Operational Efficiency Review - Part Two

(By Richard Holway 6.00pm 22nd Apr 09) I covered our first reactions to the Operational Efficiency Programme earlier today after a quick read of the 92 page report last night.

Today I had the opportunity to talk with Martin Read – the author of the Back Office and IT bits of the report. The problem with this conversation was that everytime anything interesting/controversial was discussed, Martin wanted it ‘off-the-record’!

So let me give you my views without referring to which might – or might not - have been Read’s views too!

Both the production of the report, and even more so the implementation of its recommendations, is highly political. I doubt that the current IT management in HM Government took kindly to an outsider coming in doing this kind of exercise. I suspect Read might have ruffled the odd feather. Well, he did at Logica too!

I think that what comes through in the Report is the lack of understanding or even knowledge that HM Government currently has on how much it currently spends on its back office activities. I would guess that is why Read’s recommendations are so focused on accountability. On Departments producing auditable information on what is spent, on what and to what result. Indeed, there is an opportunity for our industry/readers in the supply of those accurate measurement systems.

There is an old adage in Government that what’s important at any one time is what the respective minister wants to know. Maybe ‘cost of back office services’ hasn’t been very high on their agenda. Losing a memory stick makes the 6 o’clock news – but billions spent on HR or payroll is not. I think Read hopes that he can change the DNA of Government so that questions of cost are asked constantly. Ie just like private companies are used to constant Operational Reviews. But it’s a big ask!

Great store is placed in the Report on Shared Services and the role that the private sector – ie the outsourcers – can play. This is clearly the really positive point out of all of this for our readers; particularly the IT services players. Georgina O’Toole, Practice Leader at Ovum (and one of the high;y respected old Ovum Holway team), says “Overall, Ovum’s UK public sector S/ITS market size of almost c£7.3bn in 2008 (excluding BPO) accounts for about 45% of the total IT spend identified by the Operational Efficiency Report. In other words there is still a lot left to outsource leaving substantial potential for a continued internal to external shift in spending. In addition, Ovum’s BPO market size of £1.7bn is a drop in the ocean compared to the estimated £18bn spent on back office functions across UK Government.”

Georgina thinks there will be “a far higher growth rate in the local government market than in central government as there is more potential for spend shifting from internal to external (this is a trend that will impact local police forces and local education as well). On the other hand, about 60% of current central government IT is currently with external suppliers. As there will always be some internal spend for management purposes that is quite high already”.

Shared Services will really only happen with private sector outsourcers acting as, at the very least, the catalyst. So what a fantastic opportunity!

We noted, in our earlier piece, that the word ‘offshoring’ did not occur in the report. I put this to Read and I got the feeling that this was yet another way in which the report had been politicized. But, once services are outsourced, it often is up to those outsourcers where the work is sourced. Indeed Steria, EDS, CSC, Capgemini, Atos etc – the leading suppliers of SITS to the public sector – are all major users of offshore resourcing. In other words, it is difficult to see how the savings envisaged in the Operational Efficiency Review can possibly be achieved without a considerable extension in the use of offshoring.

I must admit I am a bit cynical about these Reviews (Many of you might remember my sarcastic comments last June when Read was appointed. To reread Click here). I’ve seen too many. Why is that ‘Cost savings’ always seem to result in increased public sector spend? I don’t intend to hold my breath over this one either!