UK Public Sector Supplier Market: challenges and opportunities

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UK Public Sector Supplier Market challenges and
opportunities

• Nick Jotischky
• Senior Analyst, Kable

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Agenda

• The Challenge
• The Players
• Public sector ICT facts and figures
• Key opportunities
• Notable trends
• Reasons to be gloomy Central government
• Reasons to be cheerful Local government

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Public Sector A challenging market

• CSR07 Impact
• Increasingly tight budgets will result in
  slowdown of public spending
• Clear focus on transforming government to improve
  processes
• Resulting efficiencies must enhance citizen
  experience of services
• Increased usage of local delivery and electronic
  channels
• End of the age of mega IT projects?
• Government IT projects under close parliamentary
  scrutiny
• Do the latest problems surrounding NPfIT sound
  the last rites for the large IT project?

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Supplier Market Kable rankings 2007

• 2007 rank 2006 rank Supplier Est 2007 public
  sector ICT revenues (m)
• 1 1 BT 2,100
• 2 2 EDS 1,480
• 3 3 Fujitsu Services 1,200
• 4 4 Capgemini 900
• 5 5 HP 755
• 6 6 IBM 650
• 7 8 Capita 646
• 8 7 Dell 645
• 9 9 Serco 580
• 10 19 CSC 400
• 11 10 Computacenter 390
• 12 12 Logica 372
• 13 15 Microsoft
  355
• 14 20 Atos Origin 310
• 15 11 Airwave
  Solutions 305
• 16 16 Research
  Machines 251
• 17 outside top 20
  SCC 240
• 18 18 Cisco
  Systems 220

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Supplier Market Trends
A dynamic marketplace

• Increase in market consolidation
• Recent high-profile acquisitions by HP, Steria
  and Mouchel
• Public sector aim to condense supply chain
• Contracts awarded to a smaller number of
  suppliers, leading to a rising number of
  consortia winning public sector deals
• Government pledge on SME segment
• Budget promise that 30 of public sector deals
  would go to SME companies is this practical?
• 2007 contract and tender analysis points to local
  government as key public sector growth driver
• Four of the seven largest contract awards in 2007
  came from local authorities and more than a third
  of all public sector tenders

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Market Consolidation Key trends

• An acquisitive marketplace (eg Steria acquisition
  of Xansa)
• Provides Steria with shared service strength (NHS
  SBS)
• Gives Steria a lift in terms of offshoring
  capability
• Growing interest from private equity funds
• Recent acquisitions of Civica, Northgate and
  Vertex
• Reveals perception of ICT supply market as
  growing and sustainable
• A unified approach to Europe
• Integrated public sector divisions allow reuse of
  solutions across borders
• Large infrastructure projects can be used as
  references (Stockholm)
• An international dimension to the shared service
  agenda
• Public sector market growing across continental
  Europe with ICT expenditure reaching 114bn

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Trends in Public Sector ICT Spend
Local government takes the lead
Public sector ICT market currently worth
17.6bn with this forecast to rise to 20.3bn in
2012/13. Services represent the largest category
of public sector ICT spend, amounting to 42 in
total.
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Public Sector ICT Spend by Vertical
Spending trends
Decongestion of urban areas and traffic
management are key areas of spend
MoD leader in shared services agenda - 300m
annual savings planned
Respondents to Kable survey suggest that
increasingly ICT is a resource to be controlled
due to efficiency agenda
Next-gen CCTV, emergency alert and biometric
authentication
Kable projects spend on data and mobile comms to
increase substantially growth drivers - customer
contact, data sharing, mobile working
ICT is a key factor in modernisation of school
estate BSF and PCP programmes
Rising demand in healthcare needs from aging
population and growth in chronic disease levels
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Opportunity 1 - Shared Services Agenda
Slow to take off, but here at last?

• Integrates public sector supply chain
• Helps to create efficiencies (back-office and
  front-office)
• Helps to improve service delivery
• Rapid progress in local government
• Results business transformation, estate
  rationalisation and improved customer contact
• Recent examples SouthWest One (IBM), Wiltshire
  CC (Logica), ERP shared services between Cambs
  and Northants CC (Fujitsu)
• Central government has an important part to play
• NAO recognises considerable savings NHS/ Prison
  Service
• Flex can take shared services agenda to new level
  

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Opportunity 2 - Outsourcing Private sector
more involved in government service delivery

• ICT outsourcing/BPO represents mature market
• 35 contracts likely to be up for renewal over a
  year market size 3.6bn
• Fastest growth likely in education sector
• BSF programme (much of this will be for
  construction services)
• Local government and health contribute highest
  proportion of outsourcing spend (74bn)
• LG 32 health 28 - family healthcare/welfare/loc
  al roads
• Suppliers need to understand strategic policy
  initiatives
• Flexibility is often required in adapting to
  public demand during life of contract
• Role of third sector
• Better equipped as delivery vehicle for social
  cohesion, personalisation and environment issues

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Opportunity 3 - Mobile/Flexible Working
Productivity, cost savings and greater efficiency
in service delivery

