Shared Services – Should we Move Faster to See the Benefits Sooner?

[#1]

Getting something right doesn’t make good headlines, especially where government IT is concerned. Which is probably why the publication of ‘Government Shared Services: A Strategic Vision’¹ in July was overshadowed by the release of the report into the National Programme for IT in the NHS². Guess which one contained the bad news?

But for me, it’s the Shared Services Vision that makes for a more interesting read; and not just because it talks about an initiative that is going to plan and has a heavy dependence on ICT. The paper appears to formalise a change in mindset away from the traditional view that ICT is a cost to be borne – a necessary evil – towards one where investment in ICT can deliver business benefit beyond the boundary of technology.

Many of us, across the public and private sectors, have experience of legacy IT systems that fail to keep pace with evolving needs. This is often compounded as we simultaneously contend with multiple systems. Duplication, lack of interoperability and dwindling support often imposes avoidable overheads on the operation. Tackling the ‘IT issue’ in isolation is frequently a typical and logical first step. Resolving legacy problems doesn’t always eliminate legacy thinking and ICT continues to be seen as a financial burden. For the public sector, moving beyond this stage is critical and the Shared Services Vision shows it is happening. This is a significant moment for public sector ICT.

Anyone involved in a private sector merger or acquisition knows that duplication is attacked with a passion. HR, payroll, procurement, and other back office functions are brought together to drive improvements in efficiency and consistency. ICT becomes an enabler for change and frees up scarce resources to deliver front line services. So it comes as no surprise that central government is doing this as part of its efficiency reform. Already, three departments are reporting annual savings in excess of £65M¹. A glance at the SOCITM site shows this is an initiative the whole of the public sector is talking about. This is an encouraging start but there is still a long way to go.

The government’s own estimate is that shared services across central government can deliver savings of £500m on the current cost of £2.5Bn. Just think what a difference this could make if moved from the back office to front-line services. But the shared services concept is not new. For instance, Cambridgeshire and Northamptonshire County Councils have been working in partnership in this respect since 2007. There are many other examples too.

So are we right to ask if the initiative is moving fast enough? I think the private sector would vigorously pursue this kind of saving.

The Shared Services Vision does give us a clue. The majority of existing central government shared services are clustered around the main departments of state with very little sharing between departments. The big savings come when common services are shared across departments rather than within them. The Efficiency and Reform Group (ERG) has developed a future shared services model that sees two independently operated shared services centres in effect competing for custom across government departments. Following a due diligence exercise, the ERG will report back in November 2011¹. To date there are no timescales although 2013 is seen an inflection point when support for many existing platforms will be withdrawn.

But, in the current economic climate, I can’t get that £500M out of my head. Should the government be more aggressive in pursuing these savings? How would a private enterprise approach this opportunity? What can be done before 2013 to maximise savings? Is this just a matter of scalability and secure access or should other factors be taken into account? Should collaboration be planned for when implementing shared services? Do you think ICT will now be seen as an investment rather than purely a cost.

Sources

¹ Cabinet Office (2011) Government Shared Services: A Strategic Vision

http://www.cabinetoffice.gov.uk/resource-library/government-shared-services-strategic-vision (10 August 2011)

² House of Commons Committee of Public Accounts (2011) The National Programme for IT in the NHS

http://www.publications.parliament.uk/pa/cm201012/cmselect/cmpubacc/1070/1070.pdf  (10 August 2011)

³ Cabinet Office (2010) Shared Services

http://www.cabinetoffice.gov.uk/resource-library/shared-services  (10 August 2011)

[#2]

There is no evidence for shared services. 

It is all estimates, projections and surveys.

Even the supposed mature shared services providers South West 1, DfT, RCUK are beset with snags, late payments, criticisms of poor services, and loss making.

There is an evidence factory generating these estimates, projections and surveys (IT companies, private Business Processing Outsourcers, Consultancies and Thinktanks funded by providers).

Professor John Seddon, an expert in service organizations with extensive experience in public sector systems says that there are two arguments for sharing services. The ‘less of a common resource' argument and the ‘efficiency through industrialisation' argument.

The former argument is ‘obvious': if you have fewer managers, IT systems, buildings etc; if you use less of some resource, it will reduce costs. But the reductions are often minor and one-off.

The second argument is ‘efficiency through industrialisation’. This argument assumes that efficiencies follow from specialisation and standardisation – resulting in the creation of ‘front' and ‘back' offices. The typical method is to simplify, standardise and then centralise, using an IT ‘solution' as the means.
The problem with the industrial design is simple - it doesn't absorb variety in demand. Because of this, costs soar as the IT system has to be modified and customers ring back again and again because they can't get what they want.

Worse still once shared, costs can be locked-in by contracts, SLA agreements and other un-evidence and poor management practice.

The evidence of this flawed theory can be found everywhere. In HMRC or South West One shared services which predicted savings of $176 million over 7 years and actually recorded a pre-tax loss over its three financial years. Duplicate payments sitting at $772,000 and a struggle to manage $12.9m in outstanding debts.



This year Western Australia followed Queensland in ending its shared services. It was claimed that it would save $58 million a year and instead cost $444 million dollars (no savings). It is estimated that it will cost taxpayers between $1 - $2 billion dollars to rectify.

That the Efficiency and Reform Group are promoting shared services, with no evidence-base is a national scandal.

[#3]

@Howard.........you can throw as much sceptism at the concept of Shared Services as you like.....but the real fact of matter is that we cannot carry on approaching the way we do business currently.

If the Private sector with the same budget constraints can work closer together with very profitable outcomes, then there should be no reason why the Public Sector can't follow suit.

Your article makes you sound like a "half-empty" kind of guy....the kind of guy that always has problems with change.

Prove me wrong and come up with a viable alternative?

Robin

[#4]

It's great to get the debate going and I'd offer these additional comments: first off the savings of £65M I quote in the blog come from the Cabinet Office (click on the Shared Sevices Vision link and you will see it all laid out). These are actual as opposed to projected or estimated future savings. I would also add that Francis Maude through the Efficiency and Reform Group is driving through the whole shared services agenda. He doesn't strike me as the kind of person who would do this unless he was absolutely convinced it will deliver tangible results.

I'd also point to the following article  http://www.guardian.co.uk/public-leaders-network/2011/apr/04/shared-services-savings-local-governmen... where a public service leader describes their early experience.

Finally I'd offer up my own exeperience. I worked in a PFI for the MoD which delivered audited savings of £700M over the first ten years of its life. Part of this was to share services (an element of which I was personally responsible for). This dramatically reduced the cost of delivering the service for the MoD and also gave better cover around the clock. I will concede that the nature of the service lost some of its local knowledge and personality but the basic function of the service we delivered was sound.

Howard, you give examples of where shared services has failed, I can find examples of where it has succeeded. Maybe what we are saying is that the theory is sound but the practice and implementation - in the public sector - is at an early stage and needs to be refined.

NP