Six strategies for surviving public sector procurement
The collapse of Carillion, by most non-tabloid accounts an historically well-run business, underscores how tough it is to be selling into the public sector in the current climate. For the last few years, across the landscape of public sector procurement, budgets are shrinking, framework agreements are pushing risk and cost down the supply chain, services are being commoditised and competition has never been fiercer.
That kind of continual pressure creates a downward spiral: organisations with a big fixed overhead push the sales and contracting teams to take on projects with thinner margins and higher risks, to keep cash flowing and the doors open. And that was certainly the case at Carillion, who’s collapse was no more a surprise to people in the industry, indeed in their employ, than it was to the hedgies who’ve been shorting their stock for months.
Many industries have been through that “value spiral”. Sometimes it’s a good thing: driving periods of consolidation and innovation, after which those customers who’ve been burned start buying on value again rather than just price, and the market recovers. For the public sector though, that behaviour change still feels a long way away, which is a major strategic issue for anyone operating in those markets.
A strategic issue needs a strategic response, so here are six anti-spiral strategies to employ:
Differentiate: Find your niche. You need to be crystal clear on what you do best, why you do it better than anyone else, and which of your public-sector buyers will value the difference. There are far too many interchangeable suppliers in most markets – don’t be one of them.
Educate: Get inside the mind of your buyers and understand what is important to them right now, and on that basis, what your “value case” is for them. Quality or durability might be critical for public safety, but unless you can explain how it directly benefits your buyer in this budget cycle, you’re going to lose out to someone cheaper. Find ways to educate the buyer on why your offer is in their best interest, as well as why it’s the right thing for the public.
Escalate: Many public-sector procurement teams are divorced from the implications of continued cost-cutting, but their bosses aren’t. Take your case, based on clear rationale and political self-interest, to their elected chiefs; help them understand and address the political implications of their current course of action, and be ready to propose the solutions.
Reformulate: Find new commercial models that can reduce the immediate pressure on the buyer. For example, moving from selling to leasing; from profitable projects to profitable maintenance contracts that are locked in long-term. The more you can understand your buyers’ immediate pressures, and the more creatively you can address them without increasing your risk, the more likely you are to find sustainable, and profitable, solutions
Innovate: Where you have strong relationships and your buyers are forward-thinking enough to value your ideas, use them. They’re the ones who will give you the space to innovate and improve, to find better, more cost-effective solutions. They’ll give you the chance to create the evidence and business case you need to go back and educate the others.
Extricate: Make a concrete plan to exit all of the relationships, the products and the services where you’re heading for a loss. These are tough decisions, but prices aren’t going back up any time soon, and if you’re not strong enough to be the last man standing, you may have to cut off your hand to save your arm. There’s always someone desperate enough to put in a suicide bid and you have to be prepared stand back and let them fail.
When markets start start spiralling, they can fall pretty fast. None of those strategies are quick-fixes; they all take time, and you might have a lot less of that than you think. If you don’t have plans under each of those six headings, clear some time next week and make a start.