R.J. Kolton, Senior Vice President for Business Development for Data Systems Analysts, Inc., (DSA), was asked by ExecutiveBiz to contribute his thoughts on 'Six Actions Mid-Tier Companies Can Take in 2018 to Achieve Long-Term Growth'.
RJ: My comments address the business environment as it relates to mid-tier information technology (IT) service companies supporting the defense sector. As industry players know, mid-tier companies, which I define as companies earning $28 million to $500 million annually and having less than 1000 employees, are squeezed by small businesses on one side and large businesses on the other. Such companies are generally too small to pursue small business set-aside work and hard pressed when competing against large businesses. In this setting, I offer six actions mid-tier IT companies can take in 2018 to overcome the challenges to long-term growth and enhance their overall competitiveness. My observations also apply to graduating small businesses, new-entrants to the defense sector, such as Silicon Valley firms, and similar entities supporting federal civil customers:
First, a Mid-Tier Company Must Position Itself to Be a Prime Contractor. A mid-tier company cannot achieve long-term growth if it is primarily a subcontractor to large businesses. Mid-tiers are generally an unattractive subcontractor to large businesses since DoD acquisition policies encourage large businesses to award subcontracts to small businesses representing the various small business, socio-economic categories. To be attractive as a subcontractor, a mid-tier company must demonstrate specialized functional expertise, deep understanding of the customer, or desirable past performance. Even if a mid-tier company gains a position as a subcontractor on a large business team, it will probably garner meager workshare and will not gain the formal past performance recognition that it requires to compete for other work. Given this, a mid-tier company should view being a subcontractor as a necessary step to gain market position as it drives toward being a prime.
Second, the Primary Pathway for a Mid-Tier Company to Grow Is to Win Multiple Award, Indefinite Delivery/Indefinite Quantity (IDIQ) Contracts as Prime. Winning IDIQs as a prime allows a mid-tier company to compete for agency task orders; enhance its market position and penetration of specific government customers; serve as an integrator; build its corporate brand; maximize orders, revenue, and profit; and enhance its past performance and past experience that it can leverage to win future IDIQs and task orders. The process begins when a company is a small business and wins small business set-aside IDIQ contracts. As a mid-tier, the company must gain the requisite customer intimacy, functional expertise and past performance to compete for IDIQs. It is crucial that mid-tiers consider the timing of IDIQ competitions and craft a business strategy to compete for those IDIQs. This can be challenging for we continue to witness the tendency of DoD agencies to consolidate IDIQ contracts to reduce administrative burdens and costs. Such IDIQ consolidation favors the positioning of large businesses for it reduces opportunities for mid-tier companies to penetrate and support customer agencies, which constrains future growth. This IDIQ consolidation also poses risk to growth owing to the long period of performance of awarded IDIQs; mid-tier companies may have to wait a decade before they can compete again as an IDIQ prime if they miss out on the near-term opportunity.
Third, a Mid-Tier Company Should Establish Approaches to Understand and Capitalize on Technological Advances in the Context of Dynamic Global Threats. The rapid pace of advances in technology produces significant business dislocations and opportunities. DoD customers are grappling with challenges and opportunities associated with advances in major IT-related fields, to include Cloud, applications, knowledge management and collaboration, cybersecurity, mobile devices, big data and predictive analytics, block-chain, robotics, Internet of Things, artificial intelligence, and machine learning. These functional fields are accompanied by increased customer emphasis and application of technological processes, to include Information Technology Infrastructure Library (ITIL), Capability Maturity Model Integration (CMMI), Agile Development, DevOps, risk management framework, cross-functional teams focused on technology development, application of 5000.02 DoD acquisition life cycle, and others. The rapid pace of technological change creates leader, managerial, budgetary, and organizational demands for which government agencies must explore new approaches in order to realize the full benefits. In this sense, the mere existence of new technological tools and processes does not translate directly into improved mission performance.
This technological and process change is occurring against the backdrop of continuous global upheaval and dynamic threats that pose great risks to our nation and to our friends and allies. Arguably, the challenges our nation’s military forces must prepare to confront are more confounding and serious than at any time in the recent past. And as our military men and women fight America’s current wars and prepare for global contingencies, companies supporting them must prepare to respond to changes in customer mission priorities and requirements. To support government customers, a mid-tier company’s leaders and employees must understand intimately the touchpoints of changing technologies and how those changes interact with one another relative to their corporate offerings. They must also master the relevant technological trends and embrace continuous learning to understand how technological change can support their customers in accomplishing their organizational missions.
Fourth, a Mid-Tier Company Should Build Capacity and Develop Discriminating Value Propositions. To grow and be competitive in the context of the convergence of major technological and threat dynamics, a mid-tier company must build capacity to satisfy DoD customer needs and to differentiate itself from its industry competitors. To do this, it should develop and enhance technical offerings that address specific customer requirements. These offerings may range from basic services, such as providing help desk support, to supporting advanced research and development. Building capacity includes a company demonstrating its ability to provide innovative solutions at the lowest possible cost. It also means a company possesses effective processes and methods for recruiting and positioning its employees to satisfy specific customer needs, on schedule and on budget.
Fifth, a Mid-Tier Company Must Invest in and Institutionalize Corporate Processes and Certifications. Closely associated with building its corporate capacity is a mid-tier company’s investment in and institutionalization of corporate processes and certifications. This includes satisfying requirements associated with national healthcare policies; responding to current and emerging government-directed cybersecurity requirements; maintaining sophisticated auditable financial and purchasing systems; and obtaining certifications and appraisals, such as ISO-9001:2008/2015, ISO 20000, ISO 27001 and CMMI-3, -4, and -5, which DoD agencies increasingly require of companies seeking to pursue and perform service work. This effort should begin when the company is a small business and should be improved upon as the company matures into mid-tier status. This can be challenging given the expense and allocation of leader time to develop processes, conduct audits, and earn certifications.
Sixth, Mergers and Acquisitions Can Enhance Mid-Tier Company Growth But It Is Not a Panacea. Once a company exceeds $28 million in annual sales, it gets harder to compete; such companies are generally no longer eligible to compete in most small business categories and must compete directly against larger firms. At this stage, the business owner’s urge to sell the company may prove difficult since many small businesses owe their growth to small business contract awards, which are of little value to large business acquirers. Hence, such businesses are at great risk of failing shortly after graduating from small business status: they are too big to be small and too small to be effective as large businesses. In this setting, a mid-tier company may elect to invest in acquiring firms that will enhance its market position and penetration, expand or improve its offerings, and increase its capacity. Pursuing acquisitions is challenging: The mid-tier company must have the financial resources to purchase the property, must perform an effective due diligence, and must integrate the acquisition effectively to maximize its value. There are numerous instances of M&A failures, which have led to severe repercussions for the acquiring company. Given this, a mid-tier company should recognize success in M&A requires the same elements of success required for effective internal growth.
These six actions mid-tier companies can take in 2018 to achieve long-term growth represent key factors to be considered. There are many more. My intent is to offer a perspective on those I deem most crucial. These six actions rest on two foundational elements: First, a company must be continually focused on its customers and their needs. Second, it must hire and nurture the highest quality employees, who are the bedrock of a service company. DSA, for its part, continues to focus in 2018 on these six actions and the two foundational elements.
Founded in 1963, Data Systems Analysts, Inc., (DSA) has been providing Defense and Federal Government customers’ business-driven Information Technology and consulting solutions and services for more than 50 years. DSA’s people excel in helping their customers achieve sensitive, missioncritical business goals and objectives. DSA is a 100 percent employee-owned company: every employee has a stake in the success of the company and their customers.