The four 'Cs' of today's market dynamics
We journalists love lists, so I’m compelled to share Alan Chvotkin’s list of key market dynamics that all start with the letter C.
Chvotkin, executive vice president and counsel for the Professional Services Council, was giving an industry briefing at the Venable law firm this week on the government contracting.
His four Cs are competition, convergence, commodization, and something he calls community commons.
Each is a real trend in the market, and each has both its good and bad sides--although commodization probably has more bad than good. But each is driving customers and companies to make changes.
Competition has been on the rise for several years, with fewer dollars being chased by more companies. This is good news for customers, but margin and overhead pressures continue to push companies to make tough choices.
If you are a mid-sized company, “you are in big trouble,” Chvotkin said. The government has put a real emphasis on small business contracting. “There is less money and fewer opportunities for the other-than-small businesses.”
But the pressure on the mid-tier is inconsistent from agency to agency.
With the heightened competition, there are also new entrants to the market as the government looks for new ways of meeting their mission and as agencies see the scope of the work change.
Chvotkin said that the everything "as a service" trend will continue. “This impacts everything you do,” he said.
"As a service" changes pricing structures, funding mechanisms, the structure of contracts, and the relationship between customer and contractor, he said.
There are a lot of unknowns about how these changes will shake out, but the change is happening.
The government increasingly sees services as a commodity, and this has a very negative impact on industry. “If they see no differentiation in what you offer, then why will they pay you more?” he asked.
He gave the audience a little quiz about the words they use to describe their companies and the words competitors use. Everyone it seems is “mission-focused” or “customer-centric.”
While the commodization trend is often linked to lowest price, technically acceptable procurements, which become a price-shoot out, it is also an issue with best-value contracts. If the customer can’t distinguish your offerings or your technical expertise from your competitors, the evaluation naturally falls to price.
“You need to be able to answer the questions, 'My company is different because…'” Chvotkin said. “But you also have to know how your customer would answer that question.”
In this C, Chvotkin groups the trend of contests and challenges that agencies are using to solve problems. An agency has a particular problem, so they launch a contest or challenge for industry or anyone else to come back with a solution.
There are also crowdsourcing projects such as mapping the Ebola virus outbreak.
Chvotkin also puts initiatives such as GSA’s 18F group into this category. 18F is the General Services Administration’s group that fosters in-house innovation as a way to solve problems quickly.
All of these efforts are signs of frustration with procurement process because it is too slow and too inflexible, he said.
The question is how sustainable are the efforts undertaken by the challenges and 18F type initiatives. Are long-term problems getting resolved? They might be good for a proof of concept, but who carries it across the finish line? Those are big questions.
But more effort needs to go into fixing the procurement system and training the acquisition workforce, Chvotkin told me after the event.
Federal acquisition regulations have a lot of flexibility in them, but the workforce is very risk adverse, he said.
All four of these Cs are in play in today’s market and have some level of impact on all companies. Budget pressures on customers drive many of these. They have to be more efficient, and they have to do more with less.
But shifts in technology also are a factor, bringing new solutions, new business models and new competitors into the market.
Posted by Nick Wakeman on Apr 30, 2015 at 9:34 AM