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Professional Services to Grow Steadily

Professional Services to Grow Steadily

The market for professional services in Australian local and state government will reach $US855 million this year, some 4.4 percent higher than 2005, according to Gartner Research VP Richard Harris. Growth rates out to 2009 should hover around four percent.

Concurrently, Gartner says, the Australian federal government market for professional services (comprising consulting and outsourcing), omitting Defence, will reach $US865, significantly lower than the growth rate of the last few years.

"If we look back over the last few years there has been a higher growth rate in the feds. We have a huge increase going back to 2003, 2004, but it is running out at much the same overall aggregate size for professional services. The growth rates (in both state and local and federal government) going out from here are not a heck of a lot different," Harris says.

This low growth contrasts with predicted professional services spending in the US. A new report from INPUT estimates US state and local government spending on IT will grow from $US10 billion in fiscal year 2005 to almost $US18 billion by fiscal year 2010 (FY10). INPUT says outdated systems and workforce shortages in the US are likely to drive unprecedented growth of 75 percent growth over the next five years, despite the claims of many government officials.

It projects only modest growth in state and local IT outsourcing FY06. As economic and workforce factors increasingly outweigh political pressure and risk aversion and drive governments to seek outsourcing partners to support uninterrupted operations and improve efficiencies, it expects real pronounced growth in FY07.

"Outsourcing has always generated significant political debate, which in some cases has stalled this sector's growth at the state and local level," says James Krouse, manager, state & local market analysis at INPUT. "Although this market remains volatile, improvements in the state governments' financial positions have eased pressures politicizing contract decisions. This has allowed agencies to be more aggressive with their spending, particularly on the outsourcing of technical applications and systems."

The report predicts outsourcing sectors such as Applications Management, Platform Operations, and Desktop Services will continue to grow aggressively and act as a catalyst for most growth. Reluctance to surrender excessive control of system operations to outside vendors should slow growth in more comprehensive outsourcing areas like Business Process Outsourcing (BPO).

"As the economy continues a strong recovery, we expect outsourcing opportunities to increase on the state and local level," Krouse says. "However, system integrators should remain vigilant in researching government opportunities on a case-by-case basis. The loss of seasoned government workers will affect nearly all state and local agencies. While this will be a significant stimulus for outsourcing contract decisions, ongoing maintenance of outdated legacy systems will provide more definite targets for outsourcing contract opportunities."

Harris says it is difficult to compare figures from the two research organizations, since Gartner doesn't measure outsourcing as a separate entity, and since the drivers for pure consulting differ in some cases to those for outsourcing. However he says some US state and local governments have been going through strong consolidation and outsourcing exercises for some years.

"I have a case study for the state of Michigan which was doing it in the mid-90s," Harris says. "They might be trailblazers but nevertheless they are typical of what's been happening for some time. So I certainly see that there will be a substantial continuing overall growth."

But he says with shared services and consolidation driving much of the spending on professional services, such services are starting to come at a lower aggregate cost.

"There is an interesting dynamic happening here: it's not just every agency replacing what they are doing now separately with outsourcing, it's that there are aggregated arrangements being set up which do give you a better overall arrangement.

"The pattern in the US is probably more aggressive in terms of outsourcing than here, but is not a sudden change - this has been gathering pace for some time in the US," he says.

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