Dear Sir,
I was worried at the tone of your recent article inc The Economist of 19 March, which implied that a
wholesale transition was underway from public sector to private sector. The article argued that such a shift
might be thought of as a continuation of ‘an approach pinoeered by Margaret Thatcher in the early 1980s’. I
believe that your article misunderstands and thus misrepresents the approach of the current government at
a time when clarity of understanding about responses to the squeeze on public finances has never been more
important.
I cannot comment officially on government policy. However, I am part of a small group of people that has
driven some of the recent, radical changes in thinking within the UK Cabinet Office about the way in which
ICT and related services are outsourced, and have helped to formulate this thinking since the beginning,
when I wrote a paper for George Osborne back in 2008 setting out the current policy for adoption of open
standards in order to transform traditional, monotlithic outsourcing contracts in government. Contrary to the
comments of Caroline de la Soujeole in the article that the result of government policy is ‘a golden age of
outsourcing’, the reality is in fact much more nuanced.
Yes, it is true that there is an intention to reshape the public sector. In a globalised, increasingly competitive
world, the assumption that many, standard services should be delivered by a 'special' cadre of 'public sector'
employees enjoying restrictive practices and privileges is increasingly being questioned. However, the idea
that the alternative should be to hand entire services to a small handful of large companies – and that this
will deliver any savings at all - is dangerously misleading. Take government ICT. The Public Administration
Select Committee of 2011 bemoaned the creation of an 'oligarchy' of top suppliers who had muscled in on
public services as a 'recipe for rip-offs'. Such outsourcing contracts are just as uncompetitive and outdated
as, arguably, was the civil service oligarchy that preceded them. The truth is that Thatcher-led reforms
failed to introduce the market to the public sector; instead, by aggregating supply rather than demand, ‘big
outsourcing’ merely created a restricted, ‘false’ market of large companies that have progressively called the
shots when it comes to negotiating contract deals.
So what is being proposed to break this stranglehold? We have been working on a policy shift towards new
outsourcing models that are based on a more dis-integrated, component-based approach, and thus open to a
broader, more balanced marketplace. Rather than simply handing an entire service to a supplier, who will
typically charge premium rates again and again across government for what is in fact ‘cookie cutter’
business, government organisations are starting to come together around ‘open’, standard ways of doing
things, and aggregate demand for similar services before approaching a supplier. This is arguably what
should have happened this first time around.
In this emerging model, suppliers must increasingly choose between running volume outsourcing deals (in
which case these will be low margin), or more bespoke work specific to a particular authority/department (in
which case these will be higher margin); they cannot have both. Government’s growing ability to distinguish
between volume and margin – and to drive out this distinction across government outsourcing contracts in
the teeth of entrenched opposition from both public and private sectors - is what will deliver some of the
largest savings across government for the future.
It is for this reason that your article is misleading, since it suggests that a simple 'flip' is occurring from
restrictive, vertically integrated public sector practices that have had their day, to similarly restrictive,
vertically integrated and similarly outdated private sector practices, when in fact this is not the case. The real
quiet revolution lies in building a more component-based view of public service delivery that favours neither
of the traditional oligarchies from public or private sector - but instead rewards smaller innovators who are
able to deliver services directly to government in a cheaper, standard, but also more innovative, way.
Such a shift will not be easy. It is much simpler to outsource vertical functions in their entirety to a small
handful of ‘top tier’ suppliers, than to engage with a truly open marketplace. Government needs to develop
a range of business and commercial skills to support this wholesale realignment – and the ability to explain
clearly what is happening to a broad constituency of interests. This is where your article currently falls short,
and the reason I felt prompted to write this letter.
Your faithfully,
Dr Mark Thompson
Judge Business School, Cambridge
Methods, London
ICT Futures adviser, Cabinet Office