Supplying the State

Key trends for Business Services in 2017

November 2016

Deloitte’s State of the State report provides a unique analysis of the UK public sector. Given that the public sector accounts for around two thirds of private sector outsourcing contracts, it’s an important industry for the business services sector to understand. These are the topics that are most relevant to the services industry.

Shift from austerity to investment:

This was a key theme throughout the report – there is an expectation among public sector leaders that post-Brexit, the government will be keen to provide a stimulus to the economy by investing in infrastructure projects and switching the focus away from austerity. The shift began when the Government announced increases in infrastructure spending last year, and in the Autumn Statement Chancellor Philip Hammond earmarked £23bn for innovation and infrastructure, an extra £1.1bn for English transport networks, and £2.3bn for a housing infrastructure fund.

What this means for services:
There are clear opportunities for services businesses to win new work and become involved with new projects as this emphasis on investment grows. Construction and infrastructure firms are likely to be among the first to benefit.

The need to ensure transformation continues:

Public sector leaders say they are concerned that the focus on Brexit will mean that the sector is distracted from transformation programmes, or that momentum is lost. The report says: “While Brexit is an era-defining challenge for Whitehall and the devolved administrations, the public sector needs to maintain focus on business as usual. And even if a fiscal reset makes additional public spending available, the Government should continue to drive transformation – not least in the NHS, which is a clear public priority – and work with the sector to agree a constructive and positive vision to replace the cost-reduction narrative of austerity.”

What this means for services:
Businesses working in partnership with the public sector will need to play their part in ensuring this focus on transformation is not lost. Brexit will bring opportunities for services firms, but so will the continued transformation work that leaders want to prioritise. 

One trend services businesses should be aware of when seeking to work with the public sector is people’s views on private sector businesses carrying out public sector work. The report says: “Most people believe that the public sector should work with businesses and charities to deliver public services. But where businesses or charities alone deliver services, the public are less convinced that quality, cost effectiveness and accountability will be delivered to the same extent.” Companies need to be aware of the possible need to attempt to counteract that view as they interact with both the public sector and citizens.

The need for new agencies:

One potential consequence of Brexit is that it will create the opportunity for the creation of new agencies, as the public sector takes on new responsibilities in the wake of the vote. There will be new projects and work that needs to be completed, and a need for assistance in completing this work.

What this means for services: 
Services sector businesses have the opportunity to play a role in the fulfilment of these new responsibilities, either in partnership with the public sector or independently on its behalf.

The need for more collaboration and a cultural shift:

Public sector leaders say the organisations they are leading will require a different cultural approach over the coming years. The report says: “A number of leaders told us that the next phase of reform for their organisation is a cultural shift. One senior civil servant said ‘the next big change is culture change. We need a larger risk appetite and to be more creative, more innovative and deliver services in a way citizens want.’”

In addition, interviewees from all parts of the public sector talked about the need for greater collaboration – for instance, the need for NHS hospitals to share more services, and the need for a common vision.

What this means for services:
Services firms could play a role in spearheading a new way of working in the public sector, and help to introduce more collaboration. Businesses could act as crossover organisations between different service areas, smoothing the path to building better networks. There is likely to be a need for all sectors of the economy to pull together as the UK heads towards Brexit, and for the public and private sectors to become more porous, not only to collaborate but to move talent between them.

Digital transformation is behind where it should be:

Public sector leaders were very vocal on the topic of how the sector needs to accelerate its digital transformation. One interviewee said: "We’re at digital 1.0 but digital 3.0 or 4.0 is where we need to be," while another added: "There’s a lack of competency to lead in a digital environment. That’s one of our huge training needs.”

What this means for services:
Services businesses have a big opportunity to play a role in improving the public sector's digital transformation. Whether this is helping to provide a strategic vision, helping with training needs, or providing new technologies, there is a large amount of work that needs to be done. Public sector leaders also said that they can find the vendor community to be disappointing, so there’s opportunity to better understand the sector and how it needs to operate in order to improve this perception among leaders.

One part of digital transformation that will continue to gain momentum is automation and the evolution of the connected worker. Services companies have a chance to lead this, improving the day-to-day lives of staff and making processes more efficient.

Did you find this useful?