The prize for public sector savings through shared services arrangements is huge, with some reports estimating it could slash budgets by hundreds of millions of pounds. With such significant cost reductions to be made, we examine what makes projects work
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Shared services can take various forms, including projects being delivered entirely by third parties; single authorities leading arrangements; each organisation being responsibly for one particular function, or even mutualised arrangements.
However, despite estimated savings of millions-of-pounds, central government’s recent £1.4bn purpose-built shared services centres have failed to achieve value for money, according to a report from the National Audit Office (NAO).
John Collington, the Cabinet Office's chief procurement officer, is charged with overseeing the government's next generation shared services strategy. He believes central government is learning from its previous mistakes in attempting to implement shared services. “We have taken on board the findings and recommendations of the NAO. Over customisation being one of the central criticisms,” he says. “Moving forward as part of the next generation of the strategy we will be looking at more standardised solutions.”
This will include the creation of two independent shared services centres, he says. “This will include the introduction of tier two suppliers,” he says.
Tola Sargeant, analyst at TechMarketView, says the uptake of shared services has been disappointing to date, but central government departments are coming under increasing pressure to adopt this model. “Larger departments may well be able to justify setting up their own shared services offering but smaller entities will increasingly be obliged to tag on to an existing shared services arrangement," she says.
One major central project is the Department for Transport’s £750m deal for a Shared Services Centre expected to be announced this year, which will provide HR, finance, payroll and procurement services to the DfT and its four agencies. The idea is that this will become one of a handful of shared services centres used across government, with hopes to include a number of SME suppliers.
However, there are cultural barriers to progress with some departments retaining in the uniqueness of their IT, says Sargeant. “There remains work to be done to standardise and simplify corporate processes for finance, HR and procurement across government.”
Outside central government, shared services is expected to grow at a much faster pace, with local authorities encouraging other public sector organisations to piggy back on their back office and IT outsourcing deals, says Sargent.
Ed Garcez, CIO at Lambeth County Council, is doing exactly that with an ERP shared services deal set to include six London authorities. This number is expected to grow to a total of 10 authorities, but Garcez says even more could join Project Athena once it has got off the ground.
The key will be to take an iterative approach, he says. “The aspiration is we will move to shared services to transform the ERP performance. Originally three authorities committed to the project, and at the time we estimated £12m in savings, but across six local authorities this could rise to £20m."
The project has a good chance of success because of the strong commitment from all partners involved, he says.
“The political priority is that we all have resources for front line services, and things are done collectively.” Although head count reduction is a likely consequence, long-term he says it could result in more IT jobs, as authorities already outsourcing services might chose to buy from a London consortium once their contracts are up for renewal. “It could lead to a growth in jobs as demand [for our shared services] increases. We’ve already had approaches from authorities outside of London.”
Sarah Burnett, public sector outsourcing head at consultancy firm NelsonHall, says setting up shared services is complicated because of differing cultural requirements. “Organisations really need determination to push them through and not let a bigger, dominant partner in another organisation fit requirements to their needs as opposed to finding a mutual solution.They can often end up with an in-between solution, rather than making the most of the efficiencies.” Burnett says it is not uncommon for organisations to drop out of shared services arrangements before they even start.
“There are certainly economies to be made if organisations get it right. But the arrangement must be flexible instead of being a heavy machine. Rather than starting from scratch with a new service, it may be worthwhile for an organisation to join another that is successfully running that same service.”
Burnett says in the future shared services will not necessarily be in the form of long-term contracts, but delivered on a utility basis, with more elasticity built-in through cloud services. “Not necessarily in the form of ERP at the moment but through other application services. The cloud makes it easier for a more standardised and commoditised model,” she said. “They could be more flexible and cheaper through pre-negotiated prices.”
TechMarketView’s Sargeant agrees, adding that a compelling business case is a pre-requisite for success, particularly where adoption is not mandated. “Where shared services projects have succeeded in the past, they've had strong leadership with good buy-in from all the organisations involved, including private sector partners.”
Public sector austerity means more organisations will have to team up and share services and systems in order to save money to protect frontline services. However, it will be crucial that arrangements are not entered into in haste, with organisations taking time to consider the various solutions on offer. But in the current climate ignoring the savings available through shared services is not an option.