Avoiding the Race to the Bottom

Profit slideIt’s a tough time to be providing services to the public sector. Budgets are vanishing, framework agreements are pushing risk and cost down the supply chain, services are being commoditised and competition has never been fiercer.

It’s a “value spiral” – one that many industries have been through, and one that only ever favours the lowest-cost players. A strategic issue needs a strategic response, so if you’re finding yourself in this situation, here are the four key steps you need to take:

Differentiate: Find your niche. You need to be crystal clear on what you do best, why you do it better than anyone else, and which of your buyers will value the difference. There are far too many interchangeable suppliers in most markets – don’t be one of them.

Educate: Get inside the mind of your buyers and understand what is important to them right now, and on that basis, what your “value case” is for them. Quality might be really important for the end consumer, but unless you can explain how it directly benefits your buyer, you’re going to lose out to someone cheaper. Find ways to educate the buyer on why your offer is in their best interest, as well as why it’s the right thing for their customers.

Extricate: Make a concrete plan to exit all of the relationships, the products and the services where you’re heading for a loss. Prices aren’t going back up any time soon, and if you’re not strong enough to be the last man standing, you may have to cut off your hand to save your arm. There’s always someone desperate enough to put in a suicide bid and you must be prepared stand back and let them fail.

Innovate: Where you have buyers who are forward-thinking enough to value what you do, use them. Use them for everything they’re worth. They are the ones who will tell you your strengths and help you build on them. Play it right and they’ll give you the space to innovate and improve, and the chance to create all the evidence you need to go back into the market and educate the others.

Bottom Line: When markets start changing they change pretty fast. Collaboration and partnerships can buy you time, but if you can’t look through those four steps and see your way to a plan, you’ve got some serious thinking to do. Differentiation, education and business transition all take time, and you might have a lot less of that than you think.

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