Public sector outsourcing surge in 2010

The public sector will experience a sizeable surge in outsourcing throughout 2010 and beyond as it wrestles with inevitable budget cuts. Colossal spending deficits created by the UK government’s banking bailout will put pressure on public sector managers to slash costs and they will increasingly turn to outsourcing as a result, according to the National Outsourcing Association’s (NOA) 2010 predictions survey.

Though various public sector organisations have attempted outsourcing before, with varying success, the move in 2010 is likely to be much more wide scale. The NOA’s suggests that those in public sector procurement will need to use outsourcing to both cut costs whilst looking to maintain and improve service delivery levels.

NOA Offshoring Director, Mark Kobayashi-Hillary, commented, "The sector will need to explore more shared services and outsourcing options after the General Election than some currently believe. Efficiencies mooted in the Read OEP simply won’t be enough compared to the amount of government borrowing going on. The sector will be forced to explore extensive changes and new operating models rather than just efficiency drives if they want to escape from this increasingly large black hole."

Martyn Hart, NOA Chairman agrees saying that "the Public Sector has had an early warning of what’s to come, they should be using the time between now and when its "official" (probably after the election) to get themselves organised so they can take advantage of outsourcing, even if it means reorganisation so that what can be outsourced can be more easily packaged."

More predictions from the NOA, taken from a poll of its members, include:
• Goodbye recession? - The UK will technically be out of the recession in 2010, joining those European countries that have already returned to growth, and leading to a boost in confidence. For this reason many will be asking their outsourcing suppliers for increased capacity to support renewed growth
• Mini-Multisourcing – 2010 will see a further revision of multisourcing or multivendor deals as end-users try to create simplicity in their outsourcing. Focusing on a smaller pool of suppliers will also help companies reduce governance costs – a common bugbear in multivendor arrangements
• Green with a vengeance – Environmental concerns will come back to bite those who thought they had been forgotten in recession. Some parts of CRC will become law and suppliers will need to understand it and be aware of the supply chain implications.
• Business Process Outsourcing booms - It currently only makes up around three percent of the entire market so there is lots of room for growth as the recession weakens. BPO growth will be driven by the need to rebuild companies flexibly without taking on a large amount of risk through full time staff. And now that organisations have a taste for BPO then expect them to use more, the drivers wont be just cost and we’d expect it to break through the 5% barrier by the end of this year.
• High as a cloud - The move towards cloud computing will become more noted as more traditionally outsourced services (from CRM to infrastructure and storage) are delivered via this technology. However, given that outsourcing arrangements are based on relationships and change more than technology, it’s possible that the "cloud" just becomes (in outsourcing terms) another way of deploying the technology, in a similar way to thin client.
• Freed from captivity - Those end users with their captive outsourcing centres will increasingly divest to reduce management costs and move towards true outsourcing. As a result of this, back office outsourcing companies will increasingly diversify and expand service offerings through acquisition.
• SME sourcing – the SME sector will increasingly recognise the benefits of outsourcing and even offshoring as it looks to growth opportunities whilst reducing overheads. Locations offering outsourcing services to smaller businesses such as Mauritius and Sri Lanka will continue to grow in strength and prominence as they learn to target the SME sector in countries like the UK for potential customers
• Location, location, location - China will see a growth in call centres and continue to eat away at the share of established outsourcing locations. The Philippines, Brazil and Russia will see an increase in business as they grow in prominence on the world stage. While Brazil will see increased competition from Chile, it will continue to grow in strength IT-wise if not in BPO as it already has over two million IT workers. Many locations will also start to specialise more in recognition that global outsourcing cannot continue to grow interminably

Martyn Hart comments, "2010 will be a game of two halves for outsourcing. On one hand we see optimism rising in the private sector with companies using outsourcing to seize growth opportunities and re-skill with minimal risk. And on the other we see what amounts to a ‘public sector recession’ wreaking havoc on those people and organizations in charge of public service delivery. Outsourcing and offshoring can, and will be used positively, in both respects so we expect sizeable sector growth across the board."

Ends

Notes to the editor:
About the National Outsourcing Association (NOA):

The NOA is an independent body whose objective is to ensure effective business management through the promotion of best practice, service and innovation in the application and development of outsourcing. The NOA’s role is to lobby UK government, OFCOM and the European Union on matters affecting the collective interests of its members and to deliver information on market developments and lessons learned from business outsourcing.

Members fall into three main categories:
o Users - UK and overseas companies, which have outsourced (or are about to outsource) significant business infrastructure, such as: IT; telecoms; and processes
o Suppliers – companies which fulfil outsourcing contracts
o Support services - legal, recruitment and consultancy service companies which support the industry

The NOA communicates the significant benefits and strategic lessons of outsourcing to a wider audience, through conferences, seminars and publications.
For more information on the NOA please go to: www.noa.co.uk

Press contacts:
Toby Brown/Morgan Fitzsimons
Buffalo Communications
+44 (0) 20 7 292 8686
noa@buffalo.co.uk