Searching for the government ICT sourcing silver-bullet

Pushed by sever budget cuts UK government executives are applying a variety of approaches to sourcing ICT and business services, but rather than finding one perfect solutions, it is becoming increasingly clear that a hybrid approach will be the...

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Pushed by sever budget cuts UK government executives are applying a variety of approaches to sourcing ICT and business services, but rather than finding one perfect solutions, it is becoming increasingly clear that a hybrid approach will be the most sustainable in the long term.

The UK public sector is always ripe for interesting stories. Bad ones, such as the harsh lessons learned by less than "agile" development for Universal Credit get most of the airtime; those that run smoothly usually get less attention from the press and the analyst community. But regardless of the track record, the UK public sector remains the test-bed for experimenting with new business models for running the business of government and the underlying ICT architecture.

These innovative approaches attract the attention of all other major European governments, as well as droves of risks. With the strong drive towards cost savings across the public sector, aggressive moves have abounded in the past three or four years. As a result of those initiatives, between July and September 2013, a number of programs and contracts have started or have been brought to an end providing plenty of lessons learned for ICT and business process sourcing strategies.

The major objective of procurement reform is clearly to drive more competition among suppliers, for example by incentivising SMEs to compete with oligopolistic incumbents, or by further strengthening the government central procurement arm by setting up a corporate-style Crown-Commercial Service, so that costs can come down and product and service innovation go up.

The selection of Arvato and Unit4 for the Independent Shared Service Center 1 (ISSC1) was singled out as a step in the right direction to break the oligopoly, but already a few months after the deal was closed, indications that costs might turn out to be higher than expected suggests a first important lesson for sourcing and procurement officials: the initial price savings are only part of the picture, the total cost of ownership must be evaluated within the framework of the overall program with organizational change management accounting for a large part of the total investment, much more than clever contract and procurement engineering.

By the same token, the more recent selection of Steria as the preferred bidder for ISSC2 attracted a lot of attention, because Steria is not exactly a newcomer to the UK public sector business and ICT service market and because they might consider off-shoring some jobs, while limited attention is being paid to the fact that Steria manages the NHS-Shared Business Services venture, which has been praised as better than many other public sector shared services, when it comes to service delivery operations.

Recent Sandwell council decided to work out an exit plan to their contract with BT, in which services will transfer back to the council in March 2014. Council leader Darren Cooper argued that: "The world of local government has moved on significantly since 2007. We now need a different plan."

Sandwell council decision indicates that long-term, all-encompassing business and ICT services outsourcing deals are probably not the best choice in a time of rapidly evolving business strategies, regulation, and fast technology obsolescence driven both by commoditization and consumerization. Times when the government need for rapid and affordable innovation clashes with big outsourcers appetite to standardize processes and operate them with very little change for as long as possible to make a profit. As clearly articulated by Mark Hall, as he is exiting his role as HMRC CIO. So it is a bit counter-intuitive to see Barnet Borough council going as far as arguing in court with a resident to sign an all-encompassing, long-term outsourcing contract with Capita and Lincolnshire County Council to shortlist Serco and Agilisys for a similar deal.

And it is not just the signing or cancelling of long-term outsourcing contracts that UK governments are experimenting with, it is also with various forms of "in-house privatization" of services, by setting up social enterprises, merging authorities to attract more growth grants, sharing services and starting up mutuals, where employees act as stakeholders:

  • Social enterprises. East Ayrshire Council has transferred responsibility for culture, countryside and community services to East Ayrshire Leisure. East Ayrshire Leisure will be able to use its charitable status to claim a reduction in business rates and develop new income streams not available to the council. Bristol joined Plymouth to become one of the first two cities to be awarded national social enterprise status, under the scheme run by Social Enterprise UK for towns, cities and localities which meet a number of criteria - committing the area to encouraging residents and businesses to social enterprise.
  • Mergers. Seven local authorities in the North East have agreed to establish a combined authority for the region. The 'LA7' group of councils, including Durham Council, Newcastle City Council and Gateshead MBC will now submit their proposal to communities secretary, Eric Pickles, for the creation of a North East Leadership Board as a combined authority.
  • Mutuals. There are currently 70 public service mutuals in the UK, controlling expenditure of over £1bn. The largest public sector mutual was been established in Buckinghamshire to provide support to early years providers and schools. The Buckinghamshire Learning Trust (BLT) has been set up by Buckinghamshire County Council and schools to help achieve the best possible outcomes for all children in the region.
  • Shared services. Stevenage Borough Council and East Herts District Council that already share their revenue and benefits services are discussing sharing their information and communications technology, business improvement, and print and design departments. The partnership involves East Herts staff transfer to Stevenage's employment. In the higher education sector purchasing consortia, such as the North-Western University's Procurement Consortium and London University's Purchasing Consortium, are thriving.

If there is one lesson to be learned from this variety of approaches, sometimes in conflict with one another, that lesson is that there is NO silver bullet in government business and ICT service sourcing.

It will be through a combination of delivery models selected based on a wide range of funding, policy, operational efficiency, legacy architectures and competencies related drivers that UK governments will continuously evolve towards a hybrid multi-sourced landscape. For more details take a look at the upcoming quarterly newsletter Searching for the Sourcing Silver Bullet: European Government and Education Industry ICT Pulse, July-September 2013.

Posted by Massimiliano Claps

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