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A problem shared
Shared services is set to rise in popularity this year as government organisations strive to meet the implications of massive borrowing. In the current economic climate, spending of any kind is now under the microscope and the pressure to cut back is even more intensified in the public sector. This financial climate is leading to more government officials looking at shared services as a viable cost saving option.
A great example of this is the police authorities in the East Midlands, where the chief constables and chairs of Derbyshire, Leicestershire, Lincolnshire, Northamptonshire and Nottinghamshire Police have jointly published a three-year collaboration plan to work together to increase productivity and improve future performance.
This same framework can be applied to different areas of public sector work especially since it’s renowned for its duplication of roles and unnecessary bureaucracy. Why have five different HR teams looking after five councils, all with the same requirements?
Why not merge the different teams, operate out of a single centre and streamline the HR processes? Taking a step back and recognising the opportunities for collaboration would reveal a host of cost-saving advantages.
Reaping the benefits
Shared services have been a viable economical option for many private businesses for some time. Local government departments are now starting to take advantage of this tactic and public sector managers are realising the benefits associated with shared services. South Tyneside Council has recently signed a shared services agreement, adding to the growing understanding that the consolidation of repeated processes may be the way forward.
North of the border, Scottish councils have engaged more with shared services than their English counterparts. There has been a recent announcement that Glasgow City Council and seven neighboring authorities would like to begin talks on sharing services. This is a bold and groundbreaking move towards increasing public sector efficiency and it will be interesting to see how this develops.
Despite the obvious cost savings, shared services have not been without their problems. For example, recent research from outsourcing consultancy Alsbridge has shown that some shared service centre (SSC) managers feel that they have encountered significant challenges with their SSCs – and only half the managers surveyed said they had definitive service level agreements (SLAs) in place. It is imperative that shared service centres are set up and run with tight controls.
At the end of last year the Department for Transport was accused of “stupendous incompetence” by the House of Commons Public Accounts Committee (PAC) for its shared service centre in Swansea. The service centre was rushed through to completion in order to meet deadlines and as a result experienced severe systems failure. The time lag coupled with reworking the system is set to cost £81m, which is £24m above the projected savings the service centre would have brought in the first place.
This is one of the largest pitfalls for any organisation considering shared services. Like with any outsourcing deal a thorough procurement process is needed and nothing should be rushed. Users and suppliers should agree ample time for testing the outsourced processes and neither should cut back on this. If an end user is attempting to speed up the whole process then they seriously risk paying for it in the long run, possibly resulting in a total breakdown of the whole deal and a lot of money wasted.
The politics behind public shared services appears to be one of the biggest problems. Not just external government intervention, which will be a problem if a council changes colour, but internal politics. In this current economic climate the concern about job losses and unemployment is prominent and growing.
Shared services does have the potential to be a good strategy for improving efficiency, however, the process is synonymous with job losses. If the shared service centre is set up privately by the councils then the location of the centre can be a very tricky decision to make. Depending on where the centre is based one council may stand to lose a large proportion of staff while the other retains its workforce. This will cause obvious tension and might result in public backlash.
It is crucial that organisations carefully examine redeployment opportunities and initiate early dialogue with union officials. Ultimately, sharing services does mean that investment is shared. It may also mean redundancies. Communicating the transition effectively and making sure that information and support is given well in advance of any change could help to improve a potentially volatile situation. If the process is simply outsourced to a vendor then the same awkward situation exists.
Loss of control can also be a major issue for managerial staff. Boundaries must be in place to make sure all parties are working to the same standards. This will help to make council managers feel comfortable with relinquishing day-to-day control of their systems.
Before any transition begins the councils involved need to thrash out exactly how processes should be done, who should oversee them and what happens if there is a problem. Regulatory compliance must also be considered.
The scope of shared service centres can be huge and different compliance issues can arise. The resulting shared service centre must therefore adhere to the same objectives and regulations as the organisations they are providing services for. A continuous review of standards and good communication between the centre and the organisation is imperative to ensure regulation and service is up to scratch.
Then comes the establishment of SLAs, a difficult process without the backing of a legal contract. In cases where a legally binding agreement was not included, service was found not to be enforceable and the penalties for failure were slight.
It is therefore essential that a legal contract is drawn up between the councils, which clearly outlines the SLAs and states the penalties that may be faced if the agreed service is not provided. This may seem like a harsh tactic to use when councils are essentially collaborating but it would be a normal process if a vendor was involved and should therefore be incorporated.
With so many complex processes involved in setting up a shared services agreement internally, it is likely that the process will be most successful if an external service provider is used. Having an external party involved may make managerial issues, legal contracts and servicing a lot easier. Councils can also rely on the expertise of the vendor and relinquish a certain amount of accountability.
A shared services strategy has the potential to greatly improve government spending and increase efficiency, however, all parties entering into a shared services contract must ensure they know the reasons and benefits for doing so. Shared services is not a fix all answer to government spending and organisations should be wary of being lured by cost savings without looking inwardly at whether they actually should use the strategy.
Shared services have been tried and tested in the private sector. Quantifiable benefits are seen when processes are correctly implemented. The public sector, with all its duplication of roles, procedure and effort, can benefit greatly.