From Labor-based Contracts to Technology-enabled Solutions

The government services industry expanded from less than 5% of total discretionary spending in the 1980s to almost 30% today

The expansion was driven by outsourcing of inherently governmental functions in the 1980s and modernization of services and systems in the 1990s. After 9/11, the government services sector more than doubled and then began to consolidate after Sequestration. Today, the top 15 services companies represent ~20% of the relevant contractor addressable market share and employ well over 300,000 employees. 

The sector is undergoing a fundamental transformation which is being accelerated by demand for new business models and technology

Government customers want to modernize rapidly, and to do so want contractors to take more risks and deliver better outcomes. In turn, advances in artificial intelligence and other technologies will put pressure on traditional labor models where professional services tasks are at greatest risk of automation or replacement. 

Customer pressure is compounded by investor expectations for growth and expanded profitability. Anticipating these changes, ‘ServicesCo’ sought to understand business portfolio exposure to market trends, where to prioritize its future investments, and options to transform company’s business model to incorporate more technology enabled services and products to deliver less support services and more mission outcomes.

Separating the signal from the noise

Renaissance's two decades of government services experience and analysis enabled detailed tracking of market evolution, helping clients navigate multiple eras of change. Leveraging proprietary tools and models that monitor spending at the task order level, Renaissance developed a detailed map of all current and anticipated government spending and evaluated each contract based on its Labor Exposure Index (LEX). LEX evaluates shifts in contract type (i.e., CP or FP), considers potential for cannibalization or augmentation of services contracts, and assesses capability alternatives.  

The results provide a view of how and where the market is adopting or could adopt technology

A subsequent review of ‘ServicesCo's’ existing capabilities and programs was mapped to the market to understand how its core and adjacent capabilities are exposed to market headwinds. Case studies showing how its peers and new entrants are positioned helped inform range of strategic options that can be considered. 

Positioning for the future

Critical to the success of the analysis was a detailed mapping of current and future missions that are exposed to the shift from services to technology-enabled capabilities and an evaluation of which ones can be low-hanging fruit or big bet options. Market emphasis on government efficiency amplified these trends and ‘ServicesCo's’ early identification of mission areas in which it could develop software and hardware products helped it navigate market headwinds better than its peers.