Fast tracking shared services

The idea of departments sharing services has seen much discussion in recent years, but progress has been both slow and patchy. Suzannah Brecknell reports on the latest strategy to make the most of the concept’s potential.

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By Suzannah.Brecknell

03 Oct 2011

Her Majesty’s Revenue & Customs spends an average of £920 a year on HR services for each of its 73,000 ‘full-time equivalent’ (FTE) employees. The Department for Environment, Food and Rural Affairs, with just over 10,000 FTEs, spends an average of £5,137. These figures – calculated using information published by departments alongside their updated business plans this year – illustrate one of the key arguments for sharing back office services across Whitehall. When costs for common services vary so much – with the larger departments generally faring better – the obvious solution is to merge services around the most efficient models, achieving economies of scale while improving management and processes.

These benefits have been set out on many occasions, not least in the Treasury’s 2009 Operational Efficiency Programme. Former technology business leader Dr Martin Read led the IT and back office services strand of this programme and now sits on the Cabinet Office’s Efficiency and Reform Board, which oversees the Efficiency and Reform Group (ERG) charged with driving savings and improvements across several key areas of the civil service.

“The public sector generally – certainly the central civil service – has been very slow to seize the possibilities that this move should bring, in terms of not just lower cost but better efficiencies,” Read told Civil Service World. “There have been a number of internal barriers that have tended to make it more difficult than it should be to get momentum in these areas, and I hope that what we will be doing is removing some of these barriers and really getting some momentum in this over the coming couple of years.”

In July, the ERG published a document setting out the government’s ‘strategic vision’ for shared services. As the strategy notes, when it comes to shared services “the current landscape is complex”. Several departments have created shared service centres (SSCs) which provide services for their own family of agencies and arm’s length bodies. The Department for Work and Pensions has a large centre which provides not only for its own agencies but also for the Cabinet Office and the education department, while the Home Office and Ministry of Justice have a joint centre serving many of their agencies. In some of these cases “services are joined up rather than truly shared”, says the strategy document, and some departments are not formally linked to any SSCs. “There is scope to improve,” the document notes.

Independence and outside support

Having examined the current state of shared services across Whitehall, the strategy sets out five observations about the costs of, and the barriers to, sharing services effectively. The first is: “Independence [of the service provider] is important to incentivise better quality of services at lower costs”. Consequently the document sets out plans to establish a small number of Independent Shared Service Centres (ISSCs) which will compete to provide back office services across government. These centres will use a variety of business models including public, private or mutual ownership, and will “not be managed by a customer of the services provided”.

One of these ISSCs is likely to the Swansea-based centre established by the Department for Transport, which the department is in the process of selling to a private sector company. The procurement information website for this sale states that the department has “agreed with the Cabinet Office that the DfT’s Shared Service Centre will become one of a small number of centres that will provide these services to government departments”.

The DfT’s shared service programme had a number of problems during its early implementation and was the subject of a critical National Audit Office report in 2008. The fact that the department is now seeking to outsource this service supports the second observation listed in the ERG document: “Delivery of shared services is not a core government skill,” it says, “and bringing in operational and commercial expertise is vital to improving current capability.”

Shared services in central government have usually been developed with one or more private sector suppliers providing infrastructure and technology support. A director of one such supplier, who prefers not to be named, says that recent discussions with the Cabinet Office indicate that “they’re starting to weight suppliers’ ability to develop these businesses and sustain them as quite an important factor in choosing suppliers”.

This ability, he says, was a “highly rated” factor in the recent procurement to secure a partner for the existing shared service (and first government mutual) My Civil Service Pension, suggesting “that a life beyond the parent department is seen as an important factor in making these things work.”

Tom Roche, interim sales director for Fujitsu’s government division, welcomes the government’s recognition that the private sector can offer plenty of guidance in shared services, but emphasises that it will be important to establish “a very open and honest relationship” with suppliers. The first time Fujitsu ran a programme such as this with a major government organisation, he says, “We wanted to have joint risk workshops, a joint risk register and a joint programme office. The department was horrified.”

However, he continues, “once we got over the initial reluctance”, it became clear that the two organisations faced similar risks and were able to develop joint solutions to mitigate them. Now, he says, departments are more willing to be open with private sector partners “because they need help to be able to operate improved services with decreased costs”.

Joining the service

The third observation in the ERG document says that joining “a bespoke service can be expensive and issues on charging between public organisations can act as a barrier”. Treasury rules, for example, say that departments must charge for all costs when they offer a service to another department, including overheads as well as direct costs. This can skew the picture on the costs and benefits of a service, suggests David Thorpe, director of shared services at the Department for Work and Pensions (DWP), since the cost to the taxpayer of a new organisation joining his system “is not really all these overheads which are already met”.

Another senior civil servant working in shared services last year told a CSW roundtable that the rules on charging full cost mean SSCs cannot subsidise small customers, discouraging these organisations from joining. “Typically if you look at an outsourcing model,” he said, “it would have low start-up costs and [the providers will] recoup the investment over time. What we say is: ‘Come and join us, and by the way it’s £2m up-front but then we’ll offer you some reductions’.”

