Offshoring: Should the government send IT work abroad?

Replacing public sector workers in the UK with cheaper labour overseas has until now proved too hot for any UK government to handle.

As such, politicians have steered clear of publicly supporting the idea of significant amounts of government IT work being carried out in offshore locations, such as India.

The reason for Westminster’s reticence is understandable – those left unemployed once their job is transferred abroad will still get to vote and are unlikely to forgive a government which put them out of a job. On top of this, sending financial details or medical records abroad is unpalatable to many who fear for their data being handled overseas.

Despite this there is an amount of government work now being offshored – such as application development.

But this muddled state of affairs could be about to change as Whitehall appears to be contemplating publicly embracing IT offshoring for the first time.

Members of the government’s CIO Council are examining whether IT development work “across government” could be carried out in low-cost offshore locations such as India, according to the recently published Government ICT Strategy.

The council’s Strategic Supply Board (SSB), a committee of government CIOs and representatives from Whitehall’s top IT suppliers, will look at the “feasibility and suitability [of offshoring IT services] for implementation across government in areas such as application development” the ICT strategy document says.

An SSB study, which was launched in November 2008, has already identified IT offshoring “as a potential way to increase efficiency and effectiveness”.

Fuelling this drive to encourage IT offshoring across government is the need to find savings to satisfy Treasury demands to cut ?3.2bn from central government’s annual tech bill.

By following the lead of the private sector, which has long been turning to locations such as India and China to deliver and develop its IT systems, government departments could both enjoy a lower cost IT service delivery and also tap into a burgeoning technology skill base abroad.

Tech suppliers estimate that companies typically save about 30 per cent by moving IT work offshore, principally through lower labour costs.

A spokeswoman for the Cabinet Office said the SSB would examine where IT offshoring could help reduce the cost of the government’s IT bill, a central goal of the ICT strategy.

“The ICT strategy will enable government to work in smarter, cheaper and greener ways,” she said.

“As part of its work, the supply management strand of the strategy will, in partnership with the Office of Government Commerce and private sector partners, build on existing work to examine where outsourced or offshored IT work may appropriately take place.

“Key considerations in this process will be the legal, regulatory and information assurance requirements that ensure that systems remain reliable and secure.”

The National Health Service is one user of offshored IT and business process services, a choice that a Department of Health spokeswoman said offers “substantial savings and efficiencies”. Systems for the ?12.7bn revamp of NHS IT have been developed in, and will be partially supported from, India and the US. Meanwhile the NHS Shared Business Services centre in India processes payroll data for more than one quarter of NHS trusts.

But UK government CIO John Suffolk – who attended Nasscom, India’s outsourcing industry annual conference, this month – stressed the security of citizen data would remain a key consideration in contracts.

He said: “Clearly offshoring is an issue that we have to consider from a security point of view, from application build to secure networks to sending citizen data offshore.”

But is there any evidence that low-cost destinations such as India and China are inherently more insecure than the UK or other western countries such as the US, and should data security be used as an argument to limit what work the government sends offshore?

Labour MP Andrew Miller, chairman of the Parliamentary Information Technology Committee, believes government should be very wary about offshoring to any destination that does not have as robust a legal framework for protecting data as the UK.

He said: “The absolutely critical thing, wherever data is managed, is the security of that data.

“There are some countries that do not meet the same standards of care that we theoretically do. The legislative framework is not the same.

“I am thinking of India, that relies entirely on an industry code of practice, with no statutory basis as the vehicle by which data protection occurs.

“It is hard to persuade the public that equates to the same degree of safety as what occurs in the UK.”

However local data protection laws in offshoring destinations may not be as relevant to safeguarding information as is commonly believed.

Bridget Treacy, partner with law firm Hunton and Williams and specialist in European data protection law, said UK organisations that send personal data abroad for processing by off-shore vendors will still remain responsible for the data under UK data protection laws.

Treacy said: “Organisations cannot outsource their compliance obligations, and this includes data protection and data security compliance.

“In the EU, it is a legal requirement to agree contractual terms covering data protection where those data are processed by a third party.”

Many private firms already process a variety of personal and financial data in locations such as India without incident, and Treacy added that today there is little evidence that information handling is any less secure in India.

“There was originally a lot of resistance to data being offshored to India so the Indian vendors have had to focus very heavily on security,” she said.

“The security there is usually very, very tight and often better than what you would get here because it is a focal point in the due diligence phase of the contract negotiation.”

