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Public sector efficiency savings: back to the future?

Updated Thursday, 21st May 2009

Ivan Horrocks asks whether it's time to review the government's policy on outsourcing IT services

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The drastic cuts in public services that are now touted as necessary to meet the cost of the folly of the banks, and the “light touch” of regulators and government, contain some familiar and unfamiliar features for those of us with long memories of public sector reform: outsourcing and reengineering on the one hand, and a cut in spending on, and better value for money from, IT on the other.

“the greater the overall power of the IT industry in a country, the lower the performance of government IT systems.”

The claim that “a 20% saving on the estimated £16 billion spend (equivalent to £3.2billion) [on IT] appears to be achievable.” appears in a document published recently by the Treasury - Operational Efficiency Programme: back office operations and IT.

This report also estimates that back office operations across government and the public sector cost £18 billion, on which savings of 20 to 25 per cent – “a reduction of around £4 billion” - are achievable. One of the primary ways in which this will be achieved is through business process reengineering (BPR), and surprise, surprise, outsourcing. Neither is a new feature of the public sector, of course. BPR was a staple of the reforms of the 1990s, as it was in the private sector. And in both sectors many BPR initiatives failed to deliver the promised benefits. Outsourcing has an even longer pedigree. Indeed, as I’ve discussed here previously, the UK government and its advisors have been particularly zealous advocates of this approach to organisational change.

While the Operational Efficiency report’s authors have obviously taken a rigorous approach to collecting and analysing the data on which their conclusions and recommendations are based, a number of unrecognised contradictions and omissions did catch my eye.

First, the report notes that “Devolution and fragmentation across the public sector mean that there is a wide variation and substantial complexity in back office operations.” (p.38).

Houses of Parliament at night Copyrighted  image Icon Copyright: Photos.com Unfortunately it then fails to acknowledge that much of this is due to the extent to which functions have been outsourced, and the lack of serious consideration that is too often given to the wider - or “hidden” –-costs and implications of this.

Second, the report goes to some lengths to explain why it is difficult to estimate the amount spent on IT and why international comparisons are “very difficult”. Nevertheless, based on an analysis of data from a number of sources it concludes that “the UK public sector’s IT spend is much more than other similar countries and that the UK does not get a proportionate return from this much higher spend.” (p.60).

Given that the report also notes that “£13.2 billion of public sector IT expenditure [of the estimated £16 billion] was committed to external contracts in 2007-08” (p.55), this isn’t exactly a ringing endorsement of the value of outsourcing, either. Furthermore – and despite many references to the lessons that can be learned from the private sector – there is no mention that I can see of the now established trend (particularly amongst large private sector companies) to insource IT requirements.

The most significant omission that struck me was, however, the report’s ignorance of a piece of research that is of direct relevance, particularly to the finding above: Digital Era Governance: IT corporations, the state and e-government. Published in late 2006, and based on research spanning five years funded by the UK’s Economic and Social Research Council, this book details and discusses findings from an international comparative study of, amongst other things, the performance of government IT. Amongst its many findings is this: “the greater the overall power of the IT industry in a country, the lower the performance of government IT systems.” (p.6).

It’s no secret that in the UK by the early 2000s five IT services and supply companies held 90 per cent of the government market: a situation that is unlikely to have changed, given the figure for external contracts I note above. So, rather than pursue the tired logic and questionable returns from outsourcing and reengineering, why not address an underlying problem. Put in place effective mechanisms to address this dominance and dependency. Unfortunately, without a shock to the system of the magnitude of the MP’s expenses scandal - which wasted spending on IT dwarfs, of course - I suspect that may never happen.

 

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