A Shared Agenda

For many years now, sharing services has been widely recognised as an effective way to achieve lower costs, improved service levels and a tighter, more efficient enterprise-wide control environment.

However, at a recent public sector conference in London, the topics of centralisation vs shared services and the need for collaboration between independent public bodies to benefit from sharing services came up in discussion.

There are three main definitions / descriptions of shared services: an organisational definition, a statement of goals and an overview of how these goals are achieved:

1. An organisational definition: shared services provides non-core, but mission-critical, services to the business, employing a specialist team, that is geographically unconstrained and focused on the requirements of the customer. This involves a philosophy and approach that is totally unlike traditional corporate-driven centralisation.

2. The goal of shared services: to provide high-quality, non-core services (which can include both repetitive common processes and more specialised professional services) to the enterprise at lower cost and more efficiently than the enterprise could otherwise provide for itself.

3. How these goals are achieved: shared services delivers cost savings, a higher quality of service and a tighter control environment by leveraging economies of scale, technology, organisational realignment, labour arbitrage, best practice and end-to-end process re-engineering.

CENTRALISATION VS SHARED SERVICES

Number three is largely where the 'sharing' bit comes in. While this is very important, shared services, in terms of the provision of best-in-class support services, is about much more than achieving benefits through centralisation alone.

Shared services involves a philosophy and approach different to traditional corporate-driven centralisation. For 'corporate' here in the public sector one could read 'central government'. Also remember that shared services is about service to the customer, with these customers demanding quality service at a reasonable cost.

WHO IS THE CUSTOMER?

Who is a customer, a consumer of services or a stakeholder? The challenge in defining each of these is not unique to the public sector; the exact same question needs to be answered in the private sector. Ultimately, it is all about providing quality services to those who are paying for your services.

In the public sector, payment is to some extent through the budget-setting process, but this is ultimately the taxpayer, plus there might be some local charging to customers for certain services. Key stakeholders might be customers and consumers, but will probably also be in key decision-making positions.

THE ROLE OF COLLABORATION

One delegate at a conference said that they were attending the event to learn how best to collaborate for shared services rather than to learn how to centralise, as they believed that their organisation had already achieved all the benefits it could derive from centralisation.

They wanted to know how to collaborate with others so that they could further benefit from the economies of scale associated with centralisation. Is this need for collaboration unique to the public sector? The answer is that all sharing of services involves some element of collaboration. Private sector companies have been wrestling with the need to gain support within their own organisations for moves to shared services for years.

For example, sharing of services will require a certain amount of collaboration across different locations, entities and regions and across different employee bases, functions and business units – each with their own unique culture, leadership style and way of doing things.

That has not stopped many companies from moving forward with shared services, but the extent to which each individual case is successful depends very much on the ability to continually move forward despite opposition and reluctance to change, and to carry people along with the change. This is why change management is so often cited as being absolutely critical to success in any shared services initiative.

IS THIS UNIQUE?

The public sector is not unique in this regard. What might be different to some extent is that there is history between, for example, local councils with different political agendas, leaders and local constituency requirements. However, at some point and at some level they all report to the same boss – councillors or central government ministers, and ultimately taxpayers and the electorate.

This is really not that different in the private sector, with, for example, the electorate being the company's shareholders. Having said that, if the leaders of these individual public sector bodies do not want to share anything then it is much less likely to happen, unless they are persuaded to do so through discussion or instruction, and do not proceed to undermine the whole initiative. But this is not fundamentally different to the private sector.

Another comment made at the conference was the concern surrounding potential local unemployment resulting from the sharing of services with other local government bodies. This is, of course, a very important factor that could clearly have local political, social and economic ramifications.

One major aim of shared services is to reduce costs to release funds for use for front-line services. The intention is to make funds available to employ front-line staff such as nurses, firemen, police and social workers. There is concern that any savings would be lost locally, and being absorbed by government further up the tree.

While this is, of course, a real and valid concern that must be addressed to help encourage the right decision to be made for the greater good, a similar scenario occurs in the private sector with the 'use it or lose it' approach to spending the annual budget. In other words, there is the same potential element of distrust as in the public sector - the feeling that any savings made will not benefit those that strive to make the savings.

However, in the medium to long term, it is much better to be master of your own destiny (at least to some extent) than have someone else come in and instruct you to immediately cut your expenditure by 20%, and the only way you can do this is to close schools or hospitals or other such hard-hitting examples.

This is also, of course, where leadership is critical and clear rules and guidelines should be in place on how targets are set and who benefits from savings made. There may well be some sharing of the benefits both locally and further afield. Remember that the same question of 'what's in it for me?' needs to be answered both in the public and private sectors.

One shouldn't also forget that central government could actually help mitigate the impact of localised higher unemployment by perhaps actively encouraging some shared service operations in the public sector to locate themselves in these high-unemployment areas. This is one of the advantages of shared services being geographically unconstrained – they can, in theory, be established anywhere.

A SINGLE PUBLIC BODY

It is also important to remember that shared services brings many possibilities, tools and techniques, and that it does not just involve centralisation nor necessarily require collaboration with others outside each individual public sector body.

Within a public sector body there is still the possibility of reaping the benefits through organisational realignment, process standardisation, automation using technology enablers, centralisation and following a customer-centric approach.

This will involve some sharing across offices, regions, functions or departments, even within the same public body, and will also, of course, require some degree of collaboration. The extent of required collaboration will depend on exactly the same drivers as in the private sector: senior management support, culture, individual drivers for change, existing technology platform, targets to be met and effective change management.

