News Analysis

Shared services throw lifeline to budget-stripped councils

With local authorities set to be handed reduced budgets, now could be the time for them to share back-office functions.

Nottinghamshire County Council's recent deal with Logica, to create internal shared services, is an example of the benefits to be gained from shared services as well as the challenges getting there.

Nottinghamshire County Council is spending £7.4m over five years on an internal shared service to cut costs by £47m in ten years. The authority's different departments will be able to share HR, payroll, finance and procurement using services from Logica. SAP ERP software underpins the service.

The project has been in the council's thinking for years but only now, when costs have to be cut savagely, has the will to implement it been strong enough.

Tim Gregory, corporate director at Nottingham County Council, said the local authority tried to implement an internal shared service in 2001, 2004 and 2007, but the need for the level of change was not so great.

"Now the appetite for change is much bigger," he said. The council has to find £170m in cost savings over the next four years, 30% of its running costs budgets.

Mike Harounoff, business development manager local government at Logica, said despite the clear benefits, shared services have not been taken up widely in local government.

"Over the last few years we have had local authorities that want to offer shared services but local authorities not wanting to buy from each other."

But following the comprehensive spending review and with the details of local government budget cuts expected soon, this could change.

Internal shared services are a good first step to sharing services with external organisations, adds Harounoff. "What we are finding in a lot of local authorities is they need to get their own house in order before they go for external shared services." Logica has created internal shared services for 15 local authorities.

He says local authorities have a large number of departments which have their own back-office systems. A shared service within local government will not only cut costs dramatically, but it will also set the authority up for sharing services externally.

This could even include sharing services across the public sector, with for example, local authorities sharing with police forces.

Head of IT at the London Boroughs of Newham and Havering, Geoff Connell, has first hand experience of shared services in local government.

A project known as East London Solutions has seen East London Borough share services. "The provision of shared services has been hyped and talked about for a long time but now we are making real savings," Connell told a Socitm conference recently. He said the council had cut 20% to 30% of expenditure using shared services.

He says now is the time for local government to take shared services on. "Clearly with the current financial climate we have to do things differently. Incremental changes to efficiency can't carry on being the way we operate and we have to go for more radical solutions."

Local government offers huge potential to spread the use of shared services in the public sector because of it is broken up into regional operations which basically carry out the same services.

Ruth Ormsby, who was head of the NHS Shared Business Service (SBS), before recently joining Capgemini, describes this type of public sector organisation as being families.

She believes that, although there is a shared service opportunity across government, it is these families that are likely to see the most momentum.

The NHS SBS is a joint venture between the Department for Health and supplier Steria. Ormsby believes public and private sector partnerships will help take away the capital costs for public bodies. "There are huge opportunities to make savings from business process outsourcing, particularly where there are large numbers of similar organisations each with their own back office, carrying out the same tasks. In the current economic climate, local authorities [could turn] to the private sector to work with them to bring back office processes together and transform the way that services are provided."

The government is keen to introduce competition between IT suppliers to the public sector. Shared services are attractive to suppliers if there is an opportunity for them to grow their business.

With the likes of Capgemini, Steria, Logica in the running for public sector shared services contracts competition is guaranteed. Indian IT supplier Mahindra Satyam has also stated that it sees a big opportunity in local government for shared services.

Vikram Nair, head of Europe at Mahindra Satyam, says, "local government stares you in the face when it comes to shared services."

"The local authorities are all almost the same across the company. But almost everyone has its own IT departments and systems."

Nair says that if Mahindra Satyam was to enter local government shared services it would initially have to acquire assets from one authority. "We would take over a councils staff and platform and rationalise IT and make it state of the art." He said it will then offer the services to other councils.

Local government could be the place where shared services really take-off. Barriers to take-up of the past could soon pale into insignificance as reduced budgets land on the desks of CFOs over the next few weeks.

Watch Geoff Connell, head of IT at the London Boroughs of Newham and Havering, talking to Socitm about shared services

Geoff Connell - SOCITM 2010 from Socitm on Vimeo.


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