Posted by: peterhact | October 4, 2011

How can a SME survive in the world of Panels?

The ICT market is shrinking. Every day, a new Panel Contract appears, cutting more and more SMEs out of the lucrative Government Market. The reason that many companies have moved to Canberra in the first place is that it is such an insular environment. To do business effectively in Canberra, it helps to be a native or have committed to being here for the long haul.

As a result, many companies are either exiting the Canberra market, or being acquired by larger organisations, usually as the smaller company goes out of business. There have been many of these fire sale purchases recently, and I have watched sole traders leave the industry in a most unbecoming manner. Their only mistake was the effort, time and money that they spent in gaining a piece of the Government pie, only to have their fingers burnt by the cost it exacted on their funding.

The ICT landscape here is now a wilderness, new companies come into the market, they try and eke out a living on meagre offerings, then leave again. The only constant is the companies that have managed to get on the panels are now fighting, squabbling amongst themselves, like sparrows trying to get a solitary breadcrumb. There are too many sparrows now, and too few crumbs to sustain them.

How did this come about? When did the environment become so tough, so painful, so difficult? What was the reason that the market suddenly dipped? Was it the GFC?

If your company had a contract, originally, to provide services or solutions to a department, be it hardware, software or a complete offering, it was expected that there would be profit involved. With the GFC, many companies shaved their margins to compete against others. This led to a spiral of profit loss that ended up with a series of companies far worse off than they were prior, but still in business of a sort. In the midst of the downturn, the Panels emerged.

The panels were originally designed to ensure that the Government received the best value for money. They were designed with engagement between SMEs & Government in mind. As is always the case, putting multiple companies on a panel led to their finding that the Value for Money Proposition became the Price consideration. It was perceived by the participants that the cost was the deciding factor, and they dumped their prices to remain competitive against their peers. The panels saw crazy behaviours. Some participants went below their own cost in an effort to win. Others tried to engage with the departments to massage the solutions required. Both ended badly. Winning at negative margin isn’t. Engaging with the department to find that your competition had your inside line meant that you had exposed your internal methods and created points of failure.

The thing is, The federal government had panels before. They were cumbersome, slow to react and totally unsuited to the technology changing world that is ICT. These new panels are almost identical, except for one small, yet serious difference. The numbers of participants have been seriously reduced, and the remaining companies that, for whatever reason, aren’t on the panels; well, they are now in serious trouble.

How can an SME survive in a world of Panels?

Innovation and diversity are two ways. Innovation through the creation of a product or service that is completely unique, not able to be acquired through a panel arrangement will give you the edge to deal with the Government outside the panel. They have to, if they want the product or service.

Be diverse. spread the net and change your focus to meet the needs of the departments – if it isn’t on the panel, and there is a need, the department will find a way to buy it, perhaps via a panel member. SMEs are able to sell to each other. there is no law that states you can’t, there is nothing to stop an SME from engaging with a larger company in an agreement. Don Easter has been promoting this method for some time. (I took a bit longer to realise the potential)

Government has different areas that don’t rely on the panels, some have opted out, others don’t qualify at all. SME can be empowered to grow into these niche sections. It changes the approach, but it enables the ability to hang on and keep working.

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Responses

  1. Peter
    What a great article, this is one of the reasons most of the SME ICT companies absolutly loath playing in the government space. There is no competition in ICT if the competion is based on price. What happened to the government catch cry of “value for money”, as an ICT company you have to give value for money but you also need to be inovative and profitable.
    Thanks once again


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