G-Cloud & DOS Spending Review to June 2021
Our Strategic Adviser Lindsay Smith returns to break down the most recent Digital Marketplace spend data.
In the last article, our Strategic Adviser Lindsay reviewed the Digital Marketplace for the financial year 2020/21. Here he looks for some of the more nuanced messages in the new spend data for G-Cloud and DOS and in particular messages for policy makers and SMEs who are having a tough time getting traction.
Summary
- Strong spending continues apace
- March Madness is wasting money and opportunity
- Large Enterprise -Vs- SME, unusual moves
- SMEs disappointed in G-Cloud, the answer is easier than you think
Digital Marketplace Spend April-June 2021
Crown Commercial Service (CCS) have published the data for spending going through G-Cloud and DOS on the Digital Marketplace up to the end of June 2021 and in this article, I’m going to look for the stand-out stories hidden behind the numbers.
The strong increase in the value of spend which started to become apparent from the summer of 2020 has continued in the second quarter of 2021. (As the charts throughout are going to be based on calendar years, I’ll be using Q1 to refer to the Jan-Mar period (and so on) although I appreciate our friends in CCS speak in terms of fiscal quarters)
The increase in spend in Q2 over the previous year was £233M (36%).
Professional services, comprising all of DOS spend and Cloud Support (Lot 1) from G-Cloud are the dominant component of consumption on the digital marketplace accounting for 72% of all expenditure in the first half year. Software accounted for 21% and hosting 7%.
March Madness
The highly exaggerated spike in spending in March is clearly evident as departments spend budget in preference to handing it back to the treasury. The Ministry of Defence and the Cabinet Office, of the large spenders, are the most egregious proponents of this practice spending approximately one fifth of their annual spend in this month.
The principal beneficiaries of this silly anomaly are, unsurprisingly, the large consultancies. As one of the founding principles of G-Cloud was to deliver value for money by diverting spend away from these high-charging behemoths it’s fair to question whether this practice is needlessly wasteful.
SME -vs- Large Enterprise
As noted above, one of the founding principles of the Digital Marketplace was to increase access for SME suppliers to the public sector. This was considered to deliver economies through greater competition (counteracting to some extent the oligopoly advantage) but it also gives access to innovation. Certainly, some innovation requires big laboratories and big R&D budgets, but the nimble small suppliers are a source of much grass-roots invention and solutions. Creating a marketplace where public sector procurement spend reaches SMEs (and naturally most of these SMEs are UK natives) is a great benefit to this important sector of our economy and contributes to the accumulation of UK’s intellectual capital, on which sustainable competitive advantage can be built.
It is important to see how this principle is being curated. The story is an interesting one and overall it can be seen in the following chart which looks at the comparative growth of spend going to Large Enterprises and SMEs.
Combining G-Cloud and DOS to remove the impact of some services migrating from the early G-Cloud years to the new framework which started in 2016 and using a long period (20 month) moving average to remove the strong seasonality (particularly the March peaks) provides a good insight into the way policy is being delivered.
SMEs did well in the early years, roughly through to the advent of G-Cloud 9 in mid-2017. Large Enterprise spend was always going to be higher than that for SMEs but the continuous growth and development of the SME sector can be seen as creating the benevolent environment that was planned.
For SMEs that growth has continued and even accelerated to a small degree (the upward bend in the line) but something quite radically changed in the swift acceleration of spend to the Enterprise end of the market. Too many factors could give rise to what we are seeing at a macro level, on which there is insufficient data available to make an objective analysis of cause and effect. However, anecdotally, I was interviewing suppliers and buyers for research I published in 2018 and recall one CIO of a central government department was wide-eyed in relating the active pricing (discounting) which they were being offered. It sounded then, as it does now, like ‘predatory pricing’ – the tactic to buy market share with low pricing to damage the ability of less well funded competition. In short, I believe that a large part of the visible steep shift in spend to Enterprise was a consequence from a number of these large enterprises starting to take G-Cloud seriously and market effectively and heavily, around the 2017/18-timeframe. To support this notion with at least some data, take Amazon Web Services as an example. It generated £3M sales in calendar 2016, by 2018 this had increased to £51M.
More recently the trend has reversed. This can be seen as the two lines in the chart seem to be moving roughly in parallel in the last 2 years. The cause for this will not be a simple reversal of the original cause. It is more likely to be the effect of Large Enterprises taking more business away from the Digital Marketplace perhaps to Tech Services 3 or elsewhere. As data for spend outside the Digital Marketplace is not easy to find this cannot be simply proven, perhaps our friends at CCS know the answer?
The SME problem
Roughly 4,650 SMEs are listed on the G-Cloud service catalogue today. 3,316 (70%) of these SMEs on G-Cloud have not recorded a sale on G-Cloud 12, 11, 10 or 9 (which went live in May 2017). I hope that someone in these firms is looking for an answer and not just accepting ‘that’s the way it goes’ – because there is an answer and for many, it’s not that hard.
To make a sale on G-Cloud a supplier has to:
- Offer a cloud service that is in-scope for G-Cloud
- Provide the minimum obligatory information for a buyer to be able to form a contract
- Be found by a buyer (either by search on G-Cloud or outbound or inbound sales & marketing)
- Provide enough information for a competitive evaluation
- Win the evaluation based on a combination of price, function, security, risk, etc.
In 2015 I performed a significant, detailed study of suppliers with and without sales and concluded that 70% of those without sales had so badly put their data onto the catalogue that a buyer could not, legitimately, form a contract and stay within the procurement regulations.
This month I took a randomised sample of 20 SME software suppliers and reperformed this assessment. A small sample, but did it reveal any improvement?
Yes, it seemed to, here is the result:
Assessment | Number |
Not in scope for G-Cloud | 3 |
Insufficient information for contract (or evaluation) | 7 |
Adequate information, if found | 10 |
Total sample | 20 |
Of the 10 which were at least compliant, 5 had, in my subjective view, sufficiently well-worded entries in the ‘searchable fields’ (Summary, Features and Benefits) to be found on a search. But some of the others were so ‘niche’ and clearly written for specific public sector problems, that the marketing to bring them to a potential buyer was possibly affected by other means (e.g., word of mouth) and the service so complex that the sales cycle may well be too long to have completed in the 10-months G-Cloud 12 has been live.
My conclusion is that 7 had no ability to make a sale (e.g., pricing entirely missing) and 3 would not be found by a search for any relevant terms (they may do all their selling with ‘feet-on-the-street’ – what a wasted opportunity!).
These defects can be fixed, they can be fixed quickly and without the need to wait for the next iteration of G-Cloud. Advice Cloud run workshops to show SMEs how to identify and fix these problems or can provide more hands-on assistance in identifying where problems exist and how to remedy them and how to develop a sales & marketing plan to be effective in the marketplace.
Concluding Optimistically
The digital marketplace is growing spend into GovTech suppliers at a pace not seen for some years and much of this, particularly on the SME side is going to UK suppliers.
SMEs are getting better at ensuring they meet the minimum requirements to be able to do business and greater numbers of SMEs are making bigger volumes of sales. (H1-2021 1,290 SMEs made £697M sales on the digital marketplace; H1-2020 1,165 SMEs sold £530M).
There is still significant opportunity for SMEs to get into the ‘sales-success club’ without a huge amount of effort or delay.
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