Did outsourcing cause the expenses scandal that has rocked the foundations of the Palace of Westminster in London? It’s highly likely as The Daily Telegraph managed to get hold of more than a million pieces of information related to expense claims by British parliamentarians – all in a single place and stored digitally.

According to a report in The Times last Friday it looks as if the information that was leaked was a comprehensive collection of paper documents that were scanned and were to be edited and filed – not used in their raw form.

So, could it have been a leak from the printing firm TSO, formerly Her Majesty’s Stationery Office?

If so, it makes all the other outsourced data leaks we have heard about in the past pale into insignificance. This one could end up changing the very nature of government in the UK regardless of who wins the next election.

Hat tip: Thanks to Alan Lee at London South Bank University for pointing me to this article.

Following on from my recent blog about the public sector in the UK, I’m going to expand on the theme and explore some more public sector questions in more depth.

This time, I’m interested in how the government views the suppliers that fulfil their IT contracts. Is there a group of suppliers more ‘favoured’ than others or just more experienced at playing the public sector bidding game? And when will we start seeing more contracts going to the Indian firms that are charging into the public sector marketplace?

When I started this discussion with Wipro, they almost took offence at me suggesting they were up-and-coming, rather than seasoned. Geoff Llewellyn , Head of Public Sector Business Europe at Wipro said: “Companies like Wipro are global. It’s just a logical move to leverage what we have done elsewhere in the world and to bring those skills into the UK public sector. We think that we can bring some new thinking. There are some well-established players, but we have a lot to bring to the party.”

He added: “We have a lot of public sector experience in other markets than can be brought to the table in the UK, even if we have not had a lot of experience here. Wipro is a grizzled and experienced campaigner and has worked with many private sector companies like gas and water – where those companies were public sector until recently, so we are not on completely unfamiliar ground at all.”

Llewellyn has a point. And what’s worth noting is that most of the big Indian suppliers have plenty of staff on the UK payroll too – using an Indian company doesn’t have to mean the deal involves offshoring.

When asked if the Indian suppliers stand a fighting chance, Stuart Ford, Head of Public Sector, Europe, at HCL Technologies said: “I must think so, or I wouldn’t be with HCL. I think things have slipped the other way now. The really big suppliers are out of favour. Senior civil servants are actively looking for some new players to enter the market. If you pick all the top five players, you can find a major screw-up at every one of them. “

Tata Consultancy Services has been a high profile winner of a major government contract, the technology required to deliver the Child Maintenance and Enforcement Commission – a replacement for the disastrous Child Support Agency. Brian Woodford, Public Sector Director at Tata Consultancy Services said: “There is a difference between what people think about the market emotionally, versus how procurement processes create winners of different suppliers… clearly the government wants to see a wider set of suppliers and engagement is really happening – we are proof.”

The view from inside government is that most managers are tired of the small pool of suppliers who keep popping up when contracts are tendered. Mo Ali, Former Head of Procurement for e-Government Services in the Cabinet Office, said: “There is no group of favoured suppliers. It just so happens that when we go out to bid, it tends to be the same suppliers who always apply. It’s not that they are favoured, and in fact there is usually some frustration and desire to get fresh blood, but many of the other companies have a lack of understanding of the bidding process.”

But there is a tendency to avoid risk, as observed by Dr Colin Ashurst of Durham Business School: “No one ever got fired for buying IBM. That’s a part of the problem here. The system itself is complex because of the scale and so smaller suppliers cannot afford the overheads of large bids.”

Addressing the initial point about the same old faces cropping up, Alan Downey, Head of Public Sector UK at KPMG said: “It’s not favouritism. It’s more related to experience of those companies. When you are talking about offshoring then it’s a much bigger risk. Theoretically it’s not a bad thing for a company to be headquartered in India, but politically it’s very sensitive. No department wants to be on the front page of The Sun for offshoring.” Downey stressed that the reality of security in India is good, but it’s still a sensitive subject in government.

He said: “I went to India recently and looked at some of the delivery on the ground there. I found that in most cases the security was better than the UK. The people were good. The private sector has already bought into this model because they see the benefits, but the government has this additional consideration of how it looks politically. They will always be more risk averse than a bank.”

Mark Brett, Member of the Management Group (Partner, Public Sector Advisory) at PA Consulting added: “I don’t agree that there is a favoured group of suppliers. There is a small group that were very successful at winning government business, but many of them are on the wane now. It’s never been seen as a favoured body from within the government. There is a view from the inside that feels that many of these companies are better at bidding than at delivery. Some are improving delivery and some are really struggling to deliver at present. “

Andrew Warren, Head of Public Sector Practice at Vertex, mentioned the NHS and Steria joint venture – where the finance and accounts for many primary care trusts have been offshored to Steria teams in India using a joint venture scheme to return value to the NHS: “I don’t believe that there is a favoured list. I do believe that there are some companies in this country that have had a lot more experience in the public sector than others. In the big transactional departments there is a strong desire to increase the quantity and quality of private sector supply. The government departments have targets for contestability that drive them to actually widen the group of suppliers they use, so I can’t believe they really exclude anyone.”

