Death by 1,000 cuts

Customers will always want a better deal but too much can drain channel profits dry. Fleur Doidge reports

Slashed budgets should ideally help create a leaner and hungrier organisation, agile enough to leap here and there in a dynamic business world - or so the conventional wisdom goes. For years, it has been mostly about making savings and controlling costs to build a better base for growth, and the channel has never heard the end of it.

So it is disappointing to hear procurement leaders complaining that IT suppliers are not helping them make the savings they have been mandated to achieve. After all, if cuts are too deep, any organisation could bleed to death.

In June, the Cabinet Office boasted of savings for the British taxpayer for 2012-13 of £10bn -- £2bn more than it targeted. It said savings have come primarily through restructuring, reshaping and reviewing projects, recruitment, purchases and consultancy, removing inefficiencies where possible and selling off resources surplus to requirements.

It praised the "business services" approach of the likes of Capita and Serco, but in virtually the same breath Bill Crothers, government chief procurement officer, said IT suppliers had been dragging the chain.

"We are still seeing IT and telecoms being somewhat resistant," Crothers said. "ICT still has a way to go. We've used the phrase oligopoly, and we still see that."

Asked to explain these comments, a Cabinet Office press contact said he thought Crothers' remarks were self-explanatory. However, CRN begs to differ. So does Jon Leary, a lead consultant at infrastructure provider CSA Waverley who works closely on public sector deals.

"From our perspective, the Cabinet Office remarks are wide of the mark," he says. "Our approach to IT project delivery for NHS Trusts is always to deliver quantifiable cost savings over the longer term. Our customers will always expect a demonstration of a strong RoI and a business case, before any project takes place."

Obviously a customer may have to make an initial capital investment in new IT, but CSA always designs its offering to provide longer-term cost benefits. The past eight years has seen many of its public sector customers achieve major operational and efficiency savings - specifically from server virtualisation and hardware refresh projects that result in lower daily running costs.

So Leary says it is hard to see Crothers' remarks as quite fair on the channel companies which must maintain profitability and investment at the same time as making savings for customers - a difficult task at any time, but one that is constantly front of mind for CSA Waverley with its 80 per cent public-sector business.

"Does he just mean we should make less money?" Leary asks. "Yet it's a very competitive marketplace the reseller works in and to win a project you have to be competitive to start with."

Lack of innovation, lack of investment
One troubling factor, Leary notes, is that government departments - and their procurement officers - do not really lend themselves to behaviours that promote bleeding-edge investment, particularly with multi-year contracts. And even when they are convinced of a need to innovate, significant investment can be required before the organisation can really start to make savings.

The channel is not some sort of parasitic blood sucker. IT providers have to walk a knife edge to prove they have what it takes to help their customers - and those that cannot do not usually survive long, let alone prosper.

Prahlad Koti, vice president for the government and health business at enterprise applications ISV and services provider Mastek, agrees in large part, adding that much more work needs to be done at middle management level, to get the buying criteria and specifications right.

Changes such as disaggregation and G-Cloud are helping, but more needs to be done to open the area of public sector IT up to smaller, innovative players with a really strong track record across industries.

"The failure of large-scale deployments in the public sector means that IT suppliers have struggled to cut costs and deliver savings," Koti concedes.

"To truly succeed in cutting costs in the long-term, the UK government needs to focus on adopting an agile approach for complex programmes and shared services delivery platforms, for both back and front office processes."

The channel has more to do here to become the truly trusted advisor, he suggests, embracing change and promoting new delivery models that will support government's Digital by Default agenda.

Greg Howett, chief executive of load balancing specialist JetNexus, similarly says the public sector should look further into its own back yard, where "typically huge" bureaucratic processes and internal politics have created a murky environment for IT suppliers that has long strangled true competition.

"Smaller suppliers can't afford to get involved in the complex and lengthy engagements that need to happen well before any purchases are made; it's simply too great a risk and too much commitment," Howett says. "Public sector organisations often end up deploying a sledgehammer to crack a nut, when it comes to technology."

The problems are wide-ranging. Procurement officer Crothers has himself told of his "discomfort" at seeing tenders running to about a thousand pages.

"It was brought to the minister's attention by a small business. We're currently running at 300 pages. It wasn't my responsibility when it was 1,000 pages," he hastens to add. "If I were a small business, I'd be looking for 20-30 pages. So we're going to go to a much smaller number."

Crothers admits there is a government bias towards bigger suppliers "if we're not careful". However, about half of all central government contracts will come up for renewal in the next 15-18 months, and the aim is to make contracts shorter, smaller, and less vertical, he says.

Trick or treat?
A survey by Advanced Business Solutions suggests there is a lack of awareness around budgeting and forecasting in the public sector.
The ISV asked 300 senior finance professionals about their public-sector experiences. It says almost half of public sector organisations - including emergency services, the NHS, councils and schools - were reported as using time-consuming and unreliable methods to plan and forecast spend. Many already have apps for planning their financing that can boost visibility - but they do not use them.
"Forty-two per cent said they still rely on Excel spreadsheets for their budget preparation, monitoring and forecasting. The research also revealed 49 per cent of respondents spent between three and six months a year on budgeting activity, with 13 per cent spending between six to nine months on the process," the company said.
"The reality for the public sector is that the full force of the last few years' cuts are starting to bite, and more cuts are inevitable. The need to work smarter and manage finances more accurately is therefore greater than ever."