process. On a regular basis, you reinforce this training and remind everyone as to the correct procedures. And you’ve established measures and metrics to help monitor performance and highlight process outliers.

All is well and good…until everyone involved is forced to juggle a bunch of new priorities, deal with a pile of new challenges, and navigate a series of economic shock waves. And when you take your eye off the ball, entropy takes over.

You start paying less and less attention to the performance metrics and outlier analytics. You skip some of the ongoing training and reinforcement cycles. Every individual involved in the process…from front to back…begins to rationalize their own little deviations here and there. And over time, all these little deviations begin to add up and compound.

Left unchecked, entropy ultimately causes your finely-tuned exception process to gradually degrade and wobble out of control. It’s a force of nature. And as sure as the sun coming up, it’s bound to happen…unless you do something to counter and control it.

And I suppose that’s the point of talking about entropy so much lately.

I want our subscribers to understand that there’s really no such thing as “set it and forget it” systems and processes. Every system and process…particularly those that involve a bunch of human beings…requires ongoing maintenance lest the natural force of entropy tear them apart.

So if you’ve been letting some of this maintenance slip, it’s time to get back to it. Because no matter how well your systems and processes had been working, they most likely started to degrade just as soon as you turned your attentions elsewhere.

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