A new Commercial Reality under Austerity

How to compete fairly and openly.  [Part of our ‘The Trouble with Innovation series 1,2,3,4,5 – Part 6]

Doing business anywhere, anytime is never easy!

That is a stark commercial reality, that most business people will accept as a given.  But how? now? does is work in a climate of AUSTERITY???

(Apologies for the blatant confusion and poetic licence taken in the previous sentence).

Public and private sectors mostly have an uneasy symbiotic relationship with each other.  If the public sector cannot deliver a solution, they have to procure it from a private provider and a private provider (generally, but not always) rub their hands with glee, as it is relatively speaking ‘easy money’ provided you meet and exceed certain framework thresholds.

All nice and cosy, when we are in a growth cycle of the economy; yet ever so tricky when those Framework Procurement Agreements come up for tender during the down slope side of the cycle…

Business Cycle
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It is odd how the ‘staccato’ relationship between private and public sectors work at different periods during the business cycle.  And this is exactly where the public sector, with an astute “commercial hat” on, can take advantage of it’s perceived negotiating strength during the down cycle agreement drafting / tendering process.

Yet, do they take advantage of this? 

Our view is that any Public Sector Procurement Framework Agreement with private sector providers will always be a FLOOR, thereby setting the minimum expectations and requirements, without ever really driving proper continuous INNOVATION and COMPETITIVE DYNAMICS to ensure players with ‘skin in the game’ continue to understand and manage their businesses with the proper risk attitude (never mind risk appetite).  Rather than act as a (“floor price”) barrier to entry, they should act as ceiling, or rather more ‘bluish sky’ REACH or STRETCH agreements, setting the rules of the game, but not acting as the default pricing mechanism , meaning that the private sector provider must continue to be innovative, rather than wait and ‘cream-off’ the best bits whilst seeing out the agreement time period until the next time anyone bothers to ‘tamper with the height’ of the limbo bar…

Our summary take away from this article:

The Public Sector Procurement Framework Agreement therefore should act as an incentive to compete and have fair access, but never as the default pricing mechanism.

Community and Public Sector Union Pledge Signi...
Community and Public Sector Union Pledge Signing 20th August 2010 (Photo credit: Senator Kate Lundy)

theMarketSoul ©2012

The “Harsh” Market

It is true.  This is not a playground, kinder-garden experience…

As we don’t live a purely Command and Control or 100% Free Market environment we have to constantly adjust our actions and interactions with the market around us based on factors such as:


Jurisdiction and cultural norms


Sophistication levels

Access points


English: A tag cloud of the 2010 UK Budget Sta...
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There are many other factors to add to the list above, but we are referring to the behavioural aspects inherent in any market interaction.

One of the greatest challenges facing the political class in the UK at the moment is the Truth or Dare conundrum.

We are specifically referring to the urgent need to cut public sector spending, yet the painful reality that it is:

a)      Very difficult and not politically expedient to admit the ‘Truth as seen by any politician’ (see the ‘Forces of Hell’reference uttered by Alistair Darling on trying to speak the truth

b)      People cost money (and a lot of money)

c)       Efficiency savings are akin to an admission of guilt and proof of mismanagement

Most public sector jobs are not subject to ‘market-forces’ at the best of times, therefore the automatic adjustment mechanism and signal that ‘price’ sends is not a factor in the equation.

What do we mean by this?

In a free market driven environment, price is the single most important signal and measure against which both suppliers and ‘demanders’ (consumers) measure value.  In the absence of all other qualitative factors, price has a very important role to play in ‘clearing the mismatch between supply and demand.

So when we experience either a supply or demand shock, as the Credit Quake of 2008 – 2009 has proved; we need to face harsh realities and make serious behavioural changes.

We are still not able to face up to the difficult ‘adjustment phase’ that both ‘deleveraging’ and the new economic reality, post-election 2010 has in store for UK plc.

Many a household across the length and breadth of the UK (and beyond) has had to come to terms with the stark realities of the ‘market mechanism’ and adjusted their behaviours and ‘prices’ to move towards a new economic equilibrium, yet the public sector has not had to face this tough reality.

Maybe because the Public Sector in Britain now accounts for between 52.1% – 53.4% (depending on which economic Think Tank’s research you believe), the crowding out of the private sector and ‘loss of touch’ with the economic reality of market mechanisms has been softened.

However, irrespective of who governs Britain and runs UK plc after the ‘expected’ elections in May 2010, the winner will have to make a few very hard choices:

  1. How to reduce the dependency on and of the Public Sector and bring the percentage that the Public Sector ‘consumes’ of GDP to below 40%
  2. How to ‘financially engineer’ the public debt and bank guarantees the current administration dished out in 2008 – 2009 (Anywhere between £200 – £350 Billion)
  3. Run the country along more traditional market disciplines,

Therefore managing the country along market principles as opposed to a ‘socially engineered’ artificial egalitarian level playing field.

The ‘ladder’ exists for a reason in the true market environment, to help set aspiration and make the system work in order to ensure progress, growth (over the long-term) and advancement.

This all favours innovation as a driver for feeding the need for progress, growth and advancement.

In our next article we will continue our theme of Innovation, with part 6 of the series.

Let’s keep on ‘following the money’ on this occasion

theMarketSoul ©2010

price of market balance
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