Public Sector ICT Market Remains Tough But There Are Opportunities For Suppliers
Suppliers who can help the government achieve its priorities would be winners says Georgina O'Toole as she discusses the impact of the coalition government and the overalls state of the market.
TechMarketView has published two reports focused on the state of the UK Government software and IT services (SITS) market. UK Government ICT strategy: progress and direction evaluates the progress made to-date by the government towards meeting the objectives of its ICT strategy, while UK Public Sector Market Trends & Forecasts, consolidates TechMarketView’s latest forecasts and trends for the UK public sector SITS market. Together, both reports provide a detailed analysis of the state of the UK public sector SITS market through to 2014.
Slow and steady progress
‘Slow and steady’ are the words TechMarketView chooses to sum up the government’s progress so far towards achieving the objectives of its ICT strategy. The Cabinet Office Efficiency & Reform Group (as well as the Government Procurement Service) has been busy putting the building blocks in place to move on from the ‘Quick Wins’ phase of the past year - cutting money out of Government ICT to meet budget cuts – and preparing for the ‘transformational’ phase, aimed at improving the efficiency and effectiveness of Government ICT for the long-term.
Reviewing the objectives of the Government’s ICT Strategy, TechMarketView highlights the following stand-out achievements over the last year:
• Increased centralised control
• Simplification of the ICT procurement process
• A presumption against large unwieldy projects
However, TechMarketView believes the government is struggling to move onto the next phase. TechMarketView highlights that the following necessary changes are proving more difficult to achieve:
• Agreement on technology and data standards
• Disintermediation of current large IT deals
• Rationalisation of existing datacentres
Good progress has been made in the initial cost cutting phase. Talk within the Cabinet Office is now of ‘acceleration’... whether that be in the speed that data centres are consolidated, in the speed with which government ICT moves to the ‘cloud’, or in the speed with which Public Services Network connectivity is achieved We agree that the pace set by the Efficiency & Reform Group needs to pick up; not least because otherwise ICT market changes will outpace its progress (technology standards will evolve, cloud commercial models will move on etc). And UK Government will only benefit from advances in technology if it can adapt its systems, processes and procedures quickly enough to cope with a new way of working.
However, we question whether UK Government has the capacity to accelerate the implementation of the ICT strategy into the all-important transformational phase. CIOs continue to work against the backdrop of a relatively unchanging political landscape where political, cultural, legal and economic barriers to change remain. Bureaucracy remains a feature, the nature of politics means that short-termism often dictates (but that means projects with longer timescales are left on the back-burner), and ‘horizontal government’ (as opposed to the existing vertical silos) requires a significant step-change in culture.
Change in emphasis on the G-Cloud programme
While TechMarketView has highlighted that some aspects of the ICT strategy are proving difficult to achieve, it welcomes the Government’s distinct change in emphasis in relation to the G-Cloud programme.
A sense of pragmatism seems to be finally entering the Cabinet Office Team’s thinking”. The Efficiency & Reform Group has taken time to reflect on the ‘end game’ and is now focusing on changes to commercials and methods of procurement rather than on the next ‘sassy’ technology.
As TechMarketView highlighted in its UK SITS Market Trends & Forecasts 2011, it is possible to deliver a Cloud commercial model from ‘legacy’ IT – indeed suppliers have been doing this for years through financial engineering,” claims O’Toole. “This realisation takes some of the emphasis away from moving UK Government ICT onto the latest technology platforms. Instead, the emphasis is being placed far more on methods of procurement and the legalities involved. The Cabinet Office Procurement teams are now very much at the fore.
Real term decline in public sector SITS market over next four years
TechMarketView’s latest forecasts and trends for the UK public sector SITS market, produced with developments in the Government’s ICT strategy in mind, show that the market declined by an unprecedented 5.5% in 2010, resulting in a market worth £11.5 billion. Additional findings from UK Public Sector Market Trends & Forecasts include:
• In 2010, UK central government market was the worst hit by far – due to Cabinet Office project reviews and contract renegotiations – suffering a decline of 11.2%. The same factors will impact 2011, resulting in a similarly steep decline in the market of 9.0%
• Over the next four years, the market will grow by a CAGR of just 0.6%. It will take until 2014 for the market to reach positive growth territory in ‘real’ terms’.
• Limited growth in the market will only be possible due to an increased uptake of business process services (BPS). The BPS market will grow by a CAGR of 6.4% over our forecast period, as most areas of the UK public sector look to outsource non-core back office services to the private sector.
• Taking BPS out of the equation, the rest of the IT services market - infrastructure services and application services - will decline by a CAGR of 2.2% over the same period, with a peak of just 0.9% growth in actual terms in 2014. Deflationary pressures such as the move to ‘cloud-type’ commercial models, application and infrastructure rationalisation, the increasing use of offshore services, the trend towards smaller ‘agile’ development projects and the reuse of existing assets, will be to blame.
Within the UK public sector, most growth in the SITS market over our forecast period will be thanks to business process services activity (though there will be strong niches in other areas e.g. business analytics). Our view is that Activity in business process services – in terms of consultancy and advice, implementation and management – is picking up far more quickly than we had previous expected in nearly all subsectors.
UK Government remains a tough market for SITS suppliers. To grow business in this market will require careful identification of the subsectors holding the most potential. Suppliers will also need to maintain a good understanding of the progress made in implementing the ICT strategy. The most successful suppliers will be those that can support UK Government in achieving its priority objectives.