Budget Woes to Drive Outsourcing, Clouds

IT suppliers have welcomed the Budget as a sales opportunity, homing in on the £7.2 billion efficiency savings being targeted in Whitehall.

IT suppliers have welcomed the Budget as a sales opportunity, homing in on the £7.2 billion efficiency savings being targeted in Whitehall.

On Thursday the Chancellor confirmed in the Budget that the government would seek £15 billion per year of 'efficiency savings' across the public sector by 2013 to 2014, including some significant back-office and IT savings.

The efficiency drives will have a significant impact, both good and bad, for the ICT industry, according to Ovum analyst group.

Suppliers will be expected to "feel some of the 'pain'" of departments and agencies. ICT outsourcing contracts will be scrutinised for potential savings and renegotiated.

"The days of substantial expenditure over and above the initial contract value could be coming to an end. Suppliers with existing major outsourcing contracts should be preparing themselves for delivering more for less revenues and lower margins going forward," wrote Ovum analysts Peter Clarke and Georgina O' Toole.

But there is also potential for more outsourcing as departments and agencies look to shift from internal spend to external suppliers. Ovum estimates that the UK public sector software and IT services market was worth just over £7 billion in 2008, with a further £1.7 billion spent on business process outsourcing. Most of this potential is in local government, including police forces and educational bodies.

Suppliers also saw the potential for public sector spending.

The Budget could drive a public sector migration towards cloud computing environments to cut out the costs of application purchase, maintenance, management and infrastructure, according to Andy Jacques, senior VP at Salesforce.com.

"Done well, the public sector can modernise, reduce costs and actually improve efficiency," he added.

Shared services, flexible working and simplified application delivery were the best route to the savings, according to consultancy Centralis. "These initiatives can improve the overall cost base, assist in changing working practices and reduce vital costs such as accommodation," said Ewen Anderson, managing director.

Steve Ash, government sales director at Citrix, said if the government increased its use of virtualisation it would be leaner and "more joined up". The government, he argued, ought to focus on "speed, reliability and ease of use".

But technology changes are only part of the picture, according to Simon Wayne, managing director at Parity's solutions division, who said the whole procurement process needs to be shortened too.

"Public sector IT has such a lengthy procurement process that it distorts the context of [chancellor Alistair] Darling's cost-cutting initiatives."

Dave Baldwin, UK and Ireland managing director at IT services firm Getronics, said the government needed to widen its options for preferred IT suppliers outside its "traditional comfort zone" of the largest vendors. "This was the goal of previous initiatives ... but now it needs to be delivered in practice," he said.

But while many suppliers offered their own views on cost cutting, others urged caution in Whitehall before slashing spending.

Stephen Midgley, senior director at Absolute Software, said cutting security expenditure could lead to a disaster. "Cutting IT budgets flies in the face of claims that IT security will be improved across the public sector," he said. "Cases such as the [HM Revenue & Customs] 'lost' CDs will become increasingly common if organisations aren't given the money to combat security issues."

Alan Smith, senior vice president, UK and Ireland, UC4 Software, a process automation software maker, said cuts could lead to a fall in the quality of public sector services. "All too often organisations opt for the 'red pen approach' to budgeting, slashing essential IT systems and staff without much consideration for consequence," he warned. "While this approach may look good on paper, it can have dire repercussions for the ... ability to deliver."


This story, "Budget Woes to Drive Outsourcing, Clouds" was originally published by Computerworld UK.

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