Tech panel: navigating B2G tech and tech enabled services

The Government is committed to investing in digital transformation and a Labour government plans to go further and faster. But this will be against the backdrop of intense fiscal pressures, concerns over Labour’s proposed clampdown on consultancy spending, and greater scrutiny of value for money.

For investors and companies navigating this space we co-hosted a breakfast panel with Flint to explore the changing environment for B2G tech and tech enabled services. On the panel were Liam McGivern (Managing Director at ICG), Mike Tattersall (Chief Delivery Officer at Hippo Digital) and James Snook (Director at Flint Global).

Overall outlook for B2G digital/tech-enabled services spend

From a macro view, overall demand for digital/IT services has remained steady with fairly consistent buying trends and a continuing stream of high value contracts coming to market. However, competition on tenders has increased greatly with more companies looking to enter the public sector market.
Both the Conservatives and Labour talk about a desire to reduce consultancy spend across government (not a new narrative). In any case this will not be possible for digital transformation (DX) due to the lack of skillset in-house and the expertise of third-party providers, which cannot be easily replicated in-house.
The expectation is that there’ll be continued resilience in DX spend, a largely apolitical issue due to three main outcomes: increased efficiency, improved cyber security and derisking.
We might see delays in procurement cycles and more scrutiny/bureaucracy on decisions with a new government looking to reduce consultancy spend. To get round that, companies should ensure they have a compelling business case and strong relationships with key decision makers.
It is also important to note that the consultancy narrative is a political issue primarily for central government departments and there are many public sector organisations where this isn’t the case, such as ALBs (Arm’s Length Bodies) – including many standalone service delivery bodies – as well as local government, the NHS, and emergency services.

Opportunities for UK SME and midmarket companies

There’s been a lot of change in government in the last couple of years (and more is expected regardless of the election outcome). New opportunities for companies often arise when key decision makers move around departments and like to bring their trusted partners with them.
Companies need to be on the front foot and really understand the agendas of both existing and potential governments to understand where they are prioritising spend and where DX opportunities could arise. For example, any Labour pledges around tax reforms or NHS improvements could provide opportunities for DX project work.
Tenders now talk about outcomes rather than products/services needed. For example, “our priority is to calculate the amount of time left on a prison sentence”. Companies responding to such tenders need to be proactive, strategic and demonstrate the ability to provide robust solutions to the problem that needs solving.
There is also an expectation that just meeting the scope of work’s criteria is not good enough, it’s about going above and beyond and being a trusted advisor, as is the case in the private sector. You don’t just want the client to be satisfied at the end of a project, you want them to feel delighted with the outcome. There is a lot you can do around the edges on a tender to do that: How many free days do we put in? How many training days should we add for the team?

Working with government, departments and politicians

Government buyers place a high value on expertise – you can engage with them outside a tender process. If you ask the right questions and offer the right expertise, they can be very open on their priorities and problems. Being viewed as a trusted advisor with deep expertise, rather than a salesperson, allows you to build relationships/trust and shape the agenda without having them slamming the door shut citing ‘commercial sensitivity’.
There’s more of an open door than you might expect. Companies also benefit from the fact that political parties see it as far more important to sit down with UK headquartered SMEs and midmarket firms than with large offshore companies.
Politicians often don’t know the commercial solution to their goals/policies i.e. “this is what we need to purchase, implement and support to solve this problem”. They don’t have deep experience in the tech/product range out there and DX consultancies play a role in that.
Companies often come in and solve a very specific piece of work with a fixed outcome from a tender that was decided a long time ago. Those that excel are the ones that lean into policymakers and look at what else they can do to help, continuously building those relationships. Taking a research-based approach can help, finding out what bugbears end users have then reverting that back to policymakers with solutions. Policymakers and end users are typically quite far apart, and a good DX firm bridges that gap.
Unlike the private sector, budget lifecycle is very strict in the public sector. You need to be having conversations with budget holders at exactly the right time in the financial/budget lifecycle. For example, trying to speak to a department in June, when their budget was set in February is unlikely to lead to anything. Being part of continuous conversations with departments allows you to know exactly when budgets are being set and decisions are being made.

Being deeply embedded within departments is key

B2G GTM/sales models are different from private sector models and need to be assessed on a different set of criteria.
For example, having customer (i.e. department) concentration can be positive for firms servicing the public sector. This is counter intuitive for investors who typically view customer concentration as a bad thing. Seeing a company that derives 60-70% of revenue comes from just one department (e.g. The Home Office) can look worrying on the face of it but highlights that it is the go-to DX provider for that department. In contrast, a company that has a low share of wallet across multiple departments would suggest that it was only at the edge of those departments and not the go-to provider (which is likely to be a hard to displace competitor).
The sheer size of some departments should alleviate any concerns around spend, for example the Home Office in 2022-23 had a total budget of c.£20bn, greater than the entire GDP of Jamaica (c.£13bn 2022).
That said, there are opportunities to sell cross-departments e.g. where your solution is ‘horizontal’/technical in nature (e.g. secure by design, managed firewall etc.), or where the problem you’re solving crosses multiple departments, for example a strong NHS DX provider could enter the Department for Education as child healthcare sits within the DfE.

The Procurement Act

The Procurement Act is a legislative milestone that’s been years in the making. It’s about how to make procurement better and more accessible.
Both major political parties are committed to it but Labour more so and there is greater emphasis on dynamic procurement, flexible frameworks etc.
There are broadly two things the government is trying to achieve with the Procurement Act:

The biggest contracts over the last 10 years have not been driving value and they want to be less dependent on poor performers.
From a social goal perspective, politicians speak about SME and midmarket as the engine room of economy and want to support them by making procurement processes simpler.

Alongside the Procurement Act is the (well overdue) update to social value framework. Midmarket companies should look to have a social value lead, that can go and talk to social value teams in government, who’ll be open and tell you exactly what you need to do to compete with large enterprises on social value.

Hallmarks of a strong B2G proposition…

There is a natural tendency to think good B2G businesses would have similar characteristics to B2B businesses but there are distinct criteria that are more important in B2G businesses, such as density and relevance within departments. It’s about having domain knowledge and knowing how to sell solutions by having access to the right people.
Many of the best SME/midmarket B2G DX providers do not have dedicated sales teams. The sales teams are the technical delivery people. When writing bids/tenders, you don’t want salespeople with little technical understanding responding to proposals, you want the experts who know exactly what the problems and potential solutions are. This is a key differentiator for SME/midmarket players over large GSIs.
Just being on frameworks and responding to tenders is below base standard, the best in breed SME/midmarket B2G companies are strategic, trusted advisors that are well embedded within specific public sector departments.

Get in touch with a member of the team to discuss opportunities in the technology, business services and professional services sectors.

Mike Callow

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+44 7894 594 500

Email Mike

Ifan Dafydd

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+44 7792 158 738

Email Ifan

Simon Hemsley

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+44 7957 340 534

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Rupert Cookson

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+44 7983 110 150

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