• Size of total market
• Kable estimates public sector spends 1.4bn pa on
  mobile/flexible working technology
• Three biggest spenders are emergency services,
  defence and local government
• Mobile working market
• Ideal for public sector disciplines requiring
  high level of personal customer contact
• Investment drivers greater staff productivity,
  improved customer focus, greater accuracy in
  collection and use of data, personal safety
• Largest users of mobile working technologies
  emergency services, local government
• Flexible working market
• Greatest potential for education and local
  government markets but limited business case
• Central government keen on flexible working
  arrangements
• Investment drivers accommodation cost savings,
  increased staff morale and favourable impact on
  transport/environment

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Opportunity 4 - The Personalisation Agenda
Transforming service delivery

• Concept of self-directed services giving public
  greater control of service delivery received
• A concept to touch education, rehabilitation and
  job seeking deliverables
• Agenda is most advanced around social care
  services
• Reform of adult social care services
• Local authorities working in partnership with
  customers/other agencies
• Driven by aging population and rising costs of
  care
• Fundamental shift in the role of adult social
  workers and third sector
• Impact of reform on supply market
• Increased spend on homecare supporting push for
  independent living
• Increased spend on workflow and case management
  software
• Increased spend on preventative and warning
  telecare systems
• Increased demand for financial/management/advisory
  services to provide people with greater control
  of personal care

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Opportunity 5 Green Agenda A reduction in
energy costs and increased use of renewable
resources

• Climate Change Bill provides framework for low
  carbon economy
• Target to reduce CO2 emissions 60 by 2050
• Investment in low-carbon technologies and focus
  on more efficient energy use
• Evidence of procurement process scoring on carbon
  reduction plans
• Role IT supply market can play on road to a low
  carbon economy
• ICT sector responsible for 2 of CO2 emissions
  (same as aviation)
• Green IT programme use of thin client (Flex) in
  Cabinet Office
• Greater use of video/audio conferencing could
  reduce need for travel
• Increased adoption of virtualisation software to
  free up data space and integrate large server
  estates
• Role local government can play on road to a low
  carbon economy
• Local government seen as delivery arm in leading
  reduction in CO2 emissions
• Beacon councils set up as exemplars Woking BC
  achieved 4.7 pa reduction in CO2 emissions and
  3 pa energy savings since 1990
• Councils have a role to play in encouraging use
  of renewable energy through planning guidelines

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Offshoring Does it have a public sector role?

• Offshoring is alive and well in public sector BUT
• political sensitivities around employment issues
• unease around data security and personal
  information shipped abroad
• Offshoring already used in high-profile public
  sector projects
• Mastek part of consortia working on software
  design and development for London congestion
  charge, NPfIT and Swift2Move
• Offshoring often hidden with benefits coming via
  prime contractor
• Significant move from supply market to ramp up
  capabilities Steria, EDS, Fujitsu, IBM, CSC
• Greater choice in offshoring destinations Latin
  America/Eastern Europe
• How can offshore companies become prime
  contractors?
• Proving capability by pointing to private sector
  successes
• Increasing UK headcount and working as part of
  consortia
• Offering clear competitive advantages

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Transformational Agenda What
are implications for the supply market?

• What is the agenda?
• To transform public service delivery more
  customer-focused and efficient
• Public sector embraces lean
• Increased focus on customer insight (use of
  websites, contact centres)
• Need for a compressed supply chain (push towards
  data sharing)
• Condensed product offering (push towards shared
  services/software integration)
• IT to be used as an enabler
• IT should limit need for capital expenditure and
  improve processes making government more
  accessible and collaborative
• Implications on procurement
• Service providers need to build closer
  relationships incumbents judged on managing
  relationship as much as operational expertise

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Central Government
The message is not all doom and gloom

• Remains a sizeable market
• ICT expenditure of 3.6bn, 21 of total public
  sector spend
• DWP, HMRC and Home Office account for 60 of
  expenditure
• Market drivers efficiency, service delivery
  improvements, outsourcing
• Central government remains important to supply
  market
• CG departments have high profile in taking lead
  on policy initiatives
• ICT strategies influenced by key departments
  (Cabinet Office, OGC, NAO)
• Contract with a CG department represents
  significant reference for further work
• National Identity Scheme opportunity
• Crosby report recommendations change tone of
  initiative
• Citizen needs must be clear for maximum ID card
  usage

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Local Government
Market restructuring adds to growth potential

• New unitary councils alter local government
  landscape
• Business case for unitary councils built around
  efficiency savings
• Integration of local government responsibility
  fewer, but larger contracts (in scope and value)
• Opportunity around shared services and
  transformational outsourcing deals with new
  unitary councils
• Local area agreements change service delivery
  focus
• LAAs make local authorities more muscular
• Suppliers need to become more involved in
  outcome-based solutions
• Suppliers need to work in partnership with local
  authorities, other public sector bodies and the
  third sector over specific policy initiatives

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Final Remarks what does the future hold?

• More private sector deals across whole regions
• Will there be more SouthWest One contracts?
• Could suppliers encourage joined-up service
  delivery and act across whole regions?
• Third sector to play greater role in service
  delivery
• Government spends 10bn per year on third sector
  for public service delivery
• Implementation of LAAs create higher profile for
  third sector
• Offshoring to play a greater public sector role
• Increased investment likely from pure-play
  community

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Thank you for your time today
Any questions or comments?
nick.jotischky_at_kable.co.uk
Customer service contact
claire.thomas_at_kable.co.uk