The UK government is on the ropes over spending cuts. Every time a minister, or shadow minister, has spoken publicly the focus has been on saving cash. But the government has had to borrow £175bn this year just to keep the UK economy limping along.
Last week, the prime minister even had to concede to the Trades Union Congress that cuts in public sector services are inevitable. Media commentators have already started drawing up shortlists of expensive public sector projects that can be cancelled including several major IT programmes. ID cards, the ContactPoint children’s database, and the NHS National Programme for IT are all vulnerable, and this is just the beginning.
Let’s put some of this into context though. The private sector has been thinking twice about outsourcing IT and business processes during the recession. A pattern developed in 2008 where companies stopped to think long and hard before signing contracts with third parties. In an environment where cash flow suddenly became critical, even the upfront costs associated with an outsourcing programme were too much to bear even if the project would create long-term savings.
So why should the public sector suddenly jump into a frenzy of outsourcing and maybe even whisper it offshoring? It is mainly because something radical has to be done. That £175bn borrowing requirement dwarfs the projected IT savings of around £7bn described in the recent Operational Efficiency Programme by former Logica chief executive Martin Read.
When Opposition leader David Cameron suggested saving cash by cutting subsided food at Westminster, his comments received front page coverage, yet his “crouton cuts” might yield £120m at best. The media seems to be lost in a maze of partisan spin when the reality is that the public sector needs open-heart surgery on the way services are provided. This cash crisis might be the catalyst that forces genuine progress, beyond endless efficiency reviews.
Many in the IT industry do not believe the government can now achieve anything more by endlessly searching for efficiency.
“There is a bit of a conspiracy between the two major parties right now that the answer lies in efficiency programmes. Look at the savings proposed by such programmes and it’s small beer. Outsourcing in a major way will be on the agenda, along with sweeping public sector cuts,” says Alan Downey, UK head of public sector at KPMG.
But ensuring critical departments such as health and education go unscathed could mean worse news for technology programmes in other departments. Paul Connolly, director of policy and strategy for Serco Consulting, is worried the government will insist only on getting more for less.
“We are now in uncharted territory. Even the informed commentators have not digested the level of saving required,” he says.
Connolly adds some interesting points about the attitude of IT suppliers to the once cash-rich government.
“The outsourcing community has always offered more for less, but in an environment where spending was plentiful. Now the more-for-less argument changes and the less side is much less. So the outsourcing suppliers need to appreciate that circumstances are worse, but they need to demonstrate to government that they can think harder about how to supply better services and what future models of public services will work,” he says.
Of course, with hundreds of departments and services replicated across many sections of central and local government it could be shared services, rather than just outsourcing, that becomes the main focus.
“We expect a lot more government outsourcing. There is the cost driver, but also the Transformational Government programme. Given the prominence of shared services in that, we expect outsourcing to complement a move to more shared services,” says Geoff Llewellyn, head of public sector business Europe at offshore outsourcing firm Wipro.
But possibly the most critical question is how are services being delivered and could it be radically different? Lord Carter’s Digital Britain report in June proposed the concept of a “G-cloud’ a cloud-based service of business tools available to any public sector body to dip into, as and when required.
It is feasible - the US government last week launched a very similar idea. The private sector is excited about the opportunities presented by the cloud, not least because it offers a way to buy services as they are consumed, with minimal infrastructure investment. But it requires a complete mindset change, and is that going to happen quickly across the public sector?
In this environment, the prospects for the big IT suppliers are good, whether it’s formulating G-cloud strategy, exploring shared services, or just taking on a regular outsourcing contract. When savings are required, it is likely the suppliers will be able to step up and offer something new. And don’t forget, outsourcing is virgin territory to entire swathes of the public sector.
“Government departments have only scratched the surface of outsourcing potential in the UK,” says Richard Marchant, local government strategic partnerships director at Capita.
“Only a very small proportion of local authorities, health organisations and central government departments and agencies have embraced it. We expect there to be an increase in local government outsourcing opportunities as they seek to provide quality public services within tight budgets. Central government has been less active in recent times but this market is beginning to gain momentum, as greater demands on public spending will bring an increased need for high quality services at a reduced cost.”
Bob Scott, vice president, public sector outsourcing UK at Capgemini, says there are many government agencies that have never outsourced and may now find it forced upon them.
“There is still a large element of the former quangos that have never even gone through first-round outsourcing,” he says.
“Very few police forces, for example, have gone beyond basic outsourcing such as cleaning. There is a huge opportunity.”
Outsourcing is going to be one part of the answer, but to start radically changing the way public sector services are procured and delivered will need a step change in the status quo. This affects both suppliers and the public sector itself. Perhaps that change could be generated by a group of innovative suppliers? Or perhaps both suppliers and public sector customers are just happier with things the way they are now?
Mark Kobayashi-Hillary writes the Talking Outsourcing blog for Computing.
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