In the past couple of years, consulting firms involved in the federal health care markets were sitting on a gold mine. There were several factors that contributed to this. Health reform became a huge issue (and still is). HHS and the CDC realized that they weren't adequately equipped with the personnel or skills to effectively react. DoD had a war on two fronts with an increased focus on the invisible wounds of war (psychological health). They, along with the VA and several other organizations, pushed this issue. As a result, many other patients were weeded out from past wars, creating access to care concerns.
Unable to keep up with the rising demand for health care services, and more specifically, knowledge about industry changes; consulting firms were able to effectively win government contracts. The demand, due to the reasons that I outlined, along with the propensity for the government to spend far more than they should for a given product or service, was fairly inelastic. Furthermore, government contracting regulations dictate that there is a hierarchy of organizations that must be considered before granting a contract to a large firm. This is easier to accomplish when the firms produce ideas and strategy instead of products. However, the smaller firms that previously served the federal health arena were simply incapable of meeting the requirements. Large, expensive firms were able to gain a greater foothold in this market.
Additionally, due to the structure of the contracts, consulting firms were able to lengthen their projected completion times and continue to be granted option years. Indefinite delivery - indefinite quantity contracts placed the risk in the government's hands. This still continues, to a certain degree, as none of the issues related to the increased demand have really changed. However, the government remembered its initiative to cut costs (and force the DoD to produce a clean balance sheet).
Now, agencies such as the DoD have decided that the costs have gotten out of hand. They have floated around the idea of cutting 10%. Contracts, as a general rule in government comptrollership, are the first to be cut. As a result, consulting firms are looking for the next big thing. At the moment, it appears to be emerging markets.
At the outset, demand is high and the first firms on the scene are price makers. Eventually, other firms will catch on and join in, increasing competition and decreasing prices. In this manner, consulting firms are similar to technology products. The trendy areas of consulting tend to go in this direction, while more "boring" areas (like retail) are easier to predict. Large firms balance the two areas, straddling both traditional and innovating, new markets.
Unable to keep up with the rising demand for health care services, and more specifically, knowledge about industry changes; consulting firms were able to effectively win government contracts. The demand, due to the reasons that I outlined, along with the propensity for the government to spend far more than they should for a given product or service, was fairly inelastic. Furthermore, government contracting regulations dictate that there is a hierarchy of organizations that must be considered before granting a contract to a large firm. This is easier to accomplish when the firms produce ideas and strategy instead of products. However, the smaller firms that previously served the federal health arena were simply incapable of meeting the requirements. Large, expensive firms were able to gain a greater foothold in this market.
Additionally, due to the structure of the contracts, consulting firms were able to lengthen their projected completion times and continue to be granted option years. Indefinite delivery - indefinite quantity contracts placed the risk in the government's hands. This still continues, to a certain degree, as none of the issues related to the increased demand have really changed. However, the government remembered its initiative to cut costs (and force the DoD to produce a clean balance sheet).
Now, agencies such as the DoD have decided that the costs have gotten out of hand. They have floated around the idea of cutting 10%. Contracts, as a general rule in government comptrollership, are the first to be cut. As a result, consulting firms are looking for the next big thing. At the moment, it appears to be emerging markets.
At the outset, demand is high and the first firms on the scene are price makers. Eventually, other firms will catch on and join in, increasing competition and decreasing prices. In this manner, consulting firms are similar to technology products. The trendy areas of consulting tend to go in this direction, while more "boring" areas (like retail) are easier to predict. Large firms balance the two areas, straddling both traditional and innovating, new markets.
No comments:
Post a Comment