Cost concerns and staff loyalty deter public sector CIOs from sharing services

News Analysis

Cost concerns and staff loyalty deter public sector CIOs from sharing services

Karl Flinders

Shared back-office services are being established across the public sector by pioneering organisations as well as service providers, but for public sector bodies yet to make the move there will be difficult decisions and compromises to make.

Ovum predicts 50% of European public sector bodies will use shared services in two years, but says: "Despite the benefits offered by pooling resources or taking them out of house, the option of sharing resources - such as receiving back-office functions from another agency - or outsourcing entire functions to a third party, hasn't gained significant momentum outside Europe."

Half of European public sector CIOs surveyed by Ovum said the biggest barrier to adopting shared services is concern that it will not save enough money to make it worthwhile.

Shared services are seen as key to the government's drive to cut its spending. IT service providers are creating shared service centres targeted at different industry sectors with UK public sector organisations, such as police authorities, local government and NHS trusts already tapping into them.

According to Ovum, many government CIOs are concerned that they will not offer value for money. The research found that a total of 49% in Europe and 46% in North America, said it would not save enough cash to make it beneficial for them.

Despite the reduced costs associated with sharing IT equipment and IT workers with other organisations, the move from on-premise IT to shared service can cost money up front and it can be complicated.

Jessica Hawkins, analyst at Ovum, says it is a big step and many CIOs don't think it is worth it. "The move to shared services does involve upheaval and invariably means changing software applications, which in turn can require system and data migration and all the complexity that this entails. Many agencies have the perception that there is not enough money to be saved to make this worthwhile."

Shared services in the public sector are already in use. NHS Shared Business Service is a joint venture between the Department of Health and IT services firm Steria, which began in 2005. It uses an Oracle platform and a single set of processes to run the back offices of NHS trusts. The theory is that the money saved can be invested in front-line services with more doctors and fewer back-office staff.

About 100 NHS trusts now use the NHS Shared Business Service (NHS SBS). NHS SBS promises trusts up to 30% cost savings - and even paid the NHS back £1m this year.

NHS SBS takes advantage of offshore resources. When SBS was first set up, half the workers - some 300 - were immediately in Pune, India, and this has grown to 1,200 NHS trust customers.

A project known as East London Solutions has seen the London boroughs of Newham and Havering in east London share services. Geoff Connell, who set up the service, told a Socitm conference last year: "The provision of shared services has been hyped and talked about for a long time, but now we are making real savings." He said the council had cut 20% to 30% of expenditure using shared services.

At the conference Geoff Connell called for radical changes to how local government operates. "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," Connell told last year's conference.

In June last year Cleveland Police Authority became the first customer of Steria's shared service aimed at UK police forces. The deal is costing Cleveland police £175m over ten years and is expected to save £50m in that time. The shared service provision includes finance, HR, payroll, commissioning and fleet management in Steria's dedicated datacentres. When other police forces are signed up, they will use the same infrastructure.

The £50m cost savings come from efficiencies and there were there was no redundancies because, as the first customer, Cleveland's staff are being used in the shared services centre. A total of 470 civilian staff at Cleveland Police Authority moved to Steria, with more than 200 remaining at the police authority.

Unless the public sector organisation is in a joint venture, or it is the first customer, it will be forced to make redundancies. Ovum found almost a quarter of the European public-sector CIOs surveyed said loyalty to existing staff would prevent them moving to a shared-services model.

Another example of the shared-service model is the internal shared service. Nottinghamshire County Council's recent deal with Logica, to create internal shared services. The 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.

Public sector organisations are at least considering using shared services. Many have already made the journey or already have plans in place. The pioneers who got into joint ventures with suppliers or become their first customers are now benefiting from lower costs. But for public sector CIOs moving in the second wave, there are fears of having to make large job cuts and also of losing control of operations.


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