Speaking at a Gartner event in London recently, outgoing HMRC CIO Mark Hall declared that businesses may have been able to outsource IT, but because of rapid developments in technology and an increasingly complex landscape, they will not be able to outsource digital.
With this in mind, coupled with the drive by the Cabinet Office to overhaul central government departments’ legacy systems with online, digital products, Hall has embarked on a transition process to bring HMRC’s long-running, £8 billion IT outsourcing agreement into the digital era before it is due to expire in 2017.
Awarded in 2004, Aspire was considered one of the ground-breaking outsourcing agreements of its time. Instead of HMRC contracting with a single supplier for all of its IT services, it introduced the idea of a ‘prime’ contractor (in this case Capgemini), which then engaged with a number of sub-contractors (BT, Accenture, Fujitsu, Level 3), and an eco-system of over 250 other suppliers.
However, almost 10 years later the contract is beginning to be perceived as ‘traditional’ and lacking in innovation. With HMRC relying on its systems to interact with 40 million UK citizens each year and collect over £475 billion worth of revenue, it is critical that that the department is successful in its restructure of Aspire.
A child of its time
“It has delivered some fantastic outcomes since 2004 and the level of service has improved massively – last year 98 percent of our projects were delivered on time and 98 percent were delivered with a low number of defects in the first three months,” says Hall.
“The relationship has been hugely supportive, our outsourcers have been with us through the good times and the tough times. They have adapted to our needs. That’s a lot of what the contract was designed for in the early 2000s.”
He adds: “However, increasingly it’s a child of its time. The challenge is that the whole world is moving and changing around this contract. It’s really difficult to keep pace with the market – how many people would have put cloud services in their contracts in 2004? Social networking? You wouldn’t have.”
Hall believes that although Aspire was designed to be flexible, it was designed in a completely different paradigm than the one that HMRC faces today. The problem is that Aspire has created “supplier dependency”, according to Hall, where most of the knowledge, skills and experience sits with the prime contractor, Capgemini.
He says: “How do we bring innovation from SIs and large vendors that are trying to sell us vanilla type IT?”
Hall explains that most of the innovation in the market is now coming from small businesses and start-up companies, which have strange and radical ideas, but their technologies could be applied to HMRC’s business to drive down costs and improve the experience for the customer.
Although there is a challenge in getting these smaller companies to engage with HMRC on a level that satisfies central government protocols, Hall and his team are determined to restructure Aspire over the next four years so that this innovation can be incorporated.
Transition not Big Bang
Unlike traditional outsourcing agreements, HMRC isn’t going to wait until 2017 (or close to it) to go out to tender and re-let its outsourcing agreements. Instead of a big bang approach, Hall and his team are going to slowly and carefully restructure Aspire to introduce innovation. This is going to involve both taking responsibility away from the department’s core suppliers and bringing it in-house, as well as changing the fundamental components of the contract.
However, Hall is already anxious that 2017 isn’t that far away.
“If you have done outsourcing before you know that four years is a blink of an eye in terms of transforming something of this size. We know we can’t wait and do nothing, we have to do something about it now,” he said.
“The future model has to exploit a market that is changing really rapidly. We haven’t got all the answers for how we do that yet, but we have got the base shape for the model.”
What HMRC is planning, is the transformation of Capgemini’s role as a prime contractor to a client side integrator – a model that is called SSI (service and systems integrator). Under an SSI model, Capgemini will still play a big role in HMRC’s future IT, but unlike traditional outsourcing agreements, most of the risk will lie with the department itself, not Capgemini.
Instead, Capgemini will work alongside HMRC’s IT team, providing skills and experience, but much of the digital capability is going to be brought in-house.
Underpinning this, HMRC will also work with a number of contractors directly, which will form siloed ‘service towers’ that provide distinct services such as desktops, networks, etc.
“What we want the integrator to be is that perfect client side adviser in support. We know we can’t have all the access to the skills, we can’t do this all ourselves, but we don’t want to give the whole job to somebody else to do,” says Hall.
“So what we are looking to do is create a blended client side organisation of integrator and customer, and then work with multiple providers and towers in a mixed economy going forward.”
He adds: “We don’t know what the shape of IT is going to be at this point, but what we do know is we want a pick and mix approach and we want shorter contract durations so that people can come in, do work for us, and then leave.
“We know that the secret is integration and we know that we have to own the integration, it has to be ours. You can’t outsource that level of integration, but we know we need a partner too.”
As well as in-house development and integration, Hall is also hoping to work with an eco-system of SMEs, which will sit alongside the service towers. Halls says: “We want competition, that means increasingly we need direct access to the market and we need to go to the market as a buyer and not use somebody that stand in between us. We need flexibility and agility to respond quicker to new market opportunities.”
Changing direction mid-flight
HMRC’s transformation of Aspire isn’t without its challenges and is an unconventional way to approach expiring outsourcing agreements. To put it in perspective, Aspire has up to 5,000 IT staff working on the agreement, plus it has over 200 suppliers, many of which will have been working with the same processes for the past 10 years.
Hall compared the transformation to changing direction mid-flight and said that to make the incremental changes he has in mind, this has meant intense negotiations with the department’s contractors.
“The immediate reaction of the outsourcer is that they have built a model, they understand that model, understand how it works, it knows what the margins are, knows what the costs are, it has reported its figures up to Group for the next 12 months – that’s what you’re up against,” he says.
“But, all credit to Capgemini. We’ve had great engagement with them around this change because they recognise the future and they recognise the paradigm shift that’s happening. They know things need to change.”
HMRC has already introduced the SSI model, which went live on 1 April, and it has now moved most of the innovation based activity to the department’s internal IT and development teams. These negotiations have already resulted in savings of £200 million.
The department currently has 300 software developers, but Hall is also on a huge recruitment drive to increase this by approximately 150 over the next year, so as to bring more of the technical skill back in-house.
“A lot of the challenge was the behaviour in the business, because our colleagues running big projects suddenly started asking: Why should I now take the risk of who delivers this and how? They wanted to deliver projects how they have always delivered projects, because they knew it was safe,” says Hall.
“It was quite difficult to convince colleagues across the business about the benefits of doing this, but we used nine pilots – on projects ranging from £500,000 to £30 million – to learn from and apply the lessons elsewhere.”
“The other challenge is convincing the market – it has to know you are serious. If you are a small business and you know you are going to have to spend X amount of money to compete for work, you want to be convinced of the opportunity. There will be concerns around the incumbent supplier.”
To overcome this challenge, HMRC is running a number of SME-facing events and it is talking to a lot of organisations in order to ensure smaller businesses that it is serious about introducing innovation to Aspire.
It’s not perfect
Hall’s bold moves have paved the way for Mark Dearnley, Vodafone’s UK CIO, who will soon be replacing Hall as Chief Digital and Information Officer. However, Hall recognises that the model he has developed may not yet be perfect, but believes it is important to get the cogs in motion so that when 2017 comes, HMRC isn’t digitally inept.
“We know we can’t wait and do nothing for four years, we have to do something about it now, which is why we transitioned our model. We know this won’t be a perfect model, because this is an in-flight change to an existing contract,” he says.
“But it is shaping our current contract in a direction towards what we want our contract in 2017 to look like. It gives us the exposure to the market we need, whilst building the skills and capability that we need in terms of this new way of working.
“This future model has to exploit a market that is changing really rapidly. We haven’t got all the answer for how we do that yet, but we have got the base shape for the model.”