But potentially the biggest hurdle the government has to overcome on offshoring is how to sell to the public the idea of sending jobs overseas at a time when unemployment stands at a 15-year high.

Martyn Hart, chairman of the National Outsourcing Association, said: “The real problem is the politics.

“If you are the MP for Bootle, are you really going to suggest that national savings [part of HMRC] moves all its IT jobs to India and be left with 5 – 6,000 people unemployed?

“Imagine what each MP will think if that started to happen around their constituencies. There’s a big issue that government’s have to deal with.

“The way that they have been dealing with it at the moment is they have outsourced to Anglo-Saxon sounding companies like EDS, Steria and Logica who in turn then offshore to places outside the UK.”

If the argument for increasing IT offshoring were to be presented in the right way, Hart believes that the electorate could be won round – citing a US survey that found taxpayers would support tax jobs being sent offshore if it were to save each person one cent off every dollar in tax.

Sureyya Cansoy, associate director and public sector lead with UK IT industry body Intellect and a member of the Strategic Strategy Board, said: “I am sure that the government are considering the political sensitivities around offshoring, for example will it be seen [that] there are issues around unemployment in the UK but here we are giving work to people outside of the UK.”

Miller said politicians must choose the most effective way of delivering IT services while not forgetting the impact that offshoring has on those losing their jobs.

“In the whole debate about the import and export of work we have got we have got to keep an eye on the big picture all the time,” he said.

“But at the same time we need to remember there are real people that get affected when a change occurs and if somebody loses their job through a tech transfer we need mechanisms in place to address that.”

In the private sector it is common for staff whose posts are transferred offshore to be retrained to perform other roles in the business, although inevitably there are usually some job losses as well.

But offshoring IT work poses more than just a prickly political problem, there are less entry-level IT jobs available in the UK today because they are being performed offshore, according to sector skills body e-skills UK.

Karen Price, CEO of e-skills UK, said: “The global sourcing of IT services means that, although the UK’s IT professional workforce has continued to grow despite the recession, many traditional and entry-level IT jobs are no longer performed in the UK.”

But this needn’t mean there are less jobs to go round, simply that the IT positions available in the UK in future will require more than a single skilled technical job, such as application coding.

“There is instead a growing need for highly skilled, multidisciplinary technology professionals to take on higher value roles,” said Price.

“These often require an understanding of how business works and demand capabilities not only in technology and systems but also in project and people management.

Parliamentary Information Technology Committee’s Miller agreed that training was key to provide IT jobs to replace the low-skilled posts that are sent offshore: “There is an acceptance that the high value jobs will come back to the UK. We have got to continue to invest in teaching Stem subjects and IT.”

Hart said offshoring is filling a IT skills gap in the UK that already existed because not enough people choosing a career in technology.

“An argument against offshoring is that if all the experts on Java++ are in India then there’s no one in the UK when you need them,” he said, adding: “The problem is that there is no one in the UK full stop.”

Last year’s Skills Survey found that a fifth of employers had IT positions that they were unable to fill.

Hart argues that offshoring provides workers to fill the lower level IT skills, such as application coding, that the UK lacks while not undermining higher level IT work, such as systems architecture design.

The impact on the UK economy, and the UK IT industry in particular, is another argument that is levelled against IT offshoring.

Public sector spending accounts for about 28 per cent of the value of the UK IT market, so cutting spending could have a significant impact on the industry as a whole.

However Intellect’s Cansoy said that there is an argument that offshoring low-skilled IT work will enable IT workers in the UK to focus on carrying out higher skilled work, increasing the value of the service they provide and helping to compensate for the lost value of the offshored work.

Hart said the UK population may boost the economy by spending more as the better value for money provided by offshoring means “taxes don’t go up as they might and public services don’t suffer as much as they could”.

He also cited a study by the former Department for Trade and Industry that found that for every ?1 worth of work that was offshored the UK got more than ?1 back through increased spending by foreigners, such as individuals coming on holiday to the UK or buying insurance from a British company.

Hart said there could be “a significant amount of savings to be realised” by increasing the amount of offshoring in the public sector and said it made sense to give suppliers a freer hand to deliver those services in the most cost-effective way possible.

“We don’t want vast government departments full of civil servants, we want thin departments that commission IT and back office services and rely on other people to delivering them, and if that delivery has an element of offshoring then we have to live with it,” he said.


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