Is the evidence of shared services success flawed?

I blogged yesterday about the fact that local government’s adoption of shared services is accelerating. I outlined a few groups of councils that are embarking on shared services journeys.

These included:

-Surrey County Council looking to share a comms network with nearby authorites;

-Four London boroughs that are looking for a systems integrator to support their plan to share a single instance of Oracle’s latest ERP software

-Glasgow, Inverclyde, East Renfrewshire, Renfrewshire, East Dunbartonshire, West Dunbartonshire, and North Lanarkshire joining up services in to save around £30m a year.

A comment was left on the blog by Howard Clark (this might not be real name), which is very interesting and balances the debate. After all the reason I blog about shared services is to get a debate going about them.

So here is the response if you have not already seen it.

By Howard Clark

“A few corrections if I may.

My understanding is that West Dumbartonshire is pulling out of the Clyde Valley shared services scheme. They know that there is no evidence to support shared services, just estimates, projections and surveys generated from within the shared services industry.

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 $176m 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 $58m 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.”

Also see: Can shared services do more than just cut overheads?