What are Profit Warnings?

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Baskar Sundaram

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The outsourcing market has seen more turbulence in the past 18 months than what it has seen in the past 18 years. Winning deliverable tenders is getting harder. We can blame everything on slow market conditions and Brexit uncertainty.

IT and support services businesses invest heavily on business development capability. In some cases, bid teams simultaneously transition the projects they have won while bidding for new projects. Result – failing projects, margin erosion soon snowballing into profit warnings!

New skills are required to design and deliver contracts successfully.

Ask yourself

  • Do we focus and invest on operational excellence?
  • Is your operational and mobilisation resourcing anywhere near your sales and business development resourcing?
  • Does your team know how to build a target operating model and know how to implement the model after go live in a sustainable way?

We all know the need for operational excellence, but it’s generally overlooked. Why? The answer is simple – The money is in the winning, not in delivering! Or, so they think!

Providers will agree procurements are becoming very complex and the buyers procure water tight contracts with strict KPIs. Gone are the days, where you can write well, price low and accept the risk to win a bid and expect the operational teams to somehow deliver the contract.

Many providers chasing for top line growth fall in this massive crack and struggle to deliver quality for cheaper price. This is not sustainable, as evidenced by the profit warnings from top suppliers.

Now, let us look at the provider – A bid is won, bid teams celebrate, market analysts talk about the success, bid teams move on to the next. Then what happens – someone needs to deliver! Some providers turn around failing contracts either by themselves or by bringing in specialist project support, while others struggle incurring massive penalties. A lot of money is poured to fix the issues caused by this aggressive bidding.

It is well known that major providers have fewer contracts where they leak money. When the leaks increase, we see profit warnings and subsequent change in leadership.

The competitive landscape is changing fast, and the major providers are struggling to keep up. We saw a lot of restructuring among big and mid-tier businesses during the summer, where the providers tried to position themselves in the current choppy market environment. Sadly, their focus was only in slicing costs. To be fair, it is the obvious approach when revenue is uncertain.

At Baachu, earlier this year, we presented the providers with strategy, business development and business winning opportunities. Later this the year, we were designing and implementing target operating models, bid leadership programmes, performing operational analysis, contract margin analysis, strategic and financial planning, workflow analysis, manpower planning, scheduling, reporting and dashboards for our clients. Many of our clients have been heavily focusing on efficiency and effectiveness in delivering projects and that approach has paid off.

Baachu suggests that providers focus on three main areas

  1. Focus on operational excellence as early as strategic planning. Every organisation has a pipeline that they bid to convert. Plan and focus on operational excellence capability upfront rather than scrambling for resources after you have won the project.
  2. Create a talent pool. Encourage your bid teams to get involved in operations. Train operational experts to get involved in business development. In our Elite and bid leadership skill development programme, we encourage bidding professionals to take up operational and functional roles.
  3. Focus extensively and elaborately in designing and implementing target operating models, performance monitoring and improvement.

Having massive bid teams and business development budgets have propelled growth in the past years. Support services have become IT enabled services. As technology solutions embed in society, the next 10 years will witness many well-known outsourcing providers becoming redundant. New start-ups and mid tiers will take their place. Time and again, we have seen that growth is circular. For once, focus on operational excellence.

Baachu was started with the vision of improving successful procurement and relationships in the marketplace. From growth consultancy, today we have operational delivery and skill development capability to support this changing business dynamics.

If you would like to know more about designing target operating models, operational excellence and addressing leaks in your contracts, contact us at baskar@baachu.com

P.S. : Look out for “Baachu’s Top 5 Disaster Tenders” assessment end of the year.[/fusion_text]

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