Datamonitor expects that over the next three years, UK local councils’ will pump a total of $1.22 billion more into external ICT. 2004 expenditure will rise from $3.31 billion to $4.53 billion by 2007. ICT-related revenues to be garnered from Germany and France, the second and third largest local government ICT markets respectively in Europe, will continue to lag behind the UK, which is Europe’s most advanced.
Local government in Europe is currently undergoing significant changes and modernization. A group of public service reforms is aimed at putting citizens firmly at the center of public service provision. Technology is widely viewed as an essential means of enabling this modernization.
UK councils have a better technology understanding
The UK has taken the lead in local government technology deployments. This stems from a combination of the requirement (and desire) to improve citizen services and the fact that UK councils are typically more technologically savvy than their continental counterparts. In short, many councils are increasingly aware of the potential of technology to improve their operations.
A number of government initiatives such as the implementing of electronic government (IEG) statements, the comprehensive performance assessment (CPA) measurements and Pathfinder projects have all served to focus local authorities’ minds on IT investments. In Datamonitor’s view, the continued drive towards eGovernment in the UK combined with rises in IT budgets (albeit single-digit rises) indicates that the market will continue to provide a healthy opportunity for technology vendors.
Cultural and structural differences explain country variations
Datamonitor forecasts French local authorities’ external ICT spending to increase from $1.65 billion in 2004 to $2.02 billion in 2007. The French market is dominated by the strength and control of its central government. Budget constraints together with local government’s limited willingness to engage with non-French suppliers is impacting local authorities’ ICT expenditure.
Local government external ICT spend in Germany will grow from $2.4 billion in 2004 to $3.02 billion in 2007. Germany’s federal government system does ensure that the Lander have high budgets and this translates into some large technology deployments. Yet despite its larger population and greater number of local government institutions, the German market too lags behind the UK.
Although German local authorities are fully engaged in the eGovernment process and are keen to enhance levels of citizen service, it is still the case that tight ICT budgets, in large part related to the costs of reunification, are impacting technology spending. A Datamonitor survey of German local authorities in May 2004 found that just 52% of authorities are going to be able to deliver their BundOnline requirements by the 2005 deadline.
With government initiatives and good levels of IT understanding, coupled with councils’ higher comfort levels in outsourcing IT and engaging with non-local suppliers, the UK is currently the most advanced market in Europe. EU and national initiatives in France and Germany, along with their large populations and high numbers of local government institutions, suggest that the France and Germany have the potential to catch up with the UK in time. However this is unlikely to occur in the coming years, primarily due to continued budget constraints.
An increased focus on the back office
At present, the heavy focus on improvements to citizen services has led to strong investment in front-office solutions such as contact centers, customer relationship management (CRM) applications and portal-based solutions. Indeed, front-office solutions are currently the second largest area of technology spend, estimated to receive $529 million of investment from UK councils in 2004. However, once the 2005 eGovernment targets have been met, front-office spend rate will slow. In contrast, the need to improve efficiency will see local authorities begin to shift spend from Internet-based solutions to enterprise resource planning (ERP), financial solutions and replacement of back-office systems.
The passing of the 2005 deadlines for achieving eGovernment is not set to limit ICT investments in the UK. Local authorities will continue to invest heavily in technology, shifting more of their focus to solutions that improve internal efficiencies. Those vendors and service providers that recognize the subtle changes in local authorities’ ICT investment requirements will be best positioned to take advantage of forthcoming market growth.
