The Oligopoly – did it fight back?

Lindsay Smith goes further into his review of the Digital Marketplace spend data up to September 2021 - asking: Did the empire fight back?

This is a companion piece to Lindsay’s Digital Marketplace Spending Review to September 2021.

Francis Maude, Baron Maude of Horsham, said of the Digital Marketplace in 2012: “…most importantly we have started to create a competitive and open marketplace from which we buy IT services and solutions – ending the oligopoly of large suppliers and opening up opportunities to new suppliers, including SMEs.”

Then in 2017 he criticised the civil service’s resistance to change and expressed the opinion that the reforms had been “thwarted… and the departments are cheerfully going back to their old ways.”

So, can we find evidence in the spend figures to establish whether the empires fought back? And perhaps if they did, what’s the state of play?

Part 1: Has Digital Marketplace opened opportunities to SMEs?

Using the data-sets normalised to a 12-month accounting period to September, so we can end with a full 12-months to our most recent data, we can build a sample of SME suppliers on the Digital Marketplace (G-Cloud and DOS) who had become established suppliers by September 2014 and trace what has happened to them.

To find a bellwether sample of our SME community, those who understand how to effectively trade on G-Cloud, but for the present, excluding “super-stars”, outliers which may distort the picture. We first look at the cohort of all SME suppliers with sales between £100,000 and £1m in 2013/14.

The sample of 78 suppliers was reduced to 52 by eliminating suppliers no longer in the spend data in 2020/21 (some no longer trade under their own name; some have become disenchanted with Digital Marketplace and no longer participate).

Comparing the growth of revenues over the 8 years shows this cohort enjoyed strong growth. Comparing the sales of all 52 suppliers between 2013/14 and 2020/21 is summarised in the following table:

Summarised Revenue Stats. 52 Bellwether SMEs (all Lots)	2013/14 (£’000)	2020/21 (£’000)
Average (Mean) Sales	357	3,678
Median Sales	273	1,546
Standard Deviation	249	5,916
Maximum	1,000	26,926
Minimum	100	3

 

The high standard deviation, an average well in excess of the median and large interval between max. and min. shows a wide variation of experiences within the cohort. But, if we took the sample average to be a real company, to grow revenues ten time in 8 years is a compound annual growth rate of about 40%.

So far, so good! Opportunity has been delivered and for 33 of the 52 companies this was in the guise of generating more than £1m in sales in 2020/21.

Maybe not so good? At commencement G-Cloud 12 alone had 4,600 SME suppliers. I estimate DOS had a further 1,400 unique SME suppliers providing a total SME supply community of 6,000. We know from the spend data in the 12-months to September 2021 that 1,138 SMEs had at least £1 of sales, meaning 4,862 (81%) are not having any success at all.

But this is not directly linked to our present question ‘did the empire fight back?’ While previous papers, and research I’ve published have articulated, the main reason for this signal failure on the Digital Marketplace is not knowing how to make it work, and not taking advice to make up for this deficit.

So, for the purposes of this exercise, we are going to ignore the 81% and look further into how the Digital Marketplace supports SMEs and then the Large vendors both of which have a sufficient dose of success in their GovTech DNA.

Part 2 – Are the SME “super-stars” very different?

To select this sample, we have taken the 12 most successful SME suppliers (all Lots) in 2020/21 and traced their growth from 2013/14.

Summarised Revenue Stats. 12 “super-star” SMEs	2013/14 (£’000)	2020/21 (£’000)
Average (Mean) Sales	1,076	15,510
Median Sales	481	13,255
Standard Deviation	1,129	6,552
Maximum	3,109	26,926
Minimum	27	8,893

 

We can see that the maximum sales figure in 2020/21 is the same in both tables, so at least one of the Core SMEs in the previous sample translated into a super-star and to date is their best performer.

The average sales growth of this cohort gives an annual compounding rate of about 47%. So, it seems that once an SME has “got it” and knows how to do business with the Digital Marketplace, there is opportunity for everyone to be a super-star. At this point, I think we can conclude the objective to open opportunity for SMEs has been and continues to be delivered. Note, this is based on the average case, success is not universal, but it is significant.

Part 3 – What’s the story like for the Oligopoly?

Using the same approach to select a sample of Large suppliers to represent ‘The Oligopoly’, I take the top 12 ‘Large’ suppliers in 2020/21 and trace growth from 2013/14:

Summarised Revenue Stats. 12 Oligopoly Suppliers	2013/14 £’000	2020/21 £’000
Average (Mean) Sales	2,809	85,646
Median Sales	2,224	72,353
Standard Deviation	2,574	27,581
Maximum	8,769	132,697
Minimum	42	51,691

 

To use statistics ‘like a drunk uses a lamppost, for support rather than illumination’ is not our way (we can leave that to the professionals, the politicians). So, for balance it’s important to acknowledge that the 3 samples are intrinsically different. Part of the causation behind the greater success of The Oligopoly has to be the ability to scale much more quickly than an SME can in response to (say) increased demand.

But there is a significant disconnect between the success of The Oligopoly perhaps due to ‘the empire fighting back’ and the success of the SMEs. Again, using average sales as a measure, the compound growth of the Oligopoly over the 8-year period is an annual rate of about 63%.

This disconnect is more clear if we graph the 8-year spend data of our 3 samples:

Normalising the average sales data (by dividing each year’s sales with the average sales for that cohort in 2013/14 – so it becomes represented as ‘1’) SMEs enjoy good and comparatively similar spending through the Digital Marketplace, but the Large enterprises have certainly now fought back and, pro rata, have enjoyed double the share of the public purse going to the SME community.

Have the reforms been “thwarted… and the departments are cheerfully going back to their old ways?” I’ll leave you to decide but it’s certainly not entirely true. Although there are also significant stochastic factors at play: the stresses of the pandemic will understandably push buyers back to their ‘comfort zone’.

The question becomes: is there a coherent political will to continue the initiative to foster and support our SME GovTech community?

I have to say that if there is, it is being kept very quiet.