Even battle-hardened veterans of government services are unsettled by the challenges they face in the industry today.
Gone are the days of rapidly growing federal budgets when a rising tide lifted all contractors.
Spending on government services is down more than 25% from its peak and we do not expect much relief for contractors, particularly in non-defense agencies.
Price continues to be the No. 1 bid criterion in most competitions.
Yet customer needs remain as complex and diverse as ever. Add to this a shifting competitive landscape—with mergers, acquisitions and divestitures by many players as well as disruption by new commercial competitors—and it is no wonder that so many executives are struggling to ﬁnd their footing.To maintain revenue and proﬁts in this environment, contractors have reacted aggressively—but often in ways that do not serve their long-term interests. They have lowballed bids and sacriﬁced margins to win on cost. They have skimped on the investment needed to build and sustain distinctive capabilities. They have chased all sorts of deals, spreading themselves too thin and depressing returns on business development investment. Even as they pursued these questionable approaches, several long-time incumbents lost franchise programs to competitors. To compensate for revenue and margin hits, some companies have tried M&A, adding new businesses far from their core capabilities or paying unjustiﬁable premiums for them.
These moves buy some short-term growth. But they do not add up to a strategy for long-term success. For that, companies need to go back to the basics and determine how to deliver the right capabilities at the lowest total cost.Contractors that emerge as winners from this period of turbulence will be those that ﬁnd ways to think and act strategically about cost and customer value. These companies will leverage all three factors in the delivery-cost equation—scope, speed and rate—to succeed more and improve margins.
Scope deﬁnes the amount of work required to meet customer needs. Companies win on scope by developing differentiated knowledge of customer needs so they deliver precisely what is required and avoid unnecessary work that adds cost.
Speed is the amount of work done per “person-hour” (productivity), which can be optimized with investments in tools, repeatable approaches and off-the-shelf solutions.
Rate refers to both direct and indirect labor costs, which companies have far more control over than they typically realize.
Getting this equation right presents a challenge for all government services ﬁrms and requires trade-offs; no company will be a top performer on all three dimensions. Several government services companies have made a strategic decision to emphasize scope as a way to win while cutting delivery costs too. They realize that not all revenue is created equal, and they’re making very careful decisions about where and when to play. For example, they don’t waste money on long-shot business development efforts, but concentrate on work where they know they can win and deliver efﬁciently. They go after deals where they have distinctive customer knowledge and walk away from ones where they don’t. management programs for the Department of Health & Human Services and the Social Security Administration. It wins such bids because it knows these missions extremely well and can design cost-effective solutions that are tailored tightly to what those customers need
My point of view: like many of these conceptual triangles, you have to excel at at least two of them. And the remaining part good is imperative.