Warren adds: “If your premise is that you are going to offshore work, then that is a totally different conversation with the state. There is the NHS joint venture with Steria, but can you name another big offshoring example? I can’t speak for IT services, but the conversations I have had with people make me believe that there is no appetite at all to commission offshoring in BPO. There is some interest in working with suppliers that use offshore services in some way, so the offshoring is indirect. So there is an interest, but no appetite to be seen offshoring to far off locations – where people are really interested in is deploying people across the UK and taking advantage of services delivered from the Highlands of Scotland for example.”

Two clear issues emerge from these comments. There is no intentional favouritism, but it is certainly confirmed that more experienced suppliers know how to bid for contracts far better than new entrants. There is an attitude within government to help and encourage new suppliers though and I personally recall a conversation I had with government CIO John Suffolk in 2008 where he suggested that he is trying to make all government contract bids entirely open – even to the extent of all document submissions – so smaller suppliers could easily learn from the submissions of the big players.

Secondly, there is no political will at all for any form of offshoring of services. It is just too sensitive to be seen offshoring government services overseas. New entrants may be coming into the market, from countries such as India, but they will compete on a level playing field using local staff – not as low-cost offshore businesses.

Way back when the Indian technology industry was taking off, the companies managed to negotiate a raft of tax breaks that allowed the hi-tech sector to operate without the usual burdens placed on Indian business. All those benefits are due to end next year.

All the commentators in the sector knew that this was going to happen, but in the past couple of years whenever I have asked people in India about their fear of having to start paying considerably more tax, they have all said that the Indian tech sector is maturing and doesn’t need these special benefits anymore. Almost everyone in the industry, including the trade body NASSCOM, imagined that once the sector has matured enough then these additional benefits from the government would not be required.

Roll forward and what’s in the Times of India today? NASSCOM is calling for the tax breaks to be extended by around five years, because the tech companies are struggling due to the global economic slowdown.

So when will Indian tech grow up and pay the same taxes every other firm in India has to pay?

The recent British government budget emphasised that public services need to be delivered for less – because debt levels are so high right now. In the same week, the Operational Efficiency Review (OER) led by Dr Martin Read came to a similar conclusion, that more must be delivered for less. More recently still, the Child Maintenance and Enforcement Commission (replacement for the Child Support Agency) commissioned India IT firm TCS to redesign their IT. Connected? Possibly.

Perhaps there is a new wind of change in the public sector that means an emphasis on efficiency is going to force public bodies into more outsourcing? I spoke to some industry experts to gauge the opinion of those in the market.

Almost everyone I spoke to feels that outsourcing will increase, yet some feel that any outsourcing will not even approach the levels of savings required by the government.

Brian Woodford, Public Sector Director at Tata Consultancy Services said: “It comes through the OEP, government cannot continue to fund the level of public sector that it does at present. Savings are needed in the back office and from procurement. The Read report looks at back office operations IT and there is a huge case for shared services. It might not mean outsourcing – it could be shared internal services. They have looked at internal shared services as a good example of best practice, so it’s not just outsourcing that could answer the questions.”

Richard Marchant, Local Government Strategic Partnerships Director at Capita goes into more detail on the level of planned efficiencies: “The targets set for savings over the next three year for the public sector are very tough. Government departments cannot keep top-slicing budgets as they have been doing without looking towards a broader range of solutions to best meet the efficiency agenda.”

Marchant goes on to say: “In the recent budget, the Government announced that it is seeking £15bn of efficiency savings across public services. £6bn of savings is the focus in the current spending review period and an additional £9bn of savings will be sought between 2011 and 2013/14. Outsourcing or strategic partnering could well present government departments with a viable option as they seek to implement change, re-engineer services and achieve efficiency savings. A strategic partnership is not just about achieving short-term savings but is also about making the most of an experienced private sector partner to deliver in the medium and long term. An example of this is our joint venture with Birmingham City Council, Service Birmingham, which aims to deliver cost savings of £1bn back to the council over 10 years.”

Gary Bettis, Director of IT Advisory Services for Serco Consulting, believes that the story is not so much about new outsourcing – it’s improving what is already being done. He said: “We did in fact advise a great deal on the Read OEP report. The reality is that in government right now there is a lot more scope for outsourcing, but the real story is in the existing outsourced services. If they could introduce better standards across some of the existing contracts then they could save a huge amount.”

