Capability Maturity and Strategic Bid Pricing (4-30-2009)

CAI/SISCo has always been interested in helping clients understand where they stand relative to their industry peers. To support this quest this commentary defines the minimum, moderate and maximum capability maturity levels that relate to strategic bid pricing.

The minimum, and most prevalent level of bid pricing maturity, is the pure "Cost Plus" approach: cost plus, yes, but not in the traditionally understood sense. Rather, at this level, a capture team divines what the opportunity is going to require to accomplish. This quantification becomes the bid's cost basis. Whether or not the bid price is gamed (perhaps using a Reality Model and exploiting the delta between it and the Evaluated case) the cost basis is always "plussed up" by the pricing team -- hence "Cost Plus". Two of the weaknesses inherent in this minimum approach are:

• It is largely the capture team's view of what it takes to do the job that drives the process, not what it takes to win the job; and
• It is bound to include lots of "walking into the future backwards" (i.e., backward- rather than forward-looking solutions and pricing approaches).

In business development and winning (versus almost winning) jobs, the maximum level of bid pricing maturity is when the target price needed to win the job is established at the beginning of the capture process. Looking at an opportunity from this end of the telescope it becomes clear that the capture team's role has to center on finding ways of doing the job at, or under, the winning price target. This maximum approach requires capture teams to think way beyond the "what has been" box and focus mostly on "what will be".

Some firms are seeing the light. Without naming names, we are seeing some industry players charting courses away from the minimum bid pricing approach and toward the maximum level of bid pricing maturity. Firms that have gone beyond the minimum have, hitherto, only been able to achieve higher (moderate and above) levels sporadically because achieving a consistently higher level requires turningthe proverbial battleship around. A complete turnaround for major companies is going to require time, serious retraining of capture managers, and standing up of an internal activity capable of consistently setting those winning price targets.

Skeptical? Consider this then. Government customers routinely develop independent cost estimates for opportunities so why can't a journeyman contractor develop its own target price to win?

Regardless, change is coming, and leading companies are beginning to make the turn. Meanwhile, no firm engaged in the cutthroat government services marketplace can afford to wait passively for the competition to evolve. Companies should always be asking themselves two fundamental questions:

• Where do we presently stand on the scale of minimum to maximum in terms of strategic bid pricing maturity?; and
• What will it take to transform ourselves from our current pricing maturity level to the next higher level, and beyond?

To provide answers to these questions and assist with this process, CAI/SISCo is offering a Strategic Pricing - Capability Maturity Assessment (SP-CMA) service - an outgrowth of our industry-leading and highly successful Price To Win (PTW) consulting and training businesses. Our SP-CMA service assesses, evaluates and benchmarks your firm's current strategic pricing maturity standing against your peers. Our SP-CMA process then recommends the steps that need to be taken to move your firm to a higher level of pricing maturity and a higher percentage of successful pursuit outcomes.

Good luck and happy hunting!