Public Sector ICT - Private Sector Has A Key Role In Delivering Public Savings
Published Tuesday, May 25, 2010 - 14:04
Despite the gloomy news from many quarters, Ovum believes S/ITS providers have the potential to play a pivotal role in helping deliver the planned savings, if they are willing and able to play by the new rules. John O' Brien from Ovum explores.
The UK’s new chancellor has challenged the private sector to play a key role in helping the UK economy emerge from its current debt crisis. The decision to cut £6.2 billion immediately from the public sector, with further cuts to come, shows that any growth over the next few years needs to come from the private sector. This presents the UK software and IT services (S/ITS) industry, and outsourcers in particular, with a unique challenge. But what impact would government policy have on public sector ICT and the ICT industry?
New coalition will advocate more IT and BPO
We have entered a new era which will have a short-term negative impact on the S/ITS sector as contracts such as Capita's £430 million deal with the Child Trust Fund are cut as the program winds down. But after this phase of purging, new opportunities will emerge as the new coalition advocates the use of outsourcing. Engagement with the private sector in this way could help deliver economic growth over the next few years.
Both Conservative and Liberal Democrat local authorities already do a significant amount of outsourcing. In fact, some of the biggest local government IT and business process outsourcing (BPO) contracts have been signed by these political parties. Examples include the Liverpool Direct joint venture between Liverpool City Council and BT (Liberal Democrat); SouthWest One, the shared services joint venture between Somerset and Taunton Deane councils, Avon and Somerset Police, and IBM (Conservative/Liberal Democrat); and Service Birmingham, the joint venture between Birmingham City Council and Capita (Conservative/Liberal Democrat).
These three programs alone account for £1.5 billion in local authority spend, and have gone a long way towards transforming services within these local authority areas. They have also generated significant savings; for example, Liverpool Direct has delivered £100 million in savings in its first five years, and SouthWest One is expected to deliver £376 million over ten years.
In central government too there are many examples of successful IT and BPO contracts, such as Capgemini’s ITO megadeal at HM Revenue and Customs, BT’s national data spine for the NHS, the NHS Shared Business Service with Steria, and Siemens’ BPO contract with National Savings & Investments. All of these and more deliver value and benefits to the taxpayer.
Greater autonomy will drive outsourcing
Over the next few years we expect new outsourcing opportunities across central, local, and regional government, as these organizations exploit their greater autonomy to decide their own solutions for cost cutting. Outsourcing is a quick win since it moves the related cost base from capex to opex, giving an immediate boost to the bottom line.
Another challenge will be keeping unemployment under control, with the public sector predicted to lose as many as 300,000 jobs over the next few years. The outsourcing industry has a part to play in providing solutions to this, by re-skilling and redirecting staff into other positions where they can be of financial benefit to both the private and public sectors. The new government should view this as an opportunity to encourage innovative ways to retrain and develop outsourced employees.
New rules of the game call for new S/ITS strategies
To capitalize on future opportunities, suppliers will need new strategies of engagement. “De-risking” future IT and BPO contracts will be a key priority. Suppliers will need clearly defined plans to ensure this is achieved – for example, introducing flexible pricing and contracting, and shouldering more (if not all) of the initial financial burden, because government simply won’t have any available funds to invest. If suppliers can generate a watertight business case that will provide the required investment, while delivering a high-quality service at reduced cost, there is no reason to believe that the new government won’t be interested.
Partnering is going to be the second big change. The new £100 million contract ceiling will force suppliers to work together, which means actively seeking out new alliances and relationships with competitors, and honestly working out their relative strengths and weaknesses. Government will want to work with mature, collaborative partners that are prepared to share in the risk and work together towards a common outcome. These partners will also need to be prepared for swift replacement if performance falters or cost creeps, as well as dramatically reduced termination penalties.