Bob Scott, Vice President, Public Sector Outsourcing UK at Capgemini said: “I think that this efficiency drive will manifest itself in the short term by extending and expanding outsourcing that is similar to what we have seen in the past. The operational efficiency programme has to be put alongside other forward-thinking programmes, because it’s aligned with cost reduction and yet we should also be looking at this in parallel with things like Lord Carter’s Digital Britain programme. We can’t just continually look to cut costs for evermore. Intellect commented on this recently saying, if all we do is cutting ICT budgets then we will have failed the public.”

Stuart Ford, Head of Public Sector, Europe, at HCL Technologies said: “Yes I do think there will be more outsourcing – I’ve spoken a lot with Martin Read and depending on where you look in the government there are different feelings. In general though, there is a view that transformational outsourcing will greatly increase. The feeling is that outsourcing can get public sector staff back on the frontline, doing what they should be doing.”

Andrew Warren, Head of Public Sector Practice at Vertex, said: “Yes of course this is going to happen. There are some subtleties though. We will see fewer green field outsourcing opportunities and the government will itself explore new ways to deliver their own services. That might be smaller agencies outsourcing to bigger ones, as well as more traditional outsourcing to suppliers. Local government will go much faster than central government, with considerable new contracts in the next two years.”

Geoff Llewellyn , Head of Public Sector Business Europe at Wipro said: “We expect a lot more government outsourcing. There is the cost driver, but also the transformational government programme. Given the prominence of shared services in that, we expect outsourcing to complement a move to more shared services. The most important review is the transformational government push from the Cabinet office, trying to get departments to think more radically about how they deliver public services, and what facilities they use to underpin their own service.”

Mark Brett, Member of the Management Group (Partner, Public Sector Advisory) at PA Consulting, said: “It’s a story of two halves. Given the way government operates, there will be pressure in departments to employ more outsourcing. But it’s going to be pressure from within each department because of the pressure they feel, rather than a cross-government strategy. It is easy to forget how much the government has already outsourced. They have a lot of experience already just that most of it is in fairly low-end mundane processes.”

Brett adds: “Some departments are really trying to work hard at increasing the levels of shared services, but some are still only flirting with the idea. I can’t see there being a common drive across government at all. If you look back through the 90s then many departments had some form of efficiency review forced on them, but that was usually quite tactical – outsource your IT support or something like that.”

It’s clear from these comments that most industry players expect far more outsourcing to be commissioned across all forms of government. Improving the use of shared service centres and creating models where departments can outsource to each other will be a critical part of making this work though – rather than just a bonanza for the supplier community.

I’m going to dig deeper into some of these issues in my next few blog posts. They are going to be a bit longer than my usual blogs, but I’ve been talking to a lot of people recently and I want to get these conversations online.

I often type ‘outsourcing’ into Google to see what comes up. Obviously Google News is a useful tool, but it’s interesting to also see the organic search results too.

Usually the Wikipedia entry for outsourcing and the National Outsourcing Association come top of the list, but I was surprised today to see that the second entry (after Wikipedia) is the UK government’s Business Link service.

Business Link is a national advisory service that offers practical information and help to UK companies, typically smaller or medium-sized enterprises, and I’ve never noticed much in the way of outsourcing advice from them in the past. However, there is now a useful introduction to the subject developed by Cranfield School of Management published on its web site.

Smaller firms are going to need to understand strategic sourcing strategies even more than ever in the present market conditions so anything Business Link can do to get that message across is welcome.

Wasn’t the inauguration of US President Obama just stunning? I just love this Techcrunch photo of Washington DC from taken from a satellite. Ever felt you were about as insignificant as an ant? Well, here is the proof.

A number of countries with a lot to gain from offshore outsourcing are concerned that some of the anti-offshoring rhetoric employed by Obama during his election campaign might now come into force. I don’t think so.

Note that Obama’s first move in office was to end the terror suspect trials at Guantanamo Bay. He has more on his plate with the ongoing Middle East military campaigns and the crashing economy than possibly any other incoming president.

There might be some pro-US job measures that are designed to shore up the economy, but I can’t foresee any major anti-offshoring legislation with all these other issues on his plate. Offshoring is an emotive topic, but there are far greater factors affecting the US economy right now and Obama will be targeting them one by one.

I received an email this week from a friend of mine that gives some eye-watering figures.