Joining a shared service is also complicated by the need to change or standardise processes in order to fit into the new system. As the fourth observation of the ERG document states: shared services include “a range of key components” such as businesses processes and infrastructure “that influence cost and require standardisation”.

Robert Morgan, director of sourcing consultancy Burnt Oak partners, who has been advising government on shared services for over two decades, says that resistance to standardisation has long been a key challenge. Thorpe says that DWP tries to overcome this by ensuring that new customers don’t see joining its service as “buying a brand new system” which they can tweak to support existing processes. Instead, he says, “we’re quite clear that people are getting a service”, and new partners must understand how their own processes will need to change in order to fit into the system.

The current squeeze on budgets, and the level of reorganisation across the civil service, may be helpful in encouraging people to be more open to change. The drive to standardise financial information strengthens the case for shared finance systems, for example, while the Next Generation HR programme is already demonstrating the possibility of joint working, says the DWP’s Thorpe. As the programme unifies HR policies across government “it will make shared services [teams’] lives so much easier because one of the complexities is all the different terms and conditions that prevail within government,” he says.

There is also a technological driver which may help to move the shared services agenda forward in the next year or so. Many departments are using software from technology firm Oracle to run their finance systems. The company will stop supporting the current version of this software by 2013, so many departments will need to consider upgrades. The ERG document says this “presents an opportunity for UK government” to source a shared or cloud-based standard platform for these processes. Thorpe adds that the DWP SSC is preparing to upgrade to the latest version of Oracle, and believes this will be “one of the enablers” to providing an effective cross-government service. Rather than paying for a new system themselves, departments will be able to move to a shared system which has already adopted the latest technology.

Governance and mandation

The final observation set out by the ERG team is: “Strong governance is essential and efficiency gains are proportional to the level of mandation in the use of shared services.” That is, the more organisations you force to join shared services, the more you can save.

The new ISSCs will be accredited by a central government team which will set customer service standards and benchmarks, against which ISSCs will publish regular reporting data. This team, the document says, will also provide governance and central oversight for shared services, approving strategies and providing support as departments and their arm’s length bodies move to this model. Departments will be able to continue using their own stand-alone corporate service provision where they can make a business case for doing so, but performance will be monitored against the agreed benchmarks. If they do not show better value for money than other centres, departments may be compelled to join an ISSC, or “at least be held accountable for achieving the standards set by the central oversight function”.

One local government manager who has worked on a number of shared service programmes cautions that mandation must be accompanied by a diverse supplier market if efficiency gains are to be realised. “If you set up a single centre or two centres for the provision of shared services and guarantee the supplier that everyone has to use those centres, it becomes a monopoly,” he says. “No matter how good the contract, it would still lead to a lack of competition and therefore would not allow the full savings to come out.”

A clear steer

While the ERG document maps out the objectives, it’s less clear on the process, says Thorpe. The logical thing now would be to merge Whitehall’s SSCs, he says, but “most people are waiting for a central steer rather than doing it independently”. The ERG document does provide “a high level design”, he continues, “but inevitably the devil is in the detail and I think people are waiting for that next level of detail. That could be the catalyst to move the agenda forward.”

The private sector is also awaiting more detail. The anonymous government supplier says that while “in general it’s got to be the right thing” to consolidate and improve shared services, the strategy “doesn’t really go far enough and it still leaves a lot of uncertainty”. He points particularly to a lack of clarity about the level of mandation which will be in place, and about how departments will procure the new services.

Morgan believes that the next logical step after SSCs have begun to gather business from other departments – as DWP is already doing – will be to start seeking business from the wider public sector and even SMEs; markets which are poorly served by large private suppliers. The sort of volumes this strategy would attract would, however, “swamp any existing supplier”, he says. “Therefore government needs to start thinking in a very different way. We have an opportunity here to create an asset.”

Morgan’s advice would be to invite one or more suppliers to create a joint venture with government, setting a clear target that the venture will become fully commercial within five to ten years. Employees could be given shares in this asset, he suggests, and would initially be seconded to the new organisation, only finally transferring into it when “you know it’s viable”. This model would prevent shared service centres from becoming another bureaucracy, he suggests: “You do need the disciplines of the market and you do need a timeframe for people to aim at” to achieve real change.

There are, of course, political challenges associated with the effective privatisation of government services. That, says Morgan, is why a ten year period – in which you are guaranteed at least two general elections – works well. “You still have at least two check points where it can be reversed by the next government. If it’s all working well, no politician of any colour is going to mess with it; if it’s going badly, they can say: ‘We’ll rescue it’.”

Another issue for the future will be to consider expanding shared services beyond the back office. While the ERG document focuses exclusively on shared finance, HR and procurement, Dr Read last year told CSW: “Everything you can say of back office services you can say of transactional services – and because there are more of them, the potential savings are more profound.” Roche mentions the potential to share fraud-detection processes, and Thorpe agrees that there is scope to join up work on front office services – for example, HMRC and DWP could share services to collect debt from overpaid benefits or tax.

However, he says: “We can’t seem to share very simple standard services at the moment.” The civil service may be learning to walk when it comes to shared services, but it will be some time before it can run towards the full potential of this agenda?

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