Business cycle or new era? How are you approaching today's market conditions?
Are current market conditions part of a normal business cycle, or are we entering a new era in government contracting?
The answer to that might depend on what part of the market you are looking at. Perspective is everything.
Technology-wise, it is a new era, for sure; cloud, mobility, big data and the interconnectedness of everything will only increase.
But there is still a debate over where things like lowest-price, technically acceptable contracts and tight budgets are part of a cycle or more of a long-term phenomenon.
When the market started tightening a few years ago, a lot of people talked about how it was a return to more historic levels of growth. The market had grown giddy during the first seven or eight years of the 21st century, when double digit growth and margins were commonplace. When the bottom fell out of that, the market suffered a tremendous hangover.
But you should be over that by now because we are well into a new phase. Many call it the new normal, and one person I spoke with recently described it as a “lasting dynamic.”
The elements and signs of this lasting dynamic revolve include:
- Low price over best value
- Companies focused on lowering and controlling internal costs
- Large businesses shedding management layers
- Traditional business model falling by the wayside
Price and cost are the driving factors behind all four of these factors.
Will we be stuck with LPTA? We might not call it that, but low-price will carry the day for many years going forward.
As agencies become more comfortable with commercial products and commercial ways of doing business, i.e., the cloud, it will become increasingly difficult for contractors to charge a premium for their services, unless they can make a very compelling business case for doing so.
Even with a strong business case, it is hard to imagine there being much more than a 10 percent differential between a lower cost losing bid and a higher cost winning bid.
The challenge is for companies to operate at lower rates and remain technical leaders. If you can do that, you’ll be a winner in this new era of government contracting.
The new dynamic in the market is creating opportunities for some companies. The prime example is Amazon Web Services winning a $600 million CIA cloud contract over IBM. While that contract remains under protest, the sign is clear – upstarts (relative to the government market) can take on established players and win.
Technology and subject matter expertise will remain critical, but delivery, performance and price will the deciding factors of success.
But this is still a huge and diverse market, and companies that smartly navigate their way forward under the current conditions can find more of their share of success.
Posted by Nick Wakeman on Aug 08, 2013 at 12:11 PM