Northgate eyes up lucrative local government outsourcing

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The Independent Online

Northgate Information Solutions is set to enter the local government outsourcing market as it looks to strengthen its public sector business after a disappointing performance in the first half.

Northgate's public sector revenue declined 2 per cent during the period, slightly offsetting strong growth in its human resources and managed services divisions.

Chris Stone, the chief executive, said yesterday that he expects further softness in its public sector business over the next year as a result of local government departments taking longer to make strategic decisions as well as the restructuring of the UK police force.

Northgate is considering ways to transfer its outsourcing model in the commercial sector to the public sector to win longer-term, more lucrative contracts. In the public sector, firms like Capita and Xansa provide Northgate's software as part of wider IT services contracts yet, in the private sector, Northgate acts as the outsourcing provider. It recently won a deal to outsource Alliance Boots' HR department and took on 40 staff.

The government outsourcing sector has become a more attractive source of revenue for European IT services firms as competition from large US systems integrators and cut-price Indian IT services providers has increased. Azim Premji, chairman of India's Wipro, said at the World Economic Forum's India Summit in New Delhi: "A lot of IT services companies in Europe and America are running fat margins with very out-of-date business models."

Mr Stone said that he is confident about Northgate's growth prospects after talks with potential private equity buyers broke down earlier this year over price.