Studie - Public Service by the Private Sector: Examining the Government Services Market (Strategic Focus)

Introduction

Although outsourcing began largely in the private sector, the public sector has emerged as a bourgeoning market as well, with vendors having developed secure onshore operations in an effort to capitalize on high demand for private sector partners with the capacity to deliver services to governments. This report focuses on drivers, inhibitors and strategies for vendors and governments.

Scope

*Provides an overview of how government agencies are engaging government services providers to improve service delivery

*Analyzes data from an end-user survey of government agencies on BPO and ITO drivers, challenges and priorities

*Provides recommendations to agencies and vendors navigating the government services market

Highlights

Economic, business and technology factors are driving government outsourcing

Outsourcing helps agencies reduce operating costs and allows them to focus on core tasks

Vendors must invest in a vertical go to market approach with strong strategic planning

Reasons to Purchase

*Learn about how government agencies are engaging the private sector to improve services and increase efficiencies

*Understand the drivers and inhibitors behind the government services market

*Identify strategies which agencies and vendors should adopt for future success in outsourcing

Overview 1

Catalyst 1

Summary 1

KEY MESSAGES 2

Economic, business and technology factors are driving government outsourcing 2

Regulatory and political barriers are the key challenges to government outsourcing 2

Outsourcing in government is concentrated in the larger markets but is likely to expand 2

Outsourcing helps agencies reduce operating costs and allows them to focus on core tasks 2

A number of issues make government business processes more likely to be outsourced 2

As the outsourcing market develops, governments have become better-informed buyers 3

Vendors must invest in a vertical go-to-market approach with strong strategic planning 3

Table of Contents 4

Table of figures 5

MARKET OPPORTUNITY 6

Economic, business and technology factors are driving government outsourcing 6

A lack of sufficient and appropriate staff resources is the leading factor for outsourcing in government 6

Governments are continuously faced with the challenge of 'doing more with less' 7

When resources are strained, organizations tend to re-evaluate operations 8

New and modern technologies are required to make BPO more feasible 9

Shared services environments laid the groundwork for outsourcing in the public sector 9

Regulatory and political barriers are the key challenges to government outsourcing 9

Privacy and security issues prevent agencies from taking advantage of outsourcing as does the private sector 10

Navigating the political landscape is a challenge for governments considering BPO for public sector jobs 10

Institutional culture and government concerns about giving up control are a key barrier to outsourcing 11

Outsourcing in government is concentrated in the larger markets but is likely to expand 11

The public sector has seen substantial growth in outsourcing in recent years 12

The US and UK public sector make up a significant portion of the industry 12

The US is the largest government services market opportunity in the world 13

The UK's early adoption of shared services has led to a mature market for government outsourcing 14

The market for government services will spread to regions outside the US and UK in the coming years 15

CUSTOMER IMPACT 17

Outsourcing helps agencies reduce operating costs and allows them to focus on core tasks 17

As the market becomes more sophisticated, governments must define what constitutes a 'core task' 17

A number of issues make government business processes more likely to be outsourced 18

Resource-intensive processes provide the most opportunity to reduce costs by outsourcing 18

'Non-core' functions are generally the preferred areas which governments will look to outsource 19

Business functions with potential for automation will deliver the greatest savings 19

Government services providers are slowly evolving from strictly back-office functions to frontline service delivery 20

Basic administrative functions and IT consolidation are the first step in government services provision 20

Core administrative functions not at the core of agency mandates are higher on the value chain 21

Constituent-facing functions are the next frontier for government services providers 21

As the outsourcing market develops, governments have become better-informed buyers 22

Vendors have faced challenges meeting the demand for BPO services 23

Long-term deals are - and will likely remain - rare occurrences 23

The economic downturn has led to new approaches to procuring and delivering BPO 23

COMPETITIVE LANDSCAPE 24

The US market is dominated by a small number of major vendors 24

Vendors in the UK have benefitted from a focus on increasing efficiency in government 26

Vendors in India have a domestic presence, and a limited but expanding presence abroad 26

GO TO MARKET: ADOPTING A VERTICAL APPROACH TO GOVERNMENT 28

Vendors must understand the unique intricacies of the public sector outsourcing market 28

Be prepared: government contracting can be risky 29

Vendors must be prepared to invest a significant amount of time and resources into meeting regulations 29

Vendors must adopt both short- and long-term approaches to the government sector 29

Vendors must adopt a strong vertical strategy for providing government services 29

Vendors should hire managers with experience in government contracting to navigate complex processes 29

Opportunities for vendors lie in common programs which exist across multiple jurisdictions 30

Successful vendors will wait patiently, and remain active while they wait 30

Agencies have become more prepared buyers; vendors must become more prepared as well 30

Dialogue with government decision makers will lead to more outsourcing wins 30

Vendors that can provide concrete figures around ROI will be most successful 31

APPENDIX 32

Definitions and abbreviations 32

Methodology 33

Further reading 33

Ask the analyst 33

Datamonitor consulting 34

Disclaimer 34

List of Figures

Figure 1: Lack of human resources is the key driver for outsourcing in government 7

Figure 2: Over 75% of government agencies have seen their budgets remain flat or decrease 8

Figure 3: Quality control, regulations and security are the leading concerns for agencies 11

Figure 4: Global outsourcing spend by vertical, 1994 - Q1 2009 12

Figure 5: Total outsourcing spend by vertical, 2006-2009 Q1 13

Figure 6: Public Sector Outsourcing Spending as % of Top 5 Markets, 2008-2013 15

Figure 7: Compound Annual Growth Rate (CAGR) in outsourcing spend, public sector, 2008-2013 16

Figure 8: Strain on internal resources is driving agencies to consider outsourcing 19

Figure 9: Application and website hosting are the key areas for ITO in government 21

Figure 10: Evolution of outsourced functions in government over time 22

Figure 11: Vendors must adopt a vertical offering and take a strategic approach to government 28

• Global IT Services Market 2011-2015
• Intelligent Spending: Future directions in sourcing
• Music and Video Sales via Key Retail Formats in Poland to 2013
• 2009 Safe and Dangerous Locations
• 2009 Top Integrated Facilities Management Outsourcing Vendors, Black Book Survey 2009 Results
• Clinical research: an outsourcing opportunity (Analyst Insight)
• F&A outsourcing matures to meet European needs
• Leveraging Honduras as an outsourcing delivery option
• The Orbys Guide to Sourcing Implementation
• The Orbys Guide to Sourcing Management
• The Orbys Guide to Sourcing Strategy
• 2009 Top Automotive and Transportation Manufacturing ITO Vendors, Black Book Survey 2009 Results
• 2009 Top BI Data Warehousing ITO Vendors, Black Book Survey 2009 Results
• 2009 Top Entertainment ITO Vendors, Black Book Survey 2009 Results
• 2009 Top FAO Tax and Audit Vendors, Black Book Survey 2009 Results
• 2009 Top Healthcare ITO Vendors, Black Book Survey 2009 Results
• 2009 Top Healthcare Payer BPO Vendors, Black Book Survey 2009 Results
• 2009 Top HRO Payroll Vendors, Black Book Survey 2009 Results
• 2009 Top Legacy Migration ITO Vendors, Black Book Survey 2009 Results
• 2009 Top Mid-market HRO Vendors, Black Book Survey 2009 Results