Outsource Magazine

As part of the research into the lead article for the autumn issue of Outsource (Outsource 21, published next week), on sourcing in the post-election landscape, we conducted interviews with a wide range of players from across the UK’s outsourcing community, using set questions to determine differing perspectives on the same issues. Over the next few weeks we’ll be publishing online a selection of the responses we received, as an addendum to the main feature which you can, of course, read in the magazine proper.

We begin this week with the first of those questions:

What do you think will be the short-term consequences for the UK’s outsourcing space of the change in government and new parliamentary landscape following May’s election?

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Government is going to have to get used to doing more with less; there is no hiding place from the cold hard facts of massive budget cuts. As government employees are laid off the effort required to maintain service levels will become harder and harder, so much so that outsourcing must be considered in areas that were previously deemed peripheral. By implication that must mean larger departmental processes are outsourced in the first phase in order to give a smaller more focused government the ability to manage as opposed to doing.

Mark Iveson
Stortext

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In the short term very little will change as large public sector projects take a long time (18- 24 months) to procure. As areas are scoped for outsourcing to form part of the solution to the budget deficit the community of providers will be aligning their resources (possibly leading to a growth in sales and business development teams) to suit. Strict qualification of opportunities will be required by the vendors to ensure bid costs do not spiral out of control.

The government should also be looking at solutions that deliver payback in six months or less while they build the outsourcing business cases and procurement teams. There is plenty of low-hanging fruit than can be taken now, through strategies like better operations management practice, rather than waiting.

Jon Clark
AOMI

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At this stage it is difficult to predict the real impact that the new government will have on the outsourcing sector. The spending cuts that George Osborne has announced are certainly something that the sector should pay particular attention to. This is a key time for the sector and as with any new government there is always room for potential change. The outsourcing industry needs to keep an eye on and be prepared to adapt to these changes.

Brian Parsons
Lloyds TSB

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The main immediate consequence is: paralysis.  Everything is on hold.  Nothing has got done in public sector ICT/outsourcing effectively since March as the Civil Service went into purdah pending the election.  Since the election, the coalition government has issued a moratorium on most new and existing projects, including all ICT projects with a lifetime spend above £1m.  In addition, government ICT procurement (which includes effectively most outsourcing projects) is moving (along with OGC) to the Cabinet Office under the Efficiency & Reform Group.  Accordingly, the control mechanisms for outsourcing within the central government sector are changing.  It is unlikely that any new projects of any significance will be commenced in the next few months – unless an individual department can convince the Cabinet Office that there are significant savings that can be achieved with a very high degree of certainty.  In addition, every existing outsource contract is undergoing a process of review to determine whether it ought to be re-negotiated.  Accordingly, all existing projects will be under the microscope as to their effect and potential re-negotiation.

Alistair Maughan
Morrison & Foerster

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Budget spend will be constrained until the new government gets a handle on controls, I have heard that all spend above £25k has to be approved at a very senior level of both treasury and department. Consequently there will be fewer opportunities for the outsourcing provider.

Stephen Bentley
Granby Marketing Services
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The Conservative’s original Technology Manifesto appears to have pretty much made it through intact into the new coalition government. Key promises around full transparency in procurement/tendering, opening the market up to SMEs, improving in-house procurement expertise to reduce the reliance on external ‘expert’ consultancy, standardisation / re-use of resources, developed solutions and investments, and making it more difficult for IT contracts over £100m to be let will have a huge impact in both the long and short term.

These policies are already starting to bite with recent announcements of an immediate £95m cut from central ICT spending; a freeze on any new project over £1 million; spending cuts rippling through at departmental level (for example DWP, Defra and HMRC) from contract negotiations and general savings. We will know more following the release of the Emergency Budget due out shortly on 22nd June.

In the short term existing contracts will probably go through a full ROI and VFM review looking for waste, opportunities to renegotiate, etc. New procurement has been placed on hold whilst current arrangements are re-evaluated, businesses cases challenged and opportunities to re-use or leverage across existing arrangements are explored. Hiring freezes are already having an impact on the staffing industry with many companies specialising in public sector already starting to feel the pinch.

