The Budget €“ what does it mean for outsourcing?

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The announcement of the budget is something which always generates interest from the public as well as businesses. However, this year’s announcement was particularly poignant. Everyone has been affected by the recession and the new budget dictates how the UK will address this turbulent global economy, consumers and companies alike all kept a sharp eye on what came out of the famous burgundy briefcase.

The business market seemed to have pity taken upon it in this year’s announcement. Loss making businesses were offered life lines and £2.5 billion has been put forward to encourage business investment in industries of the future. This would undoubtedly be a relief for those struggling to keep afloat, those fortunate enough to be looking to invest will be pleased to see some government backing.

However, the public sector may not be feeling such relief. In fact, the pressure on public sector managers will be even greater than before. The UK chancellor announced an increased savings target of £15 billion of ‘efficiency savings’ per year to be reached across the public sector by 2013 to 2014. Procurement staff in organisations such as the MOD, notorious for projects haemorrhaging cash, will certainly be wary of a greater weight on their shoulders.

So what does this mean for the outsourcing industry? With such ambitious saving targets for the public sector, these organisations will be looking to outsource even more. Shared services between departments/authorities will increase, as streamlining and consolidating repeated processes will be one of the first areas looked at within their management boards and IT outsourcing will also be stepped up.

This sounds like good news for the market. After all, more outsourcing means more contracts for vendors. However, this increase in demand may have some hidden pitfalls that all parties need to be wary of.

As the public sector is having their spending wings clipped, the various organisations will be looking to renegotiate contracts or push vendors to give a lot for the smallest fee. This may mean that vendors will have to grit their teeth and reduce their price; however it could also mean a reduction in service, something that the NOA warned against at the start of the year.

Both parties need to reach a contract agreement amicably. Pushing a vendor to continuously cut back on costs will only leave a bitter taste in the supplier’s mouth and may even result in added value services being scrapped or offered at extra cost. Being open and honest during contract negotiations and thrashing out how good service can be maintained at the best price would be the best way forward.

At last year’s NOA Global Offshoring Day, the general consensus was that public sector organisations only ever consider big name suppliers. This needs to change. There are now innovative bespoke vendors offering tailored solutions to meet specific needs, these vendors may well provide specific services at cheaper prices and possibly with better results. It is therefore imperative that the public sector adjust their tendering process to cast their net wider. It is not always the best option to go with the biggest names and all will benefit from a more open tendering process.

The budget appears to have added to the belief that the outsourcing market will continue to thrive. However, as the nature of demand changes to focus back on cost, vendors and end users all need to ensure that cost cutting does not come at the expense of service quality.

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