It is also important to highlight the fact that it is 'better to eliminate than relocate'. What this means is that if a given service, process or task can be simplified or completely eliminated then it is better to do this than to have it carried out in a different location.

Moving to a different location can result in lower costs through economies of scale being gained through centralisation or through leveraging lower-cost labour (also called labour arbitrage), either within the UK or potentially even elsewhere, but if you can eliminate the need to do something in the first place then the cost de facto becomes zero.

SO WHAT ABOUT SHARING FRONT-LINE SERVICES?

When thinking about the possibilities for shared services in the public sector remember that the scope across the back office is very significant and includes finance and accounting, procurement, logistics, HR, IT, legal, facilities management and site services. This is just the same as in the private sector.

In the early days of shared services it was true that there was a much greater emphasis on back-office functions than on front-office functions. However, today the potential scope has moved right up the value chain and many customer-facing services can also be shared serviced or outsourced. The key is to decide what can be gained from following a shared services approach, and how best to generate value at the lowest possible cost.

In terms of the public sector and local government (and the private sector) one needs to determine what needs to be physically close to the customer and what can be done remotely. Then one should ask the question that if something can be performed remotely, would some level of service inevitably be lost?

TURNOVER OF LEADERSHIP

Another comment raised at the conference was that the tenure of politicians and local councillors can be a short one and the individuals concerned may not want to make potentially unpopular decisions that don't result in benefits within their tenure in office.

This is a reasonable comment, but how many CEOs do you know in the private sector who have tenure of more than four years? Of course there are examples, but the average tenure of a CEO is widely held to be around just two years.

The point is that, again, the same problems occur in the private sector as in the public sector. If anything, the time horizons in the private sector can be even shorter, what about the quarterly reporting cycle for most publicly quoted enterprises? Sometimes organisations don't look much beyond the next three months, even though effective strategies require execution across many quarters.

MUTUAL BENEFIT AND COLLABORATION

Returning to collaboration between independent local government bodies, clearly shared services will not succeed unless there is some degree of mutual collaboration. The extent of actual collaboration required will largely depend on how decisions are made and how things get done - are decisions always made by committee or are certain individuals empowered to make fast decisions to drive through change?

Another concern raised at the conference was that one body might not want to hand over its back-office, and perhaps even some of its front-line, services to another body, who then might receive all the local plaudits and employment that could come with this.

In the early days of shared services the textbooks talked about a company potentially introducing an effective internal shared services operation and then selling its services to other companies, even competitors. In reality this didn't happen that much. There are some very successful examples of 'going external' (Genpact out of GE), but these are more the exception than the rule.

What has superseded this is the significant growth in outsourcing of support services, initially in IT outsourcing (ITO) and then more recently in business process outsourcing (BPO), in areas such as finance and accounting, HR, procurement, logistics, customer care and after-sales service.

Collaboration across independent public sector entities can present challenges as well as opportunities. So, given these challenges, the options really are:

• Collaborate successfully through a mutual understanding of the benefits that can accrue to all parties involved in the collaboration, and move forward with shared services through whatever delivery model is agreed on.
• Do nothing in terms of collaboration between independent government bodies, and therefore lose the opportunity to reap the benefits of scale and the other possible advantages of expanding the scope of shared services.
• Work together on some pilot opportunities and see what can be done to improve the model. The problem with this is that the move to shared services may be too slow given the challenges faced with budget shortfalls. However, this can be a way forward. For example, some local fire services are collaborating for shared services in pilot projects to benefit both parties, and these are showing early signs of success.
• This links into the well-used private sector methodology of looking for quick wins to prove the concept and gain buy-in for further increases in the scope and depth of shared services. This could be something as simple as automating a previously manual process to speed up payments for expenses incurred while on local government business or for benefits claimed within a local constituency. Quick wins can come in many guises which will vary from case to case.
• Have the leadership of both independent bodies (or alternatively the leaders above both bodies) mandate that this will happen. This still then needs a great deal of selling, change management and persuasion, but is part of the senior management support that is similarly required in the private sector to give the implementation of shared services a good chance of being a success.
• Another possible option for independent public sector bodies which are perhaps reluctant to collaborate would be to look to independent outsourcers to provide some of the services. This does however, limit the options in terms of internally sharing services between numerous public sector bodies.
• Set up a joint venture between a number of independent parties to implement shared services. This does, of course, also bring its own challenges around collaboration.

The option chosen will depend on the unique motivation, drivers, circumstances, leadership and culture within each public sector body.

PUBLIC SECTOR EFFICIENCY

Today there is much greater pressure on and within the public sector in general to reduce support costs and release budgets for the provision of core front-line services. There is also growing demand from taxpayers that their money be spent both efficiently and effectively on the services the public needs rather than on duplication, administration and back-office functions.

As Sir Peter Gershon's Public Sector Efficiency Review in 2004 highlighted, the public sector should move towards sharing services to help deliver significant savings and ensure that substantial resources are released to implement front-line activities.

The same basic challenges and significant opportunities around implementing shared services apply in the public sector as they do in the private sector, but each organisation, company, enterprise or, in this case, public sector body needs to adapt the model, timelines and approach to its own unique culture, requirements and drivers.

Doing nothing is really not a long-term option, and the same is true in both the private and public sectors. If you don't do something yourself, then someone else may simply come along and do it for you, and not necessarily in a way that is best for you, your key stakeholders, your customers or your electorate.