By Karen Day
1 May 2011
Talk of shared services is nothing new, but now it is increasingly turning into action as public bodies seek to find savings without harming services. While a few pioneers are making headlines, experts are warning that sharing is not a quick-fix option
It’s a time of sharing in the public sector. With the deepest spending cuts in a generation and the unrelenting demand for services, the pressure is on to make massive savings fast while keeping services intact. It’s hardly surprising then that the idea of splitting the pain and the gain through shared services is growing in popularity. But is this really the panacea for public bodies or are some pinning their hopes too tightly to just one part of the picture?
The idea of shared services has been around for some time but while it is often talked about, the public sector’s record has been patchy at best.
Health undoubtedly leads the way with NHS Shared Business Services. This joint venture between the Department of Health and business support services company Steria provides back-office services to 130 trusts (see 'Trusts put their faith in shared services' below).
But in the rest of the sector, shared services are largely undeveloped. Over the past 15 years, the concept has revolved around either internal services, where organisations streamline their functions into a contact centre for example, or more grandiose plans where groups of organisations attempt – and often fail – to share their back-office functions.
Both the Labour and coalition governments have voiced their frustrations with public sector organisations’ apparent need to retain their own human resources, finance and IT functions when major private sector organisations offshored them decades ago. But with different times come different approaches and a new pragmatism is emerging in the public sector. The need to make 26% cuts in local government over the next four years, £20bn of efficiency savings in health and up to 40% budget reductions across Whitehall are suddenly making shared services look a lot more attractive.
And there’s plenty of activity. In local government, there’s the controversial £400m Southwest One joint venture between IBM, Somerset County Council, Taunton Deane Borough Council and Avon & Somerset Constabulary, which was launched in a blaze of publicity in 2007 but has struggled to achieve the desired savings (see 'Sharing grief' below).
Twelve revenue and benefits centres have also been launched in local government in the past 18 months. These include Compass Point Business Services (East Coast), set up last August by two Lincolnshire district councils, in partnership with Capita, Hitachi and Microsoft. It aims to save 20% annually. More recently, the London boroughs of Sutton, Merton and Kingston have agreed a ten-year deal to share HR, payroll and IT services from private supplier Agilisys.
Elsewhere, the Ministry of Justice has launched a shared services project across its department and executive agencies in a bid to save £28m a year. And Cleveland is the first police authority to join a shared services scheme run by Steria, which aims to replicate its NHS SBS model across the police service.
But the mother of all shared services has to be the proposals from the London boroughs of Kensington & Chelsea, Hammersmith & Fulham and Westminster. The three Conservative-led councils are planning to share management and services across four main areas: children’s and education services, adult social care, corporate and environmental, saving up to £35m a year. They aim to share more services in future, such as waste management and street cleaning. Service models will include private contracts as well as social enterprises.
Yet it’s not the scale of the tri-borough project that makes it so radical, although it easily dwarfs Southwest One, but the fact that it will include sensitive frontline services for the first time. ‘It is bold but we have to save £1 in every £6 and, with loads of fixed costs that you can’t attack, our options are limited,’ says Derek Myers, chief executive of Kensington & Chelsea. ‘This is a voluntary change, government isn’t telling us what to do. There haven’t been many times in my professional lifetime that local government has done big, bold things without being told to.’
And the London boroughs are unlikely to be alone for long. A survey of 150 senior local government managers for law firm Browne Jacobson recently found that 68% planned to share more frontline services in the next 12 months and 91% intended to target them in the next two years.
Ian Gates, divisional director of public sector software supplier Capita Software Services – which is providing a range of services to the Lincolnshire Compass Point venture – says shared services can have a major effect on savings across the board. ‘Under the Comprehensive Spending Review, councils are being asked to deliver the same for less. But we have to face facts – it’s likely to be less for less. Shared services can have a big impact here. Compass Point is looking at making savings of 20% a year while also improving services.’
The survey also found that 63% of managers expect to make 10% of their total budget savings for 2012 through shared services. Gates cautions against relying on such a quick and easy win. ‘If people think they’re going to make all savings in year one, well that’s not going to happen. It’s going to need a two-to-three-year plan.’ The New Local Government Network has cast doubt on even some of the medium-term savings claims, warning that sharing back-office functions could help councils save just 2%–3% of expenditure.
John Tizard, director of the Centre for Public Service Partnerships, says that if organisations haven’t set up shared services by now they’ll struggle to achieve any savings by 2013/14.
He says that despite government’s encouragement, shared services are not the entire answer. ‘It is disingenuous of government to suggest that if local government set up shared services, they wouldn’t have to make frontline cuts. The size of the cuts can’t only be accommodated by shared services, these are part of medium- to long-term solutions.’
