Working With Smaller Professional Services Firms – Some Myths Dispelled

This is another in our series of articles relating to good practice in terms of procurement of consulting and related services, published in conjunction with Bloom, the firm that delivers the NEPO Specialist Professional Services neutral vendor solution. Today, we look at the perennial issue of why more small firms don’t win government contracts.

Why does much of the public sector find it so hard to find, engage and work with small and medium-sized firms (SMEs)? UK central government figures claim that more than 25% of third-party spend goes to SMEs, but most of this is through larger firms in the supply chain, which is a pretty tenuous approach to the statistics really. The “direct” spend is still stuck at just over 10% of the total.

Now there are some understandable reasons why any organisation might not want to contract with a small supplying firm. It may just be the scale of what is being bought means it cannot be a small firm that carries out the work: building an aircraft carrier perhaps, or supplying 100,000 laptops. A single contract of that nature would mean the supplier was no longer an SME, even if they were previously! But clearly, a small firm would not be able to meet requirements on that scale, particularly where we are considering manufactured goods.

But when we move onto spend categories such as professional services, including consulting, legal, many elements of IT work and so on, there are few genuine natural barriers to smaller firms executing work successfully. Indeed, many of the justifications we have seen for buyers not using or considering small firms are simply not reasonable or valid. As Bloom’s executive chairman, Adam Jacobs, says “Bloom works regularly with SME suppliers to meet public sector buyers’ needs. In fact around 70% of projects are delivered successfully by SME suppliers, supported by our procurement team and our delivery assurance promise”.

So in the interests of promoting more understanding of the issues, here are some of those arguments, perhaps myths, with our thoughts on their validity. We have ignored cost, as that is generally considered to work in the smaller firms’ favour in these debates. 

Small firms are financially riskier 
Small professional services firms (and indeed those in other sectors) do run into problems. So do much larger ones. Indeed, at the extreme, one-person band “firms” very rarely go bust, as they are unlikely to have the financial commitments of a larger firm – major borrowings, greedy shareholders, expensive offices or computer systems to finance, unsuccessful acquisitions, and so on.

Buyers also need to consider what they are worried about in terms of a supplier’s finances. If major investment is needed to deliver the contract, then that needs to be examined. But for most contracts for services, as long as the buyer pays promptly, there is little real financial risk to the supplier around that particular project. And frankly, a consulting firm going under mid-way through a project is unlikely to have the effect that the bankruptcy of a vital component supplier to a car plant might have.

Small firms don’t have the experience
Small firms may not have the sheer weight of overall experience that a giant firm has – but what they do have is often more focused. Management consulting is a classic example here. Any of the giant firms will claim to have a very wide range of experience and capability. But buyers need to examine the specifics. Take procurement – a large firm may have a procurement practice in the UK of 20 people, far fewer than the leading specialist procurement consulting firms, and with far less experience. The same applies in other areas. There are small firms with considerable experience in most specific areas of NHS advice, or on transportation projects, or anything else you care to mention. So when selecting firms, do look at experience that relates to your requirements.

Small firms don’t have the expertise
These arguments are very similar to the experience angle, in that small firms in fields such as consulting often have very deep expertise and capability in a specific area. That expertise can allow them to work more quickly and often more effectively than large firms, with obvious benefits to the clients.  Indeed, many small consulting or law firms are set up by individuals who leave bigger firms because they want to specialise in their real area of interest, rather than be generalist partners selling a wide range of “products”.  So we find that more often than not, the deepest experts in any field are working in small rather than large firms.

Small firms can’t respond quickly
It is true that a large firm can usually find “somebody” to start quickly on a project. But, as per our previous comments, where they have the appropriate experience and capability is another matter altogether. And small firms tend to be more agile and flexible in other ways. You can usually talk to the owner(s) of the business directly, who can make things happen quickly. They may also be less bureaucratic if the scope of the work changes, and happier to move outside their own standard processes.

Small firms don’t have the resources to be innovative
I’ve been a judge at the Management Consultancies Association Awards for the past few years, where innovation is a key factor considered in choosing winners. Great work is done by the large firms, there is no argument about that. But often the most innovative work is done by smaller firms, often set up by one or more individuals who believe passionately in what they are doing, or have a new approach they want to offer. Simple “me too” firms tend to struggle anyway, in any industry, so being innovative is often a way of life for smaller firms who want to survive and thrive.

To sum up, there are occasions when it makes absolute sense to look for a larger firm for carry out work. But in the professional services field, do think carefully about the pros and cons – and don’t jump to conclusions about smaller firms. Understand what you need to carry out the work successfully, and be open-minded when considering the market options.

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