It is really, really tough at the moment.
You have two choices when it comes to strategy for competing in tough markets:
1. Find opportunities where you have a competitive advantage over your competitors or
2. Do something crazy!
We are sure that you have many competitors that are experts in the latter! They don’t have a competitive advantage but win contracts by slashing their prices and accepting too much risk. They cannot get away with that for too long and it usually ends in tears!
So assuming you have not become too crazy just yet, you will be working hard to develop a competitive advantage and carefully selecting your opportunities and bidding for contracts where you have a good chance of winning, where you can be confident of at least getting to a final shortlist of no more than three bidders.
Do you have a competitive advantage over your competitors?
Much has been written about competitive advantage, not least by Michael Porter who suggests that there are two main strategies for competing effectively in a broad definition of a chosen market: cost leadership and differentiation.
Cost leadership is normally achieved by an organisation with a dominant market share that can leverage huge economies of scale to drive down costs to a level that competitors cannot match. In mature, fragmented sectors such as construction, where barriers to entry are low and even the market leader has less than a 10% market share, it is extremely difficult to sustain a position of cost leadership.
The alternative strategy is to try to differentiate yourself from your competitors by offering more value to clients in the form of better quality services and products; reduced risk; faster delivery etc.
Porter also suggests that you can apply these strategies to niche markets with cost focus and differentiation focus strategies. Applying the principle that every project is a niche market with its unique set of characteristics; to be competitive and win, you need to either have a cost focus (the lowest price) or you can differentiate your bid from your competitors by offering additional value (that is unique to your bid).
We believe that with the right strategy and tactics it is possible to create either a cost or differentiation advantage on an individual tender and have developed what we call our Elite Bidders System to exploit such opportunities and win 66% of the tenders we have been involved with for the last ten years.
Many bidders do not systematically and strategically plan to achieve either a significant cost or differentiation advantage on tenders. They adopt a me too approach offering:
These organizations usually build up a pipeline of tender opportunities based on quantity rather than quality and hope to win one in six during the good times but are resigned to winning one in ten during a recession.
Nearly all of these tenders are won because they are willing to accept the highest degree of risk for the lowest possible reward. If they can, they will then try to offset this risk and claw back margin from either their supply chain or from the client after securing the contract. Desperate times mean desperate measures are taken but it catches up with you and is not a good long term business strategy.
Such opportunism can bring its rewards but also great risks and in the long term leads only to survival with minimal profits at best.
In our extensive experience as contractors and consultants we have found that these organizations will typically submit one hundred tenders, win and complete ten contracts and achieve:
The losses on the disastrous contracts are usually much higher than the profits on the good contracts and just one or two bad contracts can wipe out all of the organization’s profits for that year. More than two disastrous contracts and several years worth of profits can be wiped out.
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