He adds that there’s now a real danger that local authorities are so desperate to find savings that they lose focus on service quality and outputs.
‘That’s short-termism and you risk undermining quality,’ he says.
Gates concurs and says there’s no ‘Big Bang’ approach. He says the biggest savings come through councils streamlining on a large scale. ‘Once councils have started sharing services and built that trust across organisations, follow-up services are much easier to implement,’ he adds.
Carl Brooks, senior manager at service provider Tribal, says some of the smaller district councils could provide the model for phasing in shared services. ‘These have been sharing senior managers and chief executives for some time. This builds trust and collaboration – and what comes out of that is a shared services evolution not a revolutionary approach.’
Interestingly, this is exactly what prompted the London tri-borough plans after Kensington & Chelsea and Hammersmith & Fulham started sharing a director of transport three years ago.
‘The leaders became very familiar and used to exchanging ideas,’ Kensington’s Myers says. ‘If you don’t get that right, it can stop at any time. You need personal chemistry.’
Of course, the three councils have the added advantage of a long history of commercial pragmatism and are comfortable ‘leading and developing the market where it doesn’t exist’. Indeed, they’ve needed no private sector help so far.
But Brooks questions whether the government is taking public services reform seriously enough by leaving solutions such as shared services up to personalities. ‘It’s very easy for things to collapse before the structural solutions are in place,’ he says.
He believes the ‘structural solution’ being forced on GPs through the new consortiums will improve efficiency. Mandating or imposing structural solutions across public services could ensure larger and longer-term savings, he suggests.
By contrast, Steria, which works across 21 government departments, believes that imposing structures could benefit the company, but has concerns about the long-term business impact. Chief operating officer Gavin Chapman says: ‘Our customers are willing and complicit and that makes change easier. If you mandate it, people fight it.’
Whoever is right, it is clear that shared services will play a major role not only in managing long-term budget cuts but in more radical reform as pragmatic pioneers prepare to go where no-one has gone before.
Trusts put their faith in shared services
While some organisations are still weighing up the potential of shared services, the NHS has been operating the largest joint venture formed in the UK since 2005.
NHS Shared Business Services is partly owned by the Department of Health and business support services company Steria. It provides finance and accounting, payroll and family health services to 40% of NHS trusts and offshores some of the services outside the UK.
As part of the ten-year deal, SBS is expected to make savings of £224m and distribute any additional cash on top of the pre-agreed profit level back to the NHS in ‘royalties’. These have reached £1.6m so far.
‘We don’t take it [a trust’s back-office function] and try to run it cheaper,’ says Gavin Chapman, Steria’s chief operating officer. ‘We genuinely try to transform it.’ He says that when a new trust joins, SBS identifies what outcomes are needed, and then the trust goes through a ‘rigorous’ transformation.
‘It’s not just about cost benefits, there are also non-financial benefits such as better data,’ he says. He adds that ‘it’s hard to say’ why all trusts haven’t joined SBS yet, but that some are keen to keep jobs local to maintain their economies. ‘Each trust makes its own decisions,’ he says.
Steria is working on a number of new models to ‘tune’ SBS to meet the needs of GP consortiums, due to take over 80% of NHS budgets by 2013.
‘Why reinvent the wheel when they can come into SBS, which is already in existence,’ Chapman says.
Few shared service schemes have provoked as much controversy as Southwest One.
When the £400m joint venture between IBM, Somerset County Council, Taunton Deane Borough Council and Avon & Somerset Constabulary was launched in 2007, it was lauded as the way forward. The plan was to save £192m by sharing back-office functions.
But its creation caused huge political rows, an Audit Commission investigation, the departure of the county’s chief executive and significant financial losses. Southwest One has seen it all except the promised savings.
The problems began even before the joint venture company was launched. The original model was to provide back-office functions for all the county’s eight local authorities and eventually replicate it to others. But after it emerged that the majority of the savings would go into the county’s coffers, only one district joined.
Then there were the political rows in the county council, culminating in the early retirement in 2009 of the chief executive Alan Jones and the suspension of a senior Liberal Democrat councillor.
Southwest One has recorded a pre-tax loss over its three financial years, with the last reported at £16.5m, and has made just £3.3m in cashable savings. According to the Audit Commission, which published a second report on the joint venture in December, the first three years of the contract ‘have been a difficult time’.
It found that the main problems were the struggle to roll out shared technology, achieve procurement savings and set ‘meaningful’ performance indicators. It also outlined disputes over savings, with the joint venture taking credit for those made by the county council.
In February, an internal county report revealed further financial problems, with duplicate payments sitting at £772,000 and a struggle to manage £12.9m in outstanding debts.
The company insists that it can still achieve the promised savings, despite operating in an even tougher financial climate.