In the depths of the recession, uncertain what the future held, most organisations were reluctant to sign significant outsourcing contracts.

In 2011, the economy was hardly rosy. But whether it was because organisations felt they had a clearer view of the future, or because programmes of work cannot be delayed any longer, outsourcing activity picked up again during the year.

“After two comparatively slow years, 2011 witnessed a resurgence in outsourcing activity in the UK,” Duncan Aitchison, North European president of outsourcing analyst firm and advisory ISG (formerly TPI), recently told Information Age.

ISG found that the number of contracts signed by private sector organisations rose 15% year-on-year, and the value of the contracts increased by 30%.

Notable deals signed by big businesses during the year included a 15-year, £1.4 billion deal between Friends Life, a conglomerate formed of Friends Provident and the life insurance divisions of private healthcare provider Bupa and insurance provider AXA, and Diligenta, a division of Indian IT services provider TCS.

Under the deal, Diligenta will provide the IT infrastructure and human resources to process Friends Life’s legacy, ‘closed book’ business – policies that require administration but that are no longer making money – taking on around 1,900 of its employees. The company expects to save around £112 million a year.

UK-headquartered drugs giant AstraZeneca had a busy year on the outsourcing front. In April, the company decided to drop the £830 million IT infrastructure management deal it signed with IBM in 2007.

The two companies spent much of the rest of the year in court contesting the terms of the Master Service Agreement they signed four years ago. IT contract lawyer Richard Thomas told Information Age that the case demonstrated the dangers of unnecessarily complex contracts. “The more complex the contract, the greater the chance that some of the terms will be contradictory,” he said.

In December, AstraZeneca awarded the contract to Indian outsourcing provider HCL Technologies instead. It also extended an existing agreement with Cognizant to include services not normally associated with outsourcing to India, including the statistical analysis of drug trial data. This suggests India-based providers are having some success in moving up the ‘value chain’ in their customer engagements.

The more remarkable trend of 2011, however, was an apparent surge in outsourcing by public sector organisations. Most controversially of all was the suggestion that some UK government bodies might send IT work offshore.

In June, for example, Birmingham City Council received widespread criticism when its joint venture with Capita, Service Birmingham, revealed plans to move 100 IT jobs to India, despite high unemployment in the city. The backlash prompted the council to reconsider the plan.

Meanwhile, Hewlett-Packard consulted with the government over a proposal to move a number of roles under its IT outsourcing contract with the Department for Work and Pensions to India. That plan was also scrapped after employment minister Chris Grayling intervened. According to ISG, although the number of outsourcing contracts (offshore or otherwise) signed by public sector organisations increased by 70% during the first half of 2011, the total contract value in fact fell by 50% compared with the previous year.

Nevertheless, the fact that government organisations were considering offshore outsourcing, previously taboo in the public sector, reveals that the economics of IT sourcing have changed post-recession.

Training for tomorrow

For Duncan Aitchison, offshore outsourcing in either sector is not simply a matter of cost, but also demographics. “Western economies have shrinking, ageing populations and the demand for technology skills needs to be satisfied somehow.”

Not every organisation addressed the IT gap with outsourcing, however. British Gas, for example, announced in May that it would invest £2 million in an IT apprenticeship scheme. Backed by the government’s IT skills development agency, e-skills UK, the company offered two-year, on-the-job training placements to 30 school leavers.

According to human resources manager Mark Stoddart, the company’s prior reliance on contract staff meant that it struggled to retain the people with critical knowledge of its IT systems. The apprenticeship scheme will allow British Gas not only to foster loyalty among IT staff, but also to develop the softer skills that have sometimes been lacking.

In the US, one of the original pioneers of offshore outsourcing expressed a similar statement. When General Electric announced that it would be moving 1,100 IT jobs back to the US, CIO Cherlene Begley told Bloomberg News that “we lost a lot of the technical capabilities” through outsourcing.

Many in the UK IT sector lay the blame for the skills gap with the education system. Certainly, when Information Ages poke to participants in the Cyber Security Challenge, a competition intended to identify young IT security talent, they did not have good things to say about their school IT lessons. One participant said their A-level IT teacher had once asked the class how to find the YouTube website.

There was a crescendo of demands for reform during 2011. In April, trade body Intellect called for ICT lessons as they stand to be scrapped. “Our member companies tell us that they often have to spend considerable time upskilling employees as a result of the current ICT teaching.”

That message was echoed in a report on the prospects of the UK’s digital media sector called Next Gen, co-written by Ian Livingstone, the founder of video game publisher Eidos. “Whilst useful in teaching various proprietary office software packages, ICT fails to inspire children to study computer programming,” it said.

These calls were answered in early 2012 when education secretary Michael Gove announced that the ICT curriculum was to be scrapped, making way for more computer science and programming-based lessons.

This could be good news for the future of the UK’s IT skills base. In 2012, however, public and private sector organisations will come under continued pressure to cut IT costs. In the opening weeks of the year, for example, Barclays Bank announced that 422 IT jobs will be cut as it restructures its technology department.

Outsourcing will remain an attractive option for many, therefore, and the availability of entry- and mid-level jobs for the IT leaders of tomorrow remains in doubt.