IT Players up against UK Government Spending review

The UK government finally announced their Comprehensive Spending Review this week. It’s a multi-year spending plan for the entire government, so every department has been waiting to hear how they would fare, and the suppliers to those government departments have also be watching and waiting. Nervously.

Now the bad news is public. We know that several major departments are facing very large budget reductions. That has yet to filter down to the suppliers yet because the analysis has only just started, but in the days leading up to the announcement I spoke to dozens of government suppliers and though I noticed several common trends, I’d like to comment on one.

I mentioned the 'death of IT Outsourcing' a couple of weeks ago in these pages. As the government spending announcement came closer and closer, I heard this more and more often.

This is what the EMEA CEO of one of the major Indian technology firms said to me: "It will become far more difficult for pure IT players to survive. Players like Atos Origin and Capgemini have already sewn up the major contracts like HMRC (IRS equivalent) and that won’t change for a long time. I can’t really see a future in IT services 5 years from now. Every govt buyer will be focused on BPO and buying end-to-end services. People will want a solution, not just an IT supplier they need to manage."

The same executive was sceptical when I asked if government IT services would move to an ‘app store’ type model: "I don’t know too much about the app store idea, but I do think the jury is out on whether it will really work. What is certain is that every government dept will be looking more at BPO… shared services will be flavour of the year. Almost every major department has already gone into the market and got the consultants on board already."

And talking of the Indian IT firms, companies predicted to start winning many more UK government contracts, this is what the director of one of the European IT majors said to me: "There are a couple of companies out there with a war chest - Fujitsu and Wipro are the two to watch in the BPO market. They will buy into deals for shared services because they both recognise the strategic importance of the IT and BPO integration."

There is that theme again. The government is shifting away from pure IT deals and completely into services and business processes, hitting the sweet spot for suppliers like Wipro. The same executive explained to me that there is an increasing chance that new IT faces are going to win contracts: "If you are going to outsource a major government service – are you going to use an IT firm that has not done a lot of BPO. Without references you can’t win anything at present, but the rules are being bent and changed as we speak. Experience overseas may well count as well – such as eGov work in India. It doesn’t matter where the experience was gained. This is a very interesting time and if you play by the rule-book, the barriers to entry are huge… on the other hand, the savings are needed so new players will be explored."

The views of the suppliers were backed up by one of the major public sector consulting firms. Their CEO explained to me: "IT is only a part of the overall process. So the government will be contracting for services, not IT. IT will always be included as a part of the service – so suppliers offering just an IT service are going to find a drastic reduction in contracts available. There will be many more opportunities for BPO suppliers offering end-to-end services and offering IT as a part of the deal. In the past it has also been difficult for IT companies to change their spots and to offer BPO services too."

As I mentioned two weeks ago, the British government is steering their attention to services and the total cost of providing a specific service to citizens. After speaking to the major players in the market, I’m convinced this is a global trend that will affect IT suppliers whoever they are selling to, public or private.