Dear Tim,

Thank you for the invitation to share notes on the potential impact of this new government. As ever, a vigorous debate! You had taken exception to my recent observation that: "I see the same conservative caution today amongst the UK government's technological fraternity that I inherited at ICI in the early 1990s. And that conservatism may put at risk a very real opportunity to strip out major elements of public sector costs while increasing the responsiveness of government services."

You asked me to write a short brief that you could use in your internal debate.

As Brutus says in Julius Caesar: "There is a tide in the affairs of men which, taken at the flood, leads on to fortune...". And I argued yesterday that the government stands at one such turning point in the commerce of the technology sector.

I faced just such an opportunity at ICI in the early 1990s. I positioned a series of transforming outsourcing deals as business propositions to be marketed on the basis of informed market knowledge. I brought in an experienced M&A negotiator to do the heavy lifting. He and I rewrote the group IT landscape to ICI's major financial benefit and gave the company new manoeuvrability as it acquired and shed businesses through the decade.

Read Richard Sykes' previous letter to a public sector CIO

Two key developments have pulled the foundations out from under the business models of the long-established IT services companies that dominate the government's existing outsourcing arrangements. One is technological - virtualisation has re-written the book on the highly automated manufacture of technology-enabled services. The other is commercial - the exploitation of the first by the likes of Amazon, Google and Apple to create a new marketplace in highly automated consumer services delivered over the web. These ventures are now moving to attack the enterprise and government markets. Here is the opportunity!

I was challenged recently to explain why consumer services were the initial venture battleground, rather than services for the business enterprise. The answer is, of course, that the individual consumer suffers neither the restraints of legacy systems nor the vested interests of an IT department to hold it back. Get the latest computer and a passable browser and the world of e-commerce is at your feet. And therein lies the heart of the challenge and the opportunity that this new virtual marketplace of technology-enabled services presents the current government.

It is a major consumer of technology-enabled services. It is on the record that it must succeed in stripping out costs on a major scale to reduce the deficit. It thus has powerful cards to play, provided the suppliers believe it is genuinely serious.

The IT services firms that dominate the current government contracts know that they must radically transform their business models to survive. A concrete example: most of the suppliers who operate the 130-plus datacentres that service the government will be replaced by a small number of specialists in running the new-generation factories that manufacture and deliver infrastructural services with economics that match Amazon's Elastic Compute Cloud.

These companies know that they must transform, and they have the means to so do in their strong and cash-rich balance sheets. So the government strategy should be clear: all current contracts are up for renegotiation, the government as client will not inject any new cash and no contracts will be extended (that simply locks out new suppliers). The overriding demand will be to get costs out, and fast.

The market has to believe that the government is serious and this requires market confidence that the government's own internal transformational agenda will be tackled with equal vigour. Firstly, government departments have long procured technology-enabled services but I have yet to find one whose accounting systems allow them to scope the full costs of these services as procured. The IT fraternity blocks the way, focusing on servers and head counts when they need to focus on procuring services.

Secondly, across the breadth of government there is the urgent need to 'standardise to commoditise' a whole range of back office and front office services. The challenge to the government's desktop strategy must be 'Google has set the benchmark at £30 per user per year - how can any service price much above that be justified?'

And security cannot be made the new Maginot Line. Contemporary best practice can deliver the government's security requirements if the determination is there. Public clouds can certainly be used to securely source services to Incident Level 3 (IL3) - and that covers the major part of the government's current requirement for technology-enabled services.

The government has a strong hand to play. It now has to convince markets that it has the strength of will to play that hand.

About the author

Richard Sykes was vice president of IT at ICI in the 1990s and is now a consultant