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Outsourcing may have heard the bell tolling on its major growth phase

Outsourcing major IT and back office projects has been around for so long that it feels like a given in public sector technology. In fact outsourcing has been around in different forms for a long time, with (for example) every general practitioner surgery being an independent business rather than an NHS employee.

Attention in recent years has been on the large scale engagement, and New Statesman Tech readers will be most affected by the back office and general IT outsourcing engagements that have happened. Although it has a bigger remit than that, the travails of Capita have thrown the sector’s progress into sharp relief this morning.

Capita decapitated

The headlines have been stark. The company was accused of strong-arm tactics to persuade people to pay for their TV licenses early this week, prompting the BBC (pictured) to set an inquiry into the organisation’s conduct. This wasn’t the only controversy surrounding the business and today it announced a 33 per cent drop in profits, prompting the departure of its chief executive.

Capita has thrown the issue into relief but other outsourcing companies have faced similar issues. Only yesterday Mitie sold its social care division for £2 after shedding its CEO in October (there is no suggestion that these issues are linked). Serco has also published a profit warning in recent months.

You could be forgiven for wondering what’s actually happening.

Economic waves

Commentators have written a great deal about how these giant companies are affected by the economy overall, and it’s undeniable that the new-found American hostility to offshoring under president Trump is going to have some effect. Brexit has been held responsible by the Financial Times and others.

There is a simpler explanation. Just about every market goes through phases of initial excitement, rapid growth, levelling out and then possibly decline as the “next big thing” takes over.

Outsourcing of back office and IT functions, both in the private sector and particularly in the public, has undoubtedly gone through its boom phase. And there can be little doubt that when held up to scrutiny by the Public Accounts Committee and others, the results have not been universally positive. Cracks are starting to show.

Combine this with open calls from insiders to re-insource digital technology because the civil service is losing the ability to run it and the decline of the outsourcing market as it currently stands starts to look inevitable. It’s now imperative that government personnel are retrained and re-skilled to take account of this change.