GlobalData’s Jessica Figueras on Public Sector IT Spend – Challenging Time for Large Providers

We chatted recently to Jessica Figueras, Chief Analyst at technology analysts Kable. Hang on, it’s not Kable anymore! The firm is now branded in line with their parent company, and is GlobalData – a good name actually if a little generic.

The firm keeps a close eye on the state of the UK public sector technology market, and has come up with some interesting findings recently as part of their “market sizing” report, with some trends that seemed worth exploring further.

The big headline is that IT outsourcing spend in central government is down some £145 million, or more than 5% year on year. That is maybe not surprising, and does not sound like a large number. But given that large contracts probably have an average term of around five years, that suggests a big drop in terms of those that came up for renewal last year it. We know that Ministers and senior civil servants have been making noises for some years now about moving away from the big IT providers and massive outsourcing or indeed systems development deals. But now that stated policy of looking more to smaller firms and even insourcing seems to be coming through in the real figures.

However, this spend has not disappeared from the IT market totally in its wider sense. It appears to have been more than replaced by spend on IT staff via consulting firms and contractors; up by nearly £204 million according to GlobalData.

The Government Digital Service policy seems to be taking shape – the desire to move away from monolithic contracts and bringing capability back in house. But, as Figueras says, “ironically perhaps, this does not seem to have saved any money. Perhaps it is inevitable that when you break up large contracts into smaller ones you require more management resource”.  And if public bodies don’t have all the in-house skills to handle the new strategy and perhaps a more complex supplier management and integration picture, then they are understandably calling on the consultant and contractor market to fill those gaps.

That does lead us onto an interesting question. The large IT outsourcing firms do themselves use many contractors, but can government attract the best people from a similar talent pool, either as employees or even as contractors? Is the career path credible enough to attract good people? We will see.

The decline in local government outsourcing is smaller at some 2%, but here Figueras sees another potential issue. “We see that buyers in the sector are looking for new ideas and commercial models, but the way contracts are drawn up, and the pressure suppliers are under often means they just don’t want to innovate”. 

However, costs are coming down, driven by digital transformation, new apps and the like, but outsourcing contracts are not operating with enough flexibility. “Smart suppliers are working hard on innovative models and contracts, but this is challenging”, she explains.

There is some good news however for the beleaguered supplier community. Outsourcing is increasing in the emergency services sector! But this is relatively small compared to both central and local government, so this is only a minor relief for the market. And desktop PCs and laptops grew marginally as well, but this is an increasingly low margin, commoditised business.

On the wider front, we have seen poor financial results recently from publicly quoted firms such as BT and Capita. The GlobalData numbers suggest that the current situation in the public sector is indeed challenging, and nothing seems likely to change this soon, as budgets continue to be tight and digital efforts focus on smaller suppliers. Tough times ahead for the big suppliers, we suspect.

 

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