Government shared services scuppered by woolly voluntarism

Politicians of all parties make wild claims about the savings that can be achieved through sharing back office services. Cut the bureaucrats before the frontline services, said Eric Pickles when councils protested at the massive cuts they were having to make. The last government made similar claims, just with slightly lower numbers.

But shared services are no magic bullet. The theory is simple but the implementation is not easy.  I was sceptical when, three years ago, Alistair Darling claimed that 30 percent could be taken out of back office services and I have remained sceptical ever since.

So I wasn’t at all surprised by the National Audit office figures released on Friday which found that, from a £1.4 billion investment in central government shared services, only £159 million in operating costs has so far been saved. Some of this, says the NAO, is due to set-up costs exceeding budget by some £67 million but much of it is because the running costs have turned out to be a lot higher than the government’s initial estimates.

At the root of the problem is the tension between central control and local devolution. The government has set up eight shared service centres but it has not made the use of them compulsory. Central government organisations can choose whether or not they want to use the shared service centre. In some cases, even when their department has a centre of its own, agencies can choose to go to one of the others.

That’s all very well but the model, and therefore the budgeting, assumed that everyone in a government department would be covered by a single centre. If only half the staff in a department are using the centre, the unit costs will be much higher.

The report concludes:

Departments have struggled to fully roll-out shared services across all their business units and arm’s-length bodies. This is because participation has largely been voluntary. Of the five Centres we examined, three had not attracted the customers they had expected and two had potential spare capacity of 50 per cent.

It gets worse. In many cases, says the report, the client organisations have kept their old processes and therefore need to be supported with dedicated staff and a specially configured system. All they have done is shift their existing transactional HR, finance and IT activities from one place to another. The shared service centres are therefore operating a variety of processes for a number of different clients. Again, this completely scuppers the economies of scale on which the original business case rested.

As the NAO says:

We found shared services to be more complex than we expected. They are overly tailored to meet customer needs. This limits the ability for the Centres to make efficiencies as they have an overhead of running multiple systems and processes.

I said that woolly voluntarism and localism wouldn’t work and they haven’t. It’s the same problem with procurement. Devolution and local empowerment may be where it’s at now but it won’t get you your shared service efficiencies.

Of course, no private sector organisation would do anything like this. Usually, when shared services are implemented in large commercial organisations, all business units are told to use the new centre and to modify their processes to minimise any customisation. Any exceptions to the rule have to be justified. Here are your new HR and Finance processes. Now either use them or prove why you can’t. As a colleague of mine used to say, vanilla is a lovely flavour.

The NAO seems to be coming round to this way of thinking. The Cabinet Office, it says, should make the use of shared service centres mandatory:

Without a mandate, we do not think that coherent shared services are likely to be achieved. If there is an overall value-for-money case for the taxpayer, the Cabinet Office should seek appropriate authority to mandate the shared services strategy and its implementation.

It’s not very zeitgeisty but a bit of Stalinist centralism is required if the government is to get anywhere near the savings it wants from shared services. Civil service terms and conditions don’t vary that much across central government. It should not be that difficult to standardise processes and systems. Once departments and agencies know they have to use the new service, it will be in their interests to work with the providers to bring the costs down. It can be done. People in other organisations have done it.

But successful shared service implementation needs direction, planning and a bit of pushing too. As an Aussie shared services manager once said to me when I got all change managementy on him, “Ask em? We’re just gonna fackn tell em!”

And sometimes that’s just what you have to do.

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3 Responses to Government shared services scuppered by woolly voluntarism

  1. Pingback: Government shared services scuppered by woolly voluntarism - Rick - Member Blogs - HR Blogs - HR Space from Personnel Today and Xpert HR

  2. Howard says:

    Interesting as always

    And look what happened to Australia’s shared serves program even with the steely stalinist centralism.

    The thing that joined them together was a belief in standardisation, economies of scale and treating organisations like factories (de-coupling front and back office etc)

    West australia: $2b to shut down shared services office

    South Australia: Shared services a failure, say SA Libs

    Queensland: Queensland abandons IT shared services model

  3. vincelammas says:

    I finally got the time to read the NAO report and consider its implications. Take a look at my article if you want to read an alternative perspective

    I think you are right to say that a voluntary scheme for moving to a single solution was always unlikely to deliver the scale of benefits wanted …. but I don’t agree that a Stalinist uber-project is the way to proceed. Yet this seems to be what the government often favours. To be fair, the Cabinet Office strategy is a little more sophisticated than this … but other government initiatives are not.

    Some of the key criticisms in the report are that service centres themselves have failed to innovate and improve their offerings and simply making every public sector organisation move to a singe solution is not the best way to deliver benefits.

    Clearly there will be some compromises required because even within a single organisation (including it’s satellites agencies) there will be areas where local business needs are different. Finding or creating a solution that suits different kinds of clients is, surely, what a market solution is best at.

    The path to success is to be found by creating an environment which favours choice and competition and then ensuring every public sector organisation has properly considered the alternatives and chosen a path that suits it’s requirements. Whether that means all parts of an organisation are using the same solution is probably less important than ensuring all are using an efficient and effective business solution which delivers benefits and reduces cost.

    Remember – there is even less evidence that government can deliver massive projects than there is to support the effective delivery of public sector shared service centres. Laying one failed approach upon another is a sure-fire recipe for an expensive disaster.

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