Shared services in the public sector

Shared services is yesterday's news, a project that has sunk without trace, according to an article in the Guardian. We ask whether the Guardian has it right, or whether there is indeed a future for shared services.

Shared services is yesterday's news, a project that has sunk without trace, according to an article in the Guardian. However, this great white hope for IT savings for government departments is indeed alive and well, although the thinking behind shared services has moved on.

The roots of shared services go back to the Gershon review released in 2004, which outlined a £20bn package of savings to be achieved across government. Shared services was widely cited by the report as being the best opportunity to achieve real savings.

"The supplier community feels like the agenda has stalled," says Tom Raggett, a director of the Buy IT consultancy and leader of the Shared Services Advisory Group, a group of "thought leaders" who help guide the e-government unit.

"Departments have been told they have to provide the same service or better at minus 5% cost each year. Fiddling around the edges is not going to do that," Raggett says. "Shared services is only one of many delivery models, but one which has a lot of traction at the moment."

What is now emerging is a model that embraces a softly-softly approach to encouraging departments, agencies and local authorities to adopt the shared services approach. The hope behind this is that the need to achieve efficiency targets will naturally encourage public servants to look towards approaches that are well established in the private sector.

"The move to shared services almost always involves a change to both systems and processes," says Raggett. "What makes one government department different from another one? With a vanilla set of processes, such as SAP or Oracle out of the box, you can make it work with minimal customisation - these systems work for organisations all over the world."

The effectiveness of this approach can already be seen in practice. The Department for Work and Pensions and HM Revenue & Customs have built their own platforms based on Oracle and SAP, and the Cabinet Office has handed its human resources and finance operations to the DWP.

In separate initiatives, the Ministry of Defence has established its People, Pay and Pensions Agency to offer human resources services to 80,000 staff, and the Prisons Service has taken administrative functions out of prisons into a separate unit. In a commercial organisation, these moves might be seen as consolidations rather than shared services, but Raggett says this misses the point.

"It is proper shared services," he says. "It is different from centralisation where you just put people in the same place you are creating an organisation whose job is just to do human resources or finance and to be excellent at that."

Although efficiency savings may be the driver behind shared services, Raggett points out that money is not the be-all and end-all of shared services in government.

"Success is measured by the management information that is passed through to the organisation," he says. "The Department for Transport, for example, now has an integrated platform they have taken chunks of the individual silos within transport and put them in shared services centres."

Shared services in the NHS

Outside central government, shared services is chalking up success in areas that normally make the headlines for other reasons. NHS Shared Business Services (SBS) is one of the biggest shared services operations in the world, providing finance, accounting and payroll functions to more than 100 NHS organisations.

It began in 2003 as an in-house project run by the Department of Health, but the decision was quickly reached to move to a joint-venture structure, which has been up and running with outsourcing specialists Xansa as a partner since 2005.

"If you try to do shared services internally, there can be a lack of clarity about who is the client and who is the customer," says Peter Coates, deputy director of NHS finance. "We do not have the operational skills in government to do these things, so we need the right world-class partners to make the assets work for us."

Coates also believes that this approach has marked advantages over outsourcing, "With outsourcing, you spend all your time trying to fix things in the sand: output specifications, performance specifications and so on. Shared services is really dynamic. It allows the business to grow and determine service levels based on moving customer needs."

There is no mandate for trusts to join Shared Business Services, although there is a requirement to come up with a transparent case for not ­using either SBS or adopting the Oracle platform. Capacity issues also mean that the service will need several years to reach the necessary capacity to support the entire NHS.

"The worst kind of customer is one that is forced to do something," says Coates. "A large trust with a single provider can be as effective if they are very efficient. We need to demonstrate our worth in terms of cost and quality of service."

Currently, SBS is focusing on building critical mass in London and the South East, where staff costs are highest and trusts rely more heavily on contractors. Later, these economies of scale will be rolled out to other areas.

The shared services approach has the benefit of encouraging NHS units to merge resources, says Laurence Ansell, business development director of NHS SBS, who has supported the merger of 67 NHS clients into 23.

Pooling resources at the local level

For local government, the experience of shared services is usually more of a patchwork, and local sensitivities mean that there is less likelihood of a top-down approach. However, interesting deals are being struck on an ad-hoc basis between local authorities wishing to share a variety of services.

An example of this is the creation of a disaster-recovery consortium in Wales that brings together Cardiff, Carmarthenshire and Wrexham councils to provide digital back-up for key council functions.

The inspiration for this project came from the Welsh National Assembly's decision to sponsor the Lifelong Learning Network, a 100Mbps backbone connecting Welsh schools, libraries and all 22 Welsh local authorities.

"Some authorities had their own arrangements, some had no budget," says Colin Gadd, operational manager for infrastructure and ICT at Cardiff Council. "Eight or nine showed real interest and that was whittled down to three."

The nature of the project meant that the authorities were happy for the recovery centre to be situated anywhere on the network, and by chance Cardiff had recently acquired a suitable datacentre from NTL.

After an audit to assess the hardware requirements, the consortium opted for an "open-hire" sourcing arrangement based on Sun Microsystems equipment provided by Fujitsu Services on a four-year fixed contract.

"We did not want anyone to be able to say, 'that is my bit of kit,' and break up the consortium," says Gadd. "We sliced the cost three ways, and Cardiff funded a separate link to the network. We felt that because the other authorities had to travel to use the centre, we should contribute something over and above."

Gadd says savings are hard to quantify because the nature of the service goes beyond what each council could have afforded individually, including helpdesk support and access to Sun's storage area network.

"We would be paying the same, if not more, for a traditional disaster recovery system with two three-day testing slots a year," he says. "The tests are so infrequent you take most of your time to get the data primed and only have time for a hurried test before you have to wipe the data clean."

The contract comes up for renewal in June 2008, at which point the consortium will also look at whether to open up discussions with other authorities in Wales. However, the benefits of sharing costs will have to be balanced against the benefits of extended testing.

"We always had it in our heads that if all 22 authorities wanted to do this that we would need to take a regionalised approach," says Gadd. "But it is still far more cost effective operating as a consortium than going it alone on disaster recovery."

The bottom-up approach can be taken to the point where the shared services initiative - and the risks and costs of setting it up - can be externalised to suppliers.

"Rather than having a top-down and very grand approach, which outsources entire functions at a stroke of the pen, you can build it up in small steps by persuading suppliers to take risks and market the service themselves," says Mark Thompson, director of Methods Consulting, which took this approach when asked to set up an e-recruitment system for the Department of Health.

"We said we can build you a system if you like, but it is dead in the water if you cannot market it," says Thompson. "But if we can persuade you to view this as a service delivery project, we will take the responsibility for hawking it round to the employers."

Thompson believes that this approach could open up government IT to deeper levels of sharing through the adoption of open-source techniques.

"Government is potentially very good on the supply side," Thompson says.

"There are all sorts of opportunities for people to approach local government and say, for example, I have developed an abandoned-car reporting system. The problem is aggregation of demand. Proprietary software is very good at assembling demands, open source is not very good at that."

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