In the advisory market the outlook continues to be very difficult – historically the UK economy lags behind that of the US by 3 – 6 months so it was reasonable to expect the first green shoots of some kind of outsourcing revival (or optimism at least) to start showing through by now as the US apparently turns a corner, but there is still a huge amount of inertia. I think part of this is due to the continued slow-down in the decision making process but this is being compounded by what I think is a fundamental change in approach – rebuilding the specialist internal sourcing skills (private and public sector) that have been lost over many years of gradual cost reduction and general ‘leakage’ into the ‘higher value’ advisory/consultancy market.

John Sheridan
Alsbridge

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In the short term, existing service providers will be squeezed on price, and this is already happening.  However, all parts of government will look at outsourcing as part of the solution to reducing costs.

The critical success factors are: improving the skills, methods and tools of those engaged in restructuring and ongoing management of existing contracts.

Danny Jones
TPI

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In reality, the short-term effects of the recent election will be barely noticeable. If organisations have a team in place to look after key areas – such as HR and payroll – then they are likely to have acquired software over the years to help them conduct their day-to-day operations. They will be bound by a contract to use the software for a certain period of time, meaning the cost of outsourcing will be prohibitive as they will have to continue paying for the software and the servers it is running on. With budgets cut dramatically, local authorities will leave no stone unturned as they look to improve efficiency and reduce costs, so we’re likely to see a dramatic drop in the number of projects and potential cuts in non-essential services.

Andrew Jones
Selima

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As the public sector will be tasked with demonstrating savings on operational costs surely they will look to outsourcing to contribute to these savings.  As in the private sector, time needs to be spent reviewing which products and services are 'core' to their operation and which are ripe for outsourcing.  The outsourcing of these non-core services can be visible on the bottom line in terms of financial savings.  One key area to target in the short-term is the 'pooling' of training requirements regionally within public sector organisations, such as councils and then purchase training 'in-bulk' which opens up more opportunity for economies of scale and further negotiation on price.  Why not consider purchasing regionally across counties etc?

Rachel Kay
Thales Training & Consultancy

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With the government deficit target looming over the public sector, their ongoing relationship with private sector outsourcing could seem like a marriage of convenience. However, I don't see it that way. It is important to consider at this stage what the best outsourcing contracts can do for organisations willing enough to embrace the challenges ahead with a sense of optimism.

In the short term there are necessary cost savings to be made, not all of which will be welcomed. In an ideal world this would result, one hopes, in a degree of net growth in the outsourcing space. However I suspect that during 2010 we may well witness a degree of consolidation, contractually with incumbent outsourcing partners, which will limit genuine growth in public sector outsourcing. This shouldn't be overly alarming, or even disappointing, as I believe that public sector organisations are drafting their battle plans we speak.

Therefore there is now a unique opportunity for outsourcers to get their messages out to the public sector who are probably now more open to new ideas than ever before. The question is will the cross-hairs be aligned solely on cost savings, or will public sector consider the duel opportunity of short term cost reduction with mid-to-long-term innovation? This second prize, I feel, is the exciting opportunity for our public sector - one that will truly modernise government in the future.

Darian Sims
Oce

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In the short term, UK outsourcing is already showing signs of a slowdown in activity as departments begin to anticipate the effects of the government’s October review.  During this time, consideration needs to be given to the scope of departmental activity.  In particular, rigorous assessments should be conducted as to what could and should be outsourced, although we believe that the biggest stumbling blocks throughout this process will be TUPE costs and an appetite for change.

Steven Barker
Siemens IT Solutions & Services

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There will never be a better time to outsource and therefore the opportunities will be immense within the contracted out education catering sector, where clients seek to reduce, eradicate costs, thus enabling them to concentrate on core delivery.

David Weller
AIP

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The government has made clear that they need to achieve big spending cuts in public sector borrowing and are leaving us in little doubt as to the priority with which they will tackle these cuts.  There is significant duplication across the government’s technology infrastructure, one example is the 820 different Web sites across government.  Many of them can be streamlined or replaced and spend significantly reduced.  But this bloated and fragmented IT infrastructure does not just apply to websites.

I expect the government to strike a very fine line this year between increasing outsourcing but minimising impact on jobs.  I think much of their focus on outsourcing to BPO and IT outsourcers in the short term will be to strive for greater efficiency; help streamline IT infrastructure and business processes for greater rationalisation.  They will need to avoid cutting too deeply anything that will be seen to affect onshore jobs so as to not foment additional voter dissatisfaction around the government cutting jobs in a bad economy and avoid increasing the burden on the already strained welfare state.

Ian Southward
SymphonySV