In the clearest indication of the shape of things to come, the recent budget announcement, in which Alistair Darling outlined his plans to cut public spending by £9bn from 2013 - in addition to the £5bn already announced in last November's pre-budget report - should serve as a stark warning to every IT vendor.
Leading accountants have already criticised the Chancellor for setting unrealistically low targets for cutting Britain's overall deficit which may result in a much more radical approach to reigning in public spending over the next three to four years.
Against this background, can vendors seriously regard the public purse as a plausible way of riding out the recession, or should targeting central and local Government as well as public corporations be a strategy best avoided?
Ultimately, there are two factors that need to be carefully considered.
Firstly, there is the financial aspect. With other sectors tightening budgets and IT investments becoming less of a priority for the board of directors during these economically challenging times, competition for vendors to secure public sector contracts is fast becoming increasingly competitive.
Sustained public sector spending, at least until 2013 when Darling's cuts will start to bite, makes it an obvious area to invest in, but with big brand names that offer similar products competing for a small number of contracts, there is really only one prominent differentiation: price.
After submitting warranty details, specifications and a test sample at the first stage of application, it has now become commonplace for vendors - once through to the second stage - to be given the opportunity to enter a reverse e-auction to bid for a tender.
As its name suggests, this involves the preferred manufacturers bidding their best price in an online auction until the most appealing offer has been made.
Despite the Government’s promise to open up tenders to smaller businesses, this ongoing price war leaves little room for them to fight against the big brands that end up dominating the marketplace.
When vendors are looking at pricing competitively, it’s also important to consider Total Cost of Ownership (TCO). From point of purchase through to end of life, including the cost of running and servicing, every detail is measured to provide the TCO of the product.
Playing into this, considering the Government’s drive to reduce energy usage and emissions across the UK, green credentials might come into play. There are a variety of high quality products on the market that use less energy than standard equivalents.
These products enable vendors to demonstrate real savings and offer organisations an appealing TCO as the cost of running them is reduced. This places vendors in a better position to approach public sector procurement with an appealing offer and could help to displace the competition.
Secondly, the proposed spending cut can also have a more profound knock-on effect on the IT sector. As part of vendors’ focus to invest heavily in the public sector, whole teams are often being created to concentrate specifically on this area to drive sales. With public sector debt rising, government spending at its current level cannot be sustained forever.
Already, experts are predicting thousands of public sector jobs to be culled over the next few years. Additionally, think-tanks are calling for a revised approach to public service delivery, comparable to the effects online services and call centres had on the private sector and Britain’s high streets.
If these radical changes are being implemented and public spending does indeed come down to the level recommended by finance experts, the impact on vendors is becoming clear. Adapting the new era of austerity may result in vendors having to make employees redundant when these bespoke teams are no longer required.
On the other hand, despite the risks of investing in the public sector, there is no denying that there are advantages to targeting this area.
Once won, contracts with Government organisations hold few risks: they are often long term, of high value and payment is guaranteed. Similarly, with investment in technology increasingly becoming a priority for many public sector organisations, such as those in healthcare and education, there is a continuous stream of contracts on offer.
The public sector is, and will continue to be, a focus area for vendors in 2009 and over the next three to five years. Although it is important that vendors take all of the risks into consideration, the benefits of investing in this sector far outweigh these.
In the current climate, vendors simply cannot neglect to realise that the public sector isn’t just one to watch, but one to approach with vigour. Proceed with caution!
Warren Lewis is General Manager for Business Solutions at LG Electronics. LG’s Business Solutions product category is a business-to-business company that develops a broad range of digital devices and solutions, including LCD monitors and commercial displays.