Government support functions: over-spending and over-staffed

Gordon Brown has delivered his much-trailed speech promising government efficiency savings. The Prime Minister repeated the promise to protect frontline services, made by Alistair Darling in April’s budget. The government’s plan has been given the title Putting the Frontline First, reinforcing the message that cuts can be made and the budget deficit reduced without too much pain. We can get rid of all those useless consultants, HR people and IT nerds and you won’t notice a thing. But surely, if it were that easy wouldn’t the government have done it years ago?

The report makes interesting reading, especially the chapters on benchmarking which incorporate the findings of the first  Operational Efficiency Programme survey. Like some others, I was sceptical about the OEP when it was first launched. However, it has delivered some useful data. For the first time we can see how the back office costs of each government department compare to those in other organisations. That the Civil Service is bureaucratic and over-staffed is one of those things that ‘everybody knows’ –  it is something parroted by commentators without any real data to back the claim up.

Until now, that is. The OEP has given us some data on spending and staffing levels and they don’t look good. The original OEP report gave average costs for back office functions across the public sector. The Civil Service averages show costs higher than those in the wider public sector and compare very unfavourably with those in the private sector.

Back office costs as a percentage of overall running costs

Function Civil Service All Public Sector
Finance  2.2% 1.4%
HR 2.0% 1.5%
IT 6.1% 4.6%
Procurement 0.4% 0.3%

 

The figures for IT spending do not include the entire central government IT budget. So-called Transformational Costs were excluded from the survey. The 6.1% is therefore only the government’s IT running costs. The costs of the government’s huge IT system implementations are buried elsewhere.

When you look at the data for individual departments the figures get even wilder. For example, the IT running costs for the Child Maintenance Commission are 22.8% of its overall running costs, presumably due the knock on effects of the system failures the organisation experienced earlier this decade. The government’s benchmarking report estimates that the banking and finance industry, with its high level of transactions and data processing, has an average IT run and maintain spend of 12.8% of running costs. So why, then, is the Student Loans Company spending 22.7% of its running costs on IT? Surely its work is no more complex than that of a bank?

But the area that will be of most interest to many of this blog’s readers is HR. The original OEP report gave an average ratio across the public sector of 1 HR person for every 80 employees. The figure for the private sector was slightly better at 1:85. The government’s benchmarking report gives a slightly less ambitious public sector average of 1:77. The mean across the Civil Service is 1:50. In other words, the average government department has a lot more HR people than you would expect to find in the private sector or even in NHS or local government organisations.

Again, some of the individual departments figures look wacky. The Department for International Development has a ratio of 1:20. That means that one in every twenty of its employees is in Human Resources. What the hell are they all doing? OK, DFID sends people abroad so there will be more HR work than usual but even so, one HR person for every twenty employees sounds excessive.

It won’t be long before journalists with axes to grind start to pore over this data. I’m sure the  MOD’s HR ratio of 1:25 will arouse some interest given some of the recent headlines about MOD spending priorities. If anyone wants to have some fun with the information, by compiling league tables for example, the dataset is in the document download box at the bottom of this page.

So what does this tell us about efficiency in the Civil Service as a whole? Quite a lot actually. Back office functions do not exist in isolation from the rest of their organisations. Almost without exception, if a back-office function is inefficient, it is only reflecting the culture in the wider organisation. In short, efficient organisations have efficient IT and HR functions. Inefficient ones have bloated and over-spending IT and HR functions. And don’t be taken in by the myth that higher staffing levels mean better service. If an organisation has an HR ratio of 1:20 or even 1:40 it is almost certainly not delivering an effective HR service. Huge HR functions are usually a sign of over-complicated policies and processes, lack of focus and the use of HR professionals to cover up the incompetence of line managers. Failing HR functions often increase in size as desperate HR directors take on more and more staff in an attempt to paper over the cracks. They are rarely successful. In over twenty years, I have never seen a high performing HR function with a high ratio of HR staff to employees. I’d be happy to be proved wrong but these data indicate that most of the Civil Service HR functions are under-performing.

By the same logic, the high levels of HR and IT spending are also indicative of organisations that have little or no control of their overheads and, we must therefore assume, have little control over their overall costs.

Politicians and commentators will be arguing between now and the election about the scale and extent of public sector cuts. However, the data revealed by the OEP shows that government back office functions are over-spending and over-staffed. Even if there were no need for spending cuts the government should still be looking at ways to prevent this slow leakage of public funds. There is massive scope for savings in back-office functions by using shared services and reducing the Byzantine complexity of internal policies and processes in government departments. These bloated organisations should have been tackled years ago. The financial crisis has, at last, provided the impetus for bringing central government up to the efficiency standards that most organisations take for granted.

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One Response to Government support functions: over-spending and over-staffed

  1. Pingback: HR Benchmarks – A Government Health Warning | HRM Today

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