While virtually all private sector companies publicly acclaim news of a shrinking public sector, the reality is often quite different. For example, pharmaceutical companies fairly typically feel immediate pain when health costs are constrained. In short, while the government pays slowly it has good credit and is generally a huge client. With the right sales force, regional and local governments have also been very profitable throughout the world -but let's concentrate on the UK.
So, with the Comprehensive Spending Review out of the way, the question we are asking is, "With an 18-month view, who are the probable winners and losers?
In my opinion the biggest losers are the hardware manufacturers. Not only will it be hard for a government (a local council or public agency) to justify buying a new desktop, router or copying machine, but consolidation at all levels will make much existing equipment redundant. This will undoubtedly hurt Cisco, Xerox and Dell. Any firm interested in second-hand recent hardware should have a field day.
Potential losers in the software industry may still fare acceptably due to existing licences having been fully paid and not able to be res-sold, and because maintenance charges are on-going (and supported by the lack of asset management by most governments). The advent of government shared services and improved central purchasing would have a greater effect, but we are not holding our breath. Especially at the local level we do not see any major move to collaboration by governments and agencies. If anything we expect unions and government employees to use software as a barrier to change. Therefore Microsoft, Oracle and SAP should be okay.
As for outsourcing giants such as IBM, HP, CSC or regional firms including T-Systems, Logica, Capgemini or Atos Origin, in my opinion the opportunities are large but so are the challenges.
My belief is that the government has learnt from past mistakes and will move to smarter outsourcing strategies. I believe the government will favour smaller and local suppliers (such as Capita in the UK), and joint ventures. This potentially impairs the largem predominantly USm suppliers unless the European management manages to make the case for change back in Armonk or Palo Alto.
Indian suppliers may have a field day if they develop a strategy of strong local presence leveraging their huge home advantage. In that I see firms such as HCL, Infosys or Wipro thrive if they have the courage to use M&A to create solid outposts and acquire a more diverse sales force than the current one.
But let's not forget advisers and consultants. In my opinion, after an early burst of activity, the market will shrink because, buyer beware, the need for government "managers" to protect themselves by way of a plurality of "studies" and "white papers" will (should?) be under pressure because of a mandate to deliver. So I think that firms with real and tangible expertise, for example in setting shared services, will come to the fore.
Jean Louis Bravard is a director at Burnt-Oak Partners, and was formerly a global senior executive at EDS.