The market for hiring software services has become very competitive. Companies seeking contracts can gain an advantage by being clued-in to regulations their potential clients observe

Unlike the property and banking sectors, software consultants have had a pretty good recession.

They haven’t had it easy but it is an industry with a good reputation for managing costs well in times of trouble.

Besides, so much of IT is about making things more efficient and easier, and enabling companies to work better. It isn’t always a luxury good.

So very often a recession can be used by firms to look at ways to make their business more efficient through new technologies.

“The big challenge for small and medium-sized companies in the software consultancy sector is increased competition,” says John O’Connor, partner and head of technology and commercial contracts group at Matheson.

“The public sector and financial services are beginning to manage their cost bases much better by using more procurement professionals hired in. This new-found competition will be for both small and large services or products being put out to tender. So suppliers will be kept very honest with their pricing.

“If you look at larger IT suppliers, like Hewlett-Packard or Microsoft, they have been very sophisticated in terms of outsourcing to buy in the products and services they need for their own use.”

With increased competition comes the added challenge of standing out, especially for a small company that has to compete with giants like IBM or Accenture.

“Start-up software companies are working in a very competitive environment,” says O’Connor. “So it is crucial they find ways to differentiate themselves from their competitors, otherwise tendering processes will come down to price. But if you can distinguish yourself, then cost won’t be the only factor in a client’s decision.

“Software SMEs must find ways to differentiate their product from the competition. Not only must they find gaps in the market but they must also see a market in the gap.”

Despite their industry often being perceived as unregulated, programmers can find themselves working for clients who are tied up in all sorts of red tape of their own – healthcare or financial services being just two examples.

While in the past it might have been okay for outside consultants to take a “not my problem” approach to regulatory issues within another sector, a one-stop-shop capacity is what’s expected from those looking to outsource.

Know the regulations facing your client

“The sector may not be regulated but many of their clients will be,” says O’Connor. “If you’re a sophisticated vendor you need to know regulations which apply to your client.

“For example, if you’re trying to get a contract in the financial services sector you need to be aware of the Markets in Financial Instruments Directive . So if a financial institution is indulging in any type of material outsourcing, they need to comply with the operational risks requirements in MiFID. If a vendor goes in and can articulate in a contract that they are MiFID-compliant, they’ll already be way ahead of the competition.”

Irish start-up Dovetail Technologies recently signed an extensive three-year contract with Ikea.

While not dealing with public body bureaucracy, Dovetail did encounter some internal parameters.

“A company as large as Ikea is always going to have its own way of doing things,” says Dovetail co-director Trevor Jobling. “But we did have to overcome quite a bit of red tape. In our experience, the red tape you encounter in the private sector is usually whatever controls individual companies have built into their own infrastructure.”

Public or private, red tape or none, you’re only as good as your last job.

Complacency is the poison of any good software SME and can affect particularly those who are lucky enough to find themselves tied into a secure ongoing project.

“Delivery of product or service is paramount,” says O’Connor. “It still holds true that if you do well, the workload will increase. The public sector can’t do that but the private sector certainly can. Once a client likes what a supplier is doing for them, they’ll be very reluctant to move.

“But one must always remember that the competition will be breathing down your neck, and more than likely organising meetings with chief information officers of their own to take your contract. If a supplier becomes a little too comfortable with their situation, even if the pricing is competitive, the client won’t think twice about shopping elsewhere.”