Got value? That's the key question to ask when focusing on your customer's return ahead of your company's, and in today's market a focus on customer value might be the difference between success and failure.
The turbulent economy, reduced political cooperation and rapidly shifting national priorities are all wreaking havoc on the federal landscape and nearly every agency is grappling with reduced budgets, increased performance mandates and lower risk tolerance.
As a result, the federal contracting market is being challenged with hyper-competition for fewer, smaller opportunities, lower labor rates and compressed margins, and more awards to low-cost, technically acceptable bidders. The changes are so fast and significant that many contractors will not survive. Yet, some will actually thrive.
What distinguishes those who thrive from those who perish? With few exceptions, contractors that thrive differentiate themselves by focusing tenaciously on creating rather than consuming value.
How do we define value? Most importantly, value must be defined from the client’s perspective, not the contractor’s. The impact on the client’s success determines what has real value. This has important implications for how contractors define and offer value to federal clients. What matters most to our clients are the services that exactly meet their most important needs within their shrinking budgets.
Value has two components: contribution and cost. The relationship between the two can be defined as
The higher the contribution a product or service offers the client, and/or the lower the cost, the more valuable it is.
The obvious but often ignored implication here is that to offer the most value, we must increase the contribution of our services while at the same time minimizing the client’s cost. Also, addressing clients’ most important needs offers the highest contribution – they typically pay more to address their hottest issues. To compete, we must clearly provide more value than our peers from the client’s perspective. It is so basic and yet it is how most contracting work in our market is distributed.
Since the federal contracting market accelerated downward in 2011, too many business leaders have focused on the market’s impact on them instead of their impact on the market. Protecting ourselves is instinctive, but knee-jerk reactions often lead to short-sighted and sub-optimal corporate decisions and we become consumed with protecting our financial results.
This leads to value consumption instead of value creation – squeezing as much as possible from our clients and employees rather than creating as much value as possible for our clients and employees. The irony here is that value consumption is not sustainable and is self-defeating over time.
To thrive in any market, we must create extraordinary value in the eyes of clients. We must commit to thinking differently – from us to them, and from in to out. We need to stop focusing on our own internal maneuvering and instead become obsessed with our value proposition to the market and our impact on our clients.
When we do, we earn more loyal clients and employees, higher win rates, longer contract extensions, higher margins and a better past performance history and reputation, all of which directly and positively impact financial performance.
With some key actions, you can transform to a value creator.
Make the Commitment
Commit leadership to embrace a unified purpose beyond wealth creation and create extraordinary value for clients above all else. Make it the driving force behind the company, its mission, values and priorities. Use it to drive decisions affecting clients and employees. Financial performance is an important measure of value creation effectiveness, but financial targets should not be the primary goals in and of themselves.
Focus on the Client
Focus relentlessly on understanding and addressing your client’s true needs – not just the requirements of particular contracts. Focus the whole company on delivering targeted solutions that drive client mission success. Turn talented “brick layers” into “cathedral builders” by helping project teams understand the real impact of their work on the client’s mission. Even internal corporate support teams such as Human Resources, Information Technology and Finance should focus on client service, either directly or indirectly to the teams that do support clients.
Grow Your Value
To grow with clients, give them even more value. Offer solutions to client needs that are adjacent to those you’re already addressing and that provide additional value. This is different from “upselling” in a subtle but important way. Instead of talking clients into buying something they may not need, demonstrate your commitment to their success (and not just your own) by offering value-added, creative solutions to meet even more of their needs.
Invest in Your Greatest Assets
Your workforce is your most valuable asset and the “face” to the client. There is an inextricable link between the value provided to clients and the value of the people providing it. Make your workforce a priority. Embrace this critical link and invest in your employees and partners. The benefits are measurable including the ability to attract and retain top talent, higher quality output and lower attrition.
Be Relentlessly Efficient
Establish a culture of efficiency with your clients, and work hard to produce value quickly with as few resources as possible. The lower the cost, the higher the value to the client. Accelerate schedules, leverage newer, lower-cost virtual technologies, consolidate infrastructure and shed the paralyzing inertia of bureaucratic work processes and approval cycles. On every project, redirect under-utilized staff and leverage lessons learned and outputs from other projects/clients.
Stay Light On Your Feet
Increase your agility by adapting constantly and quickly. Make continuous learning a part of your culture. There are no failures – only opportunities to learn and improve. Create a restless culture that constantly provides even more value to your clients. Celebrate employees who take risks to provide this value.
Differentiating your services from the long line of commodity, merely compliant and often self-serving competitors will help you avoid the “race to the bottom”. The more value you create, the more valuable you will become.