Collaboration among SMB suppliers is already improving competition in the public sector channel.
There is a widely held notion that competition for public sector ICT contracts is not as strong as it could be, and the Office of Fair Trading (OFT) has announced plans to investigate the situation.
According to OFT PR, the OFT's study will focus on three areas of concern raised during an initial call for information earlier this year: an indication that certain businesses appear to have a large share of public sector contracts in some areas; suggestions that there are high barriers to entry and expansion, especially for smaller IT suppliers; and the notion that it is costly and difficult for public sector bodies to switch suppliers.
I welcome this new investigation but doubt there is a quick solution to these problems – which are not in fact unique to the public sector or indeed IT. I would also argue that market forces have been stimulated by the government's target to give 25 per cent of public sector contracts to SMBs, and that this is already rendering the problem obsolete.
The large SIs that the OFT is targeting are already learning to collaborate and compete with a growing number of SMBs. While the situation still has further to go, things look promising.
The public sector should also look at the role its own procurement processes have played in creating problems.
It's true that certain businesses have the lion's share of contracts in some areas, but it is also understandable and led by the public sector's own preferences for experienced suppliers.
The dominant players are the only ones with the necessary scale in infrastructure, skill sets, geographic reach, and financial clout. This is simply a market reality. These players have invested significant sums to do this over the years as well.
Prior experience is especially significant for the kind of mission-critical projects that you might find in the public sector. Failure is not an option when public services are at stake, so why would the public sector take a chance on an unproven supplier?
The OFT is right to point out the barriers to entry for smaller businesses. However, the blame for this lies more with the public sector's infamously laborious procurement process than with any barriers that the incumbent suppliers might try to erect.
Dominant players can certainly make it difficult for new entrants to gain a foothold in their industry, but in an effectively operating market, size should never guarantee success.
New suppliers can topple even the most stubborn of giants with their agility and innovation if given a fair chance by the buyer. This is where the public sector is blocking competition in its own supply base.
The procurement process for public sector contracts is simply too long-winded, bureaucratic and expensive for smaller, often more innovative firms competing on their own. The lengthy, multi-stage process and associated financial investment is simply too much of a burden. That is why most public sector business still goes to the larger players.
Yet the financial cost of switching the ICT suppliers of a large project is no greater in the public sector than in any other. Instead, I would argue that using an unknown, inexperienced supplier can be risky – and that is the higher cost you can get when switching suppliers.
Collaboration among large SIs and SMBs is the key, and some are already taking steps here, up to a point. Of course it takes time. And the major players are working to add as many smaller, niche suppliers to their supply chains as they can, so they can meet the government's target. And some are using specialist supply-chain consolidators to form these partnerships.
The government has already mandated that 25 per cent of public sector contracts be awarded to SMBs, possibly rising to half after 2015. This is a noble ambition, but a combination of innovation from the supply side and a reduction in the number of procurement hoops that small suppliers must jump through is required.
The need for public accountability will always ensure the procurement process is more rigorous than in the private sector. The OFT is right to investigate these issues but it is unlikely to find causes that are different from those stated above.
Iain Tomkinson is director of ASM Technologies
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