It's an unsettling time for public sector suppliers, but those who take their chances will thrive, argues GlobalData principal analyst Rob Anderson
Indulge me for a moment while I take a trip back to 1990, when Manchester crooner Mick Hucknall penned the lines, "The end of an era, our future no clearer". He was referring, in the song Wonderland from Simply Red's multi-platinum album Stars, to the downfall of Margaret Thatcher, but the sentiment has resonance in the Britain of 2018. Short of an unprecedented political coup, we are still heading to the exit door of the EU despite no one seemingly having a clear idea what political, economic and social havoc that will wreak. So we live again in an age of uncertainty.
For suppliers to government, these are unsettling times. Yet history suggests that such periods of upheaval can also deliver opportunity for the bold and the brave, so I look forward to the coming year with optimism for those in the IT supply chain. It's certainly true that radical political reforms away from the Brexit table are highly unlikely with the Tory government limping along after the catastrophic snap election. However, transformation of public services continues apace, and the civil service, stretched to near breaking point by years of cuts, will need all the help it can muster.
With pressure on the Chancellor of the Exchequer to increase investment in public services, I expect a modest increase in the cash available for agencies to refresh or renew technologies. GlobalData's five-year forecasts, however, indicate that there is likely to be a realignment across the various categories of expenditure and a slight decline in external spending to balance the costs of increasing internal IT staff numbers.
While there is still an aspiration to insource new service development, an air of pragmatism is emerging that will see a mixed economy of IT delivery via multiple sources. This has reinvigorated the large suppliers whose prospects for growth had stalled in the early days of a GDS-influenced cohort of GovTech advocates in Whitehall. Thus we have seen a resurgence in competition from the traditional systems integrators, now joined at the party by not only cloud-focused multinationals such as Microsoft and AWS, but also younger digital agencies that have cut their teeth on G-Cloud contracts and seek growth in the areas of both revenues and influence.
The strategy of increasing engagement with SMEs has not waned, with the aim of 33 per cent business through this channel by 2020 being restated recently, but the focus has not been as sharp this year because of distractions such as Brexit and a weakened government. The Cabinet Office's own published data shows the proportion of contracts won by SMEs fell by a couple of percentage points in 2015-16. Nonetheless, the Crown Commercial Service continues to open up new routes to market for smaller enterprises, the latest being the Technology Services 2 (TS2) framework which aims to attract those public bodies disaggregating single outsourced contracts and features 60 per cent of suppliers with designated SME status. The Crown Marketplace will seek to make further advances in ease of doing business for smaller players as it makes its entrance in the coming months.
In my piece for this publication last year, I proposed that cloud and data exploitation would be key themes, and while both have seen growth over the last 12 months, many feel the public sector is still lagging in the latter. The passing of the Digital Economy Bill, with its clauses facilitating greater sharing of data across government, means the door is now open to drive better, faster, more innovative uses of these rich datasets. Suppliers that can demonstrate robust and secure data storage, manipulation and analytical solutions should be well placed to ride this wave.
To end on a note of caution, the past few months have seen two notable casualties in the public sector's supply chain: Misco, with its long and proud history being put in administration just days after being awarded places on the TS2 framework; and Datacentred, a hosting company that built its business around one predominant client, HMRC, and floundered when that contract was lost. These cases at opposite ends of the supplier spectrum illustrate that the public sector market offers great rewards, but consequent risks. In times of uncertainty, be bold, be brave, but also don't overstretch and remain in control of your own destiny; I wish you all good prospecting.
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