New government should cut IT costs by re-evaluating its long-term suppliers

Dear Tim,

Thank you for the invitation to share notes on the potential impact of this new government. As ever, a vigorous debate! You had taken exception to my recent observation that: "I see the same conservative caution today amongst the UK government's technological fraternity that I inherited at ICI in the early 1990s. And that conservatism may put at risk a very real opportunity to strip out major elements of public sector costs while increasing the responsiveness of government services."

You asked me to write a short brief that you could use in your internal debate.

As Brutus says in Julius Caesar: "There is a tide in the affairs of men which, taken at the flood, leads on to fortune...". And I argued yesterday that the government stands at one such turning point in the commerce of the technology sector.

I faced just such an opportunity at ICI in the early 1990s. I positioned a series of transforming outsourcing deals as business propositions to be marketed on the basis of informed market knowledge. I brought in an experienced M&A negotiator to do the heavy lifting. He and I rewrote the group IT landscape to ICI's major financial benefit and gave the company new manoeuvrability as it acquired and shed businesses through the decade.

Read Richard Sykes' previous letter to a public sector CIO

Two key developments have pulled the foundations out from under the business models of the long-established IT services companies that dominate the government's existing outsourcing arrangements. One is technological - virtualisation has re-written the book on the highly automated manufacture of technology-enabled services. The other is commercial - the exploitation of the first by the likes of Amazon, Google and Apple to create a new marketplace in highly automated consumer services delivered over the web. These ventures are now moving to attack the enterprise and government markets. Here is the opportunity!

I was challenged recently to explain why consumer services were the initial venture battleground, rather than services for the business enterprise. The answer is, of course, that the individual consumer suffers neither the restraints of legacy systems nor the vested interests of an IT department to hold it back. Get the latest computer and a passable browser and the world of e-commerce is at your feet. And therein lies the heart of the challenge and the opportunity that this new virtual marketplace of technology-enabled services presents the current government.

It is a major consumer of technology-enabled services. It is on the record that it must succeed in stripping out costs on a major scale to reduce the deficit. It thus has powerful cards to play, provided the suppliers believe it is genuinely serious.

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