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Read: between the lines - Operational Efficiency Programme

Stephen Roberts, Published 06 May 2009

Read: between the lines

Are the Operational Efficiency Programme's 20% savings on government ICT possible? It depends on how you do the calculations

The public sector IT community should draw one principal conclusion from Alistair Darling's Budget statement: in the long term, the scale of UK public sector activity is unaffordable and needs to be aggressively reduced.

Commentators and opposition parties have proposed cuts that include high profile capital programmes and IT schemes such as Contactpoint and ID cards, but other austerity initiatives across government will be needed to reduce the headcount and managed expenditure.

But in the short term, the current administration is only ready to countenance efficiency savings. This bestows considerable authority on the Operational Efficiency Programme (OEP), including its influence over spending on ICT and to its figures for achievable efficiency savings.

Ex-Logica chief executive officer Martin Read's contribution to the OEP, on back office operations and IT, provides some startling headlines. He suggests that over the three years to April 2012 it is possible to save £3.2bn on IT, 20% of an assumed current spend of £16bn. The latter figure is roughly in line with Kable's assessment and Read, like us, includes communications costs in his figures.

He also suggests that over the same period £4bn can be saved on other back office activities. All these savings are in addition to the £35bn of efficiency savings required during the current Comprehensive Spending Review period, and to what we presume to be similar requirements in the period from 2011-15.

Are these IT savings realistic? Probably not. Read's figure depends on multiple sources: a limited benchmarking exercise, best practice studies, advice from IT consultants and comparisons with other countries and the private sector. It is an estimate rather than a calculation.

Half the savings - £1.6bn are expected to come from a greater use of collaborative procurement. This in itself seems unlikely.

The report calls for greater transparency in procurement across government, with an implicit assumption that this would give more traction to pan-government contracts of the kind negotiated by OGC buying solutions. But there are many reasons, usually to do with getting better value, why IT managers prefer to go outside of framework agreements. Not all of these would be dispelled if the OEP's recommendations, such as a shared enterprise resource planning vocabulary and shared management information, were implemented.

There is very little clarity about where the other £1.6bn might be achieved. Read does not point to any specific IT programmes or investments that could be culled, and there is no acknowledgement that potential ICT efficiencies would vary widely in different areas of the public sector.

Perhaps this is deliberate. The OEP report recommends that "departmental settlements" are calculated on the assumption that these savings are feasible: an admission that only in central government does the Treasury's writ extend to such a level of control over IT budgets. Meanwhile, 76% of public sector IT spend is outside of this area.

The headline figure of 20% is undermined by the small print of the report. Darling's budget suggests that the full £7.2bn of savings has been applied to forecasts over the period, but ignores a couple of OEP get-out clauses. For example, the requirement to cut savings by 20% will only apply after subtracting the costs of major IT enabled change programmes and taking into account efficiency savings already made since 2007.

While Kable remains sceptical about 7% per annum ICT savings, we believe that there is much that the supplier community should take seriously in this report. The OEP recommendations will generate some immediate opportunities and should accelerate some existing trends.

The strongest theme is that a generally poor quality of information on IT spend is a drag both on central monitoring and on the efficiencies which derive from standardisation. Requirements for organisations employing over 250 people to collect data on value for money indicators, and for those with over 2,000 employees to conduct systematic reviews of back office systems, will offer plenty of scope for suppliers to help with these burdensome reporting requirements. The focus on ERP as an enabler of collective procurement may well generate opportunities for selling the relevant applications to government bodies.

A secondary theme of the report is that sharing services in the back office should be stepped up. This has been an explicit goal of Regional Improvement and Efficiency Partnerships, of the Transformational Government programme, and of many other post-Gershon initiatives. Nonetheless, while there are some successful (and a few flawed) examples of sharing, things are not changing quickly enough to contribute meaningfully to Read's targets.

For shared services to take off more rapidly, they have to be marketed, packaged, and account managed more effectively. This provides scope for more involvement from the private sector, either through partnerships such as the NHS Shared Business Service with Steria, or through full blown contracting out. Converging shared services with outsourcing is likely to be the best way of speeding up its adoption.

If this business process outsourcing gathers pace and the ICT spend within it is not included in the Treasury's figures, Read's target of a 20% reduction may be achieved after all. Kable's figures include the ICT component of BPOs, but it would be both easier and politically expedient for the government not to follow suit.

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