Budget issues continue to drive challenges in GovCon market

Next week, I’m speaking at a George Mason University program, Building GovCon Acumen. It’s a program that takes about 20 people who are seen as rising stars at their companies and gives them an intense dose of training and education.

A lot of it is built on case studies that are presented over the course of the week, and then they have to develop a strategy to a board of directors on what they how they would guide a particular company.

What’s interesting is that it isn’t a fictional company. It is a real company that faced a crossroads. While the students aren’t given the name of the company, they are presented with the actual issues and challenges the company faced.

After they present their strategy to the board and weather the back and forth of that process, the CEO of their company gets to tell them what he decided and how it turned out.

So, my part is to present a market outlook. I’ll be co-presenting with Ray Bjorklund of BirchGrove Consulting.

I have a rough outline of what I want to talk about that I thought I’d share. Any feedback is welcome.

The biggest issue in the market continues to be the budget. We are now several years into relatively flat budgets and even shrinkage in some areas. So many trends in the market flow from the budget.

Pressure on margins and growth continues. Government buyers are very focused on price, and they are asking for innovation. But that presents a challenge because a lot of customers don’t have a good definition or understanding of innovation. It seems they equate innovation with low price.

As a result, many companies have tried to rework their business. There have been a lot of mergers and acquisitions to bring economies of scale. At the same time, many companies have shed businesses as a way to increase value and to focus on core capabilities. In some cases, this has been successful such as CACI International and Computer Sciences Corp. In other cases, it is too early to tell such as the Leidos-Lockheed Martin transaction.

Another key trend in the market is differentiation. Every company I talk to describes themselves as unique and special. They do something (you can fill in the blank) in a way that no one else does. But this is a real issue because customers just don’t see it. Government agencies see contractors as a vast sea of plain vanilla vendors, selling the same set of technologies and services. That is why so often competitions come down to price.

Along with the budget, the procurement system is a major challenge, mostly because of how risk adverse government buyers are. There are pockets of innovation scattered around the market. Customers who want to focus on outcomes instead of requirements and they build contracts with that in mind. But that seems to be the exception, not the norm.

One thing that is lacking is leadership on the congressional level, pushing needed reforms. There also is a disconnect between agency leadership who often talk about better ways doing business and the rank-and-file who actually conduct business. The message from the top isn’t getting down into the organizations.

On the brighter side, technology is changing rapidly with new capabilities and solutions hitting the market. The cloud often is the first thing that comes to mind, but it is also data analytics and big data, it’s the internet of things, it’s machine learning and artificial intelligence. And you have to include mobility in there as well.

Despite the negatives, it is still a great time to be in the government market. There are cool technologies, but there is also the mission. Government contractors do important work. There is no doubt about that.

So in a nutshell, that’s my pitch to the Building GovCon Acumen class. Let me know what you think.