Sequestration – Government Contractors’ Most Pressing Opportunity

If you live in the United States by now you have heard of the looming “Fiscal Cliff” and/or “Sequestration” and should be a bit concerned. If you are employed by, an owner of, or an investor in a Government contracting enterprise, your level of concern should be significantly more than a “bit.” Regardless of what politicians do after the election, a significant reduction in discretionary Government funding is assured and will directly impact most Government contractors. Those impacts may include:

  • Continued uncertainty as the Government responds to funding challenges
  • Fewer opportunities to submit proposals, grant applications or bids
  • Increased competition and a resulting downward pressure on prices
  • Changes in acquisition and procurement approach as Government agencies attempt to continue legacy missions with less funding
  • Increased mergers and acquisitions leading to a significant reduction in firms providing products and services to the government
  • Reductions in current contract scopes of work (“downscoping” or “descoping”), elimination of contract tasks, or termination of contracts

The coming turbulent Government market will be a reality unless an economic miracle occurs, an outcome that no one foresees. Therefore there is no choice but to revise your firm’s approach to the Government marketplace. If not already underway, Government contractors must plan and implement strategies now to ensure their enterprise’s future viability. Failure to develop and implement an effective strategy is very likely to result in a significant reduction in revenue or even termination of operations.

Strategic Options

A basic quadrant analysis shows the broad strategic paths most likely to hold a feasible approach.

                          A 

Current Customer

Current Capability

                          C

Current Customer

New Capability

                          B

New Customer

Current Capability

                          D

New Customer

New Capability

There is no ‘low’ risk approach to addressing the implications of Sequestration or budget reductions; however A and B are two lower risk strategic paths that firms may use to address this situation:

A. CURRENT CAPABILITIES/CURRENT CUSTOMERS – Increase the effectiveness of your firm’s investment in business development and revenue growth in your current Government market

B. CURRENT CAPABILITIES/NEW CUSTOMERS – Diversify into untapped Commercial markets and/or adjacent Government markets

Each firm seeking to thrive in this new market will choose one or both of these strategic paths and develop their own unique approach. The most successful will not just survive but will grow and expand their company.

Making the Strategic Choice

A-1. Current Government Customers/Current Capabilities

 Firms entrenched in the current Government market are likely to select a path that requires improvement of their business development investment decisions and alignment with their Government customer’s business practices, objectives and challenges.

We believe that some of the large currently successful Government contractors will not take these steps and, within a few years, will fall from their pinnacle of prominence in this market.

On the other hand, there are some medium size firms that will see opportunities in the challenges of reducing government spending and will rise as new market leaders.

A-2. Current Government and Commercial Customers/Current Capabilities Firms that are currently providing products and/or services to both Government and commercial markets will be challenged to rapidly increase their competitive effectiveness in both markets simultaneously.

B. New Government and/or Commercial Customers / Current Capabilities

Government contracting firms selecting the diversification path will find challenges identifying viable markets for the capabilities that their current Government customers value. Alignment with these new customers will require changing business approaches, culture and practices while not losing connection with current Government clients.

Finding the Strategic Path for Your Firm

Successful Government business development that not only survives, but flourishes, in lean periods and produces revenue growth requires two core competencies:

  1. A rigorous and disciplined business development process
  2. An exceptional, comprehensive and deep alignment with the Government customer

A Business development process that will succeed in the coming years treats business development as a cautious and careful investment process that has:

  • Procedures to accurately calculate the chances of winning competitive procurements
  • Effectively incentivized teams to deliver winning strategies, proposals and bids
  • A framework for business development that is shared by every employee
  • Culturally ingrained functional business development roles and responsibilities
  • Strategy and tactics, that while aggressive, are achievable and designed to grow revenue
  • Continuous improvement of rigorous business development management
  • Close monitoring and adjustment of all performance factors impacting business development

A company fully in Alignment with its Government customer fully shares the Government’s objectives and challenges at all operational levels.

For example, when the Government customer must reduce the cost of a product or service by 10%, an aligned firm will deliver a solution that meets all program objectives while reducing the cost by 15%.

Developing and implementing a new customer alignment roadmap includes these five key elements:

  • WATCH FOR NEW PRIORITIES – Identify the new Presidential or Congressional directions for new or modified programs. Business development that continually seeks and assesses this information will be able to adjust business development investment plans as the new priorities are publicized and key government stakeholders define requirements.
  • FOLLOW THE MONEY – Assess the Federal government’s changing budget priorities to determine what programs are being reduced, eliminated and what investments will be made, e.g. the environment and green energy, in new programs. How budgets are allocated and for what purpose will provide insights to new emerging opportunities.
  • SEEK AGENTS OF CHANGE – Identify new political appointees and creative career program managers operating with mandates to implement the new priorities and achieve the targeted budget reductions. These key managers will have core staff developing the scopes of work, task descriptions, deliverables and budget execution plans for new requirements.
  • BUILD RELATIONSHIPS – It’s critical to establish new, and reaffirm existing relationships with those key influencers and decision makers that will affect program priorities, funding and eventual contractor selection.  How one goes about building and strengthening these relationships is essential.
  • TEST ASSUMPTIONS – Assuming that you understand your client’s priorities and requirements is a dangerous proposition and often results in mis-informed business development and proposal strategies that miss the mark. It’s essential that Government Contractors constantly test their assumptions and not fall prey to false beliefs that they ‘know’ what their client’s really want or are willing to pay.

Please look for upcoming Clientview Conversations that will discuss additional emerging market strategic issues and changes in the Government’s procurement practices.

Telephone or email a ClientView Partner to discuss your firm and the market changes that are ahead.

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