Just over a year ago Royal Bank of Scotland (RBS) paid $100bn for ABN Amro – 80 per cent in cash. For this amount, RBS could today buy:

• Citibank for $22.5bn;
• Morgan Stanley $10.5bn;
• Goldman Sachs $21.0bn;
• Merrill Lynch $12.3bn;
• Deutsche Bank $13.0bn;
• Barclays $12.7bn;
• And still have $8bn change

I haven’t checked these numbers, but the fact is that in the current climate it is entirely believable. It also reminds me of a recent message on the blog of US documentary-maker Michael Moore, hardly known as a friend to big business, but certainly an astute commentator.

The US auto-giants GM, Ford, and Chrysler are all haemorrhaging cash and now going cap-in-hand to the US government for a $34bn bailout. Moore pointed out that all common stock in GM could be purchased for around $3bn. So, we could save the government a load of money by just supporting earlier intervention and then supporting a massive wave of innovation in transport – a Marshall plan for the auto industry. Why bail them out with more cash when the current bosses will just deliver more of the same?

Joseph Schumpeter popularised the term “creative destruction” in which companies or industries would naturally die, to be replaced by the newer and stronger. It seems we are now witnessing Schumpeter’s vision on a daily basis.

How many IT projects do you hear about that are really life-changing? How many IT projects have the potential to really improve the life of more than a billion people? And, how many projects like this were started by one individual putting his hand in his pocket to inject some personal cash into an idea he had while walking down Piccadilly and observing British ambulances tearing up the road to the next RTC (road traffic collision – I knew all those episodes of Casualty on the BBC iPlayer would come in useful eventually)?

Ramalinga Raju, the founder and chairman of Satyam, was the man walking along the street near to the Ritz hotel in London a couple of years ago when those ambulances went by. He wondered out loud to some of his colleagues why there was no centrally coordinated emergency service in India that could get an ambulance to a person in need within minutes.

Instead of just wondering, he put £1.5m of his own cash into a personal side project, creating a call response unit and equipping ambulances with the kit they might need for 50 or so common emergencies, including pregnancy and snake bites. From this initial programme came what is now the EMRI - Emergency Management and Research Institute.

Today, this is a free service delivered through hi-tech emergency call response centres with over 785 ambulances across the Andhra Pradesh, Gujarat and Uttarakhand states in India. With the projected expansion of fleet and services set to spread across more states, EMRI will have more than 10,000 ambulances by 2010. That’s a national ambulance service covering a population of more than a billion and all created within just a few years. Satyam proved what can be done with technology and now the government is coming on board to fund the expansion.

I just had a conversation this morning with Som Sarma, the European vice president of Satyam about how this project started, why it is important for Satyam and India, and how they might use this expertise in future. You can hear an audio podcast of that conversation by going to the iTunes podcast directory and searching for ‘Talking Outsourcing’ or by clicking here to play it back from the web.

A new review commissioned by the government and written by business economist DeAnne Julius positions the UK as a world leader in the outsourcing of public services. The new report, published today, goes on to suggest that the UK public sector should go even further down the outsourcing road, with many more services ripe for “significant expansion”.

Listening to the news on the radio this morning, they seemed unsure about whether Britain should crow about being an international leader in the outsourcing of public services, but it can’t be denied that governments across the world are beating a path to the UK to examine best practice in various areas.

Julius, a former member of the monetary policy committee of the Bank of England and chair of think tank Chatham House, writes in the report that the UK outsourcing industry has grown by 130 per cent since 1997 (notably since the Labour party came to power), and now employs around 1.2 million people. That’s huge. Let’s not underestimate the size of this part of the industry. It’s something like £80bn a year we are talking about here.

The Julius report calls for more openness and transparency in government departments, which would promote the use of outsourcing, as it generally demands open measures. The historic use of outsourcing by government has been to reduce costs – much like the private sector – but Julius indicates that outsourcing can now be a key driver for achieving social and environmental targets that would be difficult or impossible to achieve in-house.

It’s interesting to hear that this is an area in which the UK is a world leader. What do you think of your local bin collection, parking wardens, and prison logistics then?

I had an interesting visit to the Czech Republic last week. I was speaking at a conference focused on the business of information technology in the country and it covered a multitude of areas, focusing a lot on legislative changes for most of the morning session.

What struck me, when the deputy prime minister (DPM) was speaking in the afternoon, was the directness of someone so senior in the political machine. He confessed that the IT industry should not expect too much from the forthcoming Czech presidency of the European Union. In fact he even confessed that he was not sure what anyone could expect from the presidency, but he did vouch to be working hard on ensuring the country would get as much as possible from the EU presidency.

The Lisbon Strategy is due to be reviewed soon and from what the DPM was saying, it looks like the UK and Czech Republic are the most progressive nations in the union, pushing for real measures to drag Europe into the information age – particularly in the area of IT-enabled services. Given the nature of the EU and the requirement for 27 nations to debate these matters it might be some time before we see much action.