Local government: shared burden

When Alistair Darling announced in the autumn that he wanted the public
sector to make £35bn of savings by 2011, he unleashed a bit of a monster. How
could the public sector meet the savings targets and still deliver frontline
services in a recession?

For many months, shared services have been touted by government, the Audit
Commission and analysts such as Ovum as a possible answer to this quandary.

Ovum has predicted that by 2012 total spend on shared services will amount to
£729m. The Audit Commission recently claimed that £1.2bn in back office IT
savings have already been made by local authorities.

Without doubt shared services have a massive role to play in helping the
public sector achieve cost saving targets and finance departments have an
influential role in making this happen. But any decision on adopting a shared
service scheme has to be made with eyes wide open.

Shared services are a work in progress. They can and probably should evolve
over time as service demands change and perhaps opportunities with new partners

There is a fundamental need for flexibility in the underlying financial
management structure to cope with this and although you can never truly
future-proof a shared service structure, you can have vision.

Understanding that at some point you will need to make changes and minimising
the cost of them in advance is sound thinking. After all, a shared service is
supposed to save money, not just for now but for the long term too.

But there are shared service failures, such as the now non-existent Surrey
Health Informatics Service. Also, last December the Public Accounts Committee
criticised the Department of Transport’s shared services scheme.

It was revealed the project will end up costing £81m when it was designed to
save £57m. PAC chairman Edward Leigh blamed poor procurement and testing of the
IT system making everything else unstable and costly to manage.

An opportunity for review

These are big blows to shared service morale. If finance staff fear the
impact of change then examples such as these go a long way to stoking the fires.
It’s a basic requirement when setting up a shared service that the underlying
software and IT has to cope with the variable demands of the shared service
stakeholders. Any rigidity in the software will cause ructions and this usually
leads to a stream of expensive external IT support staff to iron out problems
which could have been avoided.

The sheer size of the project was also an issue. A big bang approach to any
change project rarely goes smoothly and often disrupts the essential daily
routine. In an ideal world, finance departments would see zero change to their
daily routines and processes as a result of sharing services. This is possible
but companies should view this slightly differently. Implementing a shared
service is an opportunity to review and improve processes.

If you accept that the premise behind a shared service is to create a finance
and administration organisation that adds value and deploys consistent high
quality e-business processes then you have to accept that existing processes
have to be reviewed. So what about other potential knock-on affects?

Organisations running a shared service should see costs per transaction
significantly reduced from day one. As well as getting economies of scale out of
any initial outlay on IT investment, organisations should also see greater
consistency in data with lower error rates because of increased automation.

Perhaps the biggest barrier to shared service implementation is the fear of
loss of control, redundancies and security risks. But no shared service should
give you loss of control over your own data or expose it to potential security
breaches any more than it is already. Security measures can be imposed.

Redundancies are possible but this is dependent on individual cases and
whether or not the shared service is set up in a different location. Some
organisations may look to relocate a shared service to take advantage of tax
incentives, enterprise relocation grants or just a cheaper workforce area.
However it could also provide a platform for new services, for growth and
potentially more, not fewer employees.

The success of shared services is in the detail. From finding like-minded
partners that share the vision and drive to identifying key IT applications and
systems, organisations need to treat shared services as a long term project with
intermittent shorter term gains.

As well as tight controls over spending and input from key finance staff,
this project should demand a rethink in service provision across the
organisation. Ultimately it should form the backbone for growth while
contributing nicely to Darling’s demands for efficiency savings.

Case study: Berkshire

There is plenty of theorising around shared services at the moment so seeing
a real example of how it can work well is valuable. Berkshire Shared Services
(BSS) was an early adopter of the idea. Hosted by the Berkshire Healthcare NHS
Foundation Trust, it was established in 2001 and provides a wide range of
non-clinical support services to the NHS and other public sector bodies in
southern England.

It has under management, more than £165m of physical and IT assets as it
provides support functions in finance, estates and facilities and health
informatics. According to managing director Paul Rowley, the aim of the services
is to enable trusts to concentrate on their core services while also providing a
more cost-effective option in non-clinical services, such as hospital cleaning
against the MRSA bug.

Mr Rowley adds that over the last four years BSS has delivered cash releasing
savings of £3m to clients each year as well as delivering a further £4m of cost
avoidance. It has also kept back office functions operating and growing during
three major organisational changes while dramatically improving service delivery

Grant Buckley, director of finance at BSS adds: ‘We operate in ways that are
fundamentally different from most shared service organisations. We view
ourselves as owned by our clients, and are extremely flexible. We know that one
size doesn’t fit all and our service reflects that.’

Today, BSS is busy rolling out the procure-to-pay programme across the trusts
it serves. This will give around 1,500 users the ability to order goods and
services and authorise their invoices online, all through the Agresso Business
World system which underpins the shared service.

It’s a simple outsourcing idea, taking away non-core functions of public
bodies and wrapping them up into a specialist service. Each organisation
therefore reaps the benefit of the shared service’s economies of scale, freeing
up vital funds to be redirected to frontline services.

Anwen Robinson is a director of software firm

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