Competitive Convergence: A Collections Perspective

“Is the municipal waste collection industry heading for competitive convergence?”, asks Steve Vaughan-Jones, principal consultant at SLR Consulting and a Chartered Waste Manager

Indicators that are synonymous with convergence, such as market consolidation, highly prescribed services with fewer distinguishable features and reduced profitability can be clearly seen within the industry, although this does not explicitly confirm causation.

Competitive convergence has previously been defined as: “What happens when companies imitate and match each other’s moves, when they compete to be the best. Over time all companies begin to look alike as one difference after another erodes. When rivals converge around a standard offering, customers must choose on price alone. Mainstream economics has always highlighted the way in which this kind of ‘perfect’ competition benefits customers by lowering prices”. – Joan Magretta, 2012, p212, Understanding Michael Porter; The essential guide to competition and strategy, Harvard Business Review Press, Boston MA

In the short term, competitive convergence can lead to increased value being passed down to the customer (in this case local authorities and residents) with no relative advantage for any individual waste collection business, as the convergence of competitive strategies becomes mutually destructive. This may sound ideal to any waste collection or unitary authority that is due to procure services or considering outsourcing, however in the longer term it is likely that no-one gains.

Competitive convergence within industry can often be a result of businesses not distinguishing between ‘strategy’ and operational efficiencies, which are often readily replicable by competitors. However, it can also be driven by external factors.

We Have A Choice

In most parts of our professional and personal lives we are presented with choice. For example, we can choose to fly with a budget airline, in the knowledge that certain conveniences are likely to be sacrificed to achieve a lower cost. Where choices or compromises are eroded then so are potential strategies, and cost is therefore likely to become the remaining key differentiator.

Within waste collection procurement processes we are seeing increasingly prescriptive output specifications that include minimum (typically regulatory based) performance requirements and thereafter cost is increasingly becoming the main driver. This is further reinforced by the shift in price evaluation weightings, likely driven by pressures to deliver budgetary savings. In addition, differing collection types and risk positions appear to be less frequently explored during the procurement process, but are instead predetermined.

If competitive convergence is occurring, there are further external factors that may be contributing to this:

  • Increasingly prescriptive guidance, eg the Welsh Government’s collections blueprint or WRAP’s framework for greater consistency in household recycling
  • The sharing of best practice
  • Implementation of incremental targets, which reinforces the focus upon operational efficiencies
  • Application of similar or duplicate management tools, e.g. benchmarking
  • A relatively limited pool of suppliers, e.g. vehicles and plant
  • Standardisation of fleets, including maintenance and training
  • Outsourcing of activities
  • Additional feedback provided from completed procurements, detailing information comparable to the successful bidders.

Obviously there are good reasons why these approaches have been developed and adopted, as many have resulted in significant performance improvements, but we also need to consider the longer term implications of these gains, to ensure our pursuit does not become solely dependent on incremental gains; potentially at the sake of wider innovation and/or advancement.

If we create an environment or market where there is only one strategy, then it becomes a race to discover or pre-empt it!

Destination Divergence

I’m not suggesting that we undo the great progress made to date, nor am I suggesting any form of stagnation with regards to future aspirations, but there are measures that we could be considering to help encourage a diverse, competitive and ‘value’ (not cost) driven industry. For local authorities these could include:

  • Robustly testing evaluation criteria to understand the true weighting, and resultant sensitivity, assigned to price
  • Attributing sufficient weighting to the wider value that a contract brings to the local community
  • Enabling the consideration of politically acceptable ‘trade-offs’ within procurements, e.g. service variables or varying commercial risk positions
  • Being curious of, and open to, innovation
  • Encouraging new / emerging market entrants, who often drive innovation as well as competition
  • Seeking to understand how contractor management systems will be used to deliver a differentiated service, when using similar resources and an inherited workforce
  • Ensuring that quasi-commercial offerings, such as ‘arms-length’ or joint venture companies, are robustly tested in a competitive tendering environment.

The above measures are more likely to encourage contractors to:

  • Clearly differentiate between strategy and operational efficiencies
  • Focus upon offerings that differentiate and are more difficult for competitors to replicate
  • Consider integration opportunities, or even divestment, that complement the contractor’s strategy
  • Prioritise the use of subcontractors and/or consultants where they ‘add value’
  • Seek out technological advancement / synergies, including advancements in other industries that may be suitable for application in the waste and resources sector
  • Review internal opportunities, such as ‘circular commitments’ ≠ previously identified in the article ‘sweat the small stuff

 

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