Shared Services: Hit or Miss?

Shared services has become a buzz phrase recently within IT circles and the recent award of the £47.6m Government Gateway IT managed services contract to ATOS Origin has heightened public awareness.  The award signified an important step in furthering the Government’s agenda as set out in its Transformational Government policy published in November 2005.  On a smaller scale, Northumberland and Durham County Councils have signed a shared services agreement with Oracle to share an integrated software package to streamline their procurement and financial management systems, thereby saving the two councils a combined sum of £1.9m a year.  

 

It has been estimated by the BuyIT Best Practice Network that there are potential savings of £1.4bn – £40bn to be achieved if HR and financial systems alone are shared across public sector bodies.[1]  Not surprisingly, the Government has recognised the benefits of harnessing the shared services concept across central and local government and is advocating its uptake.  The Government’s chief information officer, John Suffolk, has stated “…the Government Gateway is a key component of common infrastructure and supports the public sector response to the ambitious challenge for shared services set out in the Transformational Government paper…”[2]  and Gordon Brown’s Comprehensive Spending Review 2007 (CRS007) Interim Report advocates that “…moving to a Shared Services model can generate significant savings”.[3]

 

Scotland has also paid attention to the debate across the border and has published its own “Futures Project”, a comprehensive transformational plan with the aim of sharing common business support functions which are independent of traditional structures and boundaries.

 

The Cabinet Office’s Transformational Government strategy published in November 2005 identified three inherent characteristics in the provision of shared services:

 

·         making the services citizen and business centred;

·        delivering a step change in the professionalism with which technology is delivered to government departments; and

·        encouraging a shared service approach to release efficiencies across the system and support delivery which is more focussed on customer needs.

 

The shared services agenda is expected to focus on key areas such as customer services, human resources, finance and other corporate services, common infrastructure, data sharing, information management, information assurance, identity management and technology standards and architecture.

 

In a nutshell, shared services will support public sector efforts “to reduce waste and inefficiency by re-using assets and sharing investments with others”.[4]

 

Not New or Clever

 

The concept of shared services is not new; as David Myers states, “it’s not clever, but it is big”.[5]

 

It has been effective in the private sector where shared services provision have been used successfully by US and UK companies such as BP, Ford, Rolls Royce and Lockheed Martin.  In fact, it is the public sector which is lagging behind by seven to ten years. 

 

The Cabinet Office’s shared services team is currently working on nine sector plans encompassing the Home Office (including Criminal Justice), Education, Defence, Revenue & Customs, Works & Pensions, “Families” including Defra and DfT, the remainder of Central Government and Local Government.  These plans are expected to be published in November 2006 and will outline the potential for sharing services together with the expected benefits and risks of shared services.

 

In the meantime, the supplier community is being engaged and encouraged to work in partnership with the Shared Services’ Supplier Market Workstream to provide convergence of standards for the delivery of shared services including:

·         creation of a shared services vendor network;

·         development of best practice;

·         collation of tried and tested solutions;

·         development of standard products for government organisations;

·         forecasting demand and identification of potential solutions;

·         development of a strategy to shape a market that will serve government;

·         providing a sounding board for departments and sectors  that are embarking on procurements; and

·         assisting departments in respect of procurement principles.

 

Best Practice Guidelines

 

The guidelines issued in July 2006 by the BuyIT Best Practice Network (which is engaged by the e-Government Unit to manage the Public Sector Shared Services Forum) states that standardisation of processes will result in greater efficiency and less duplication  across different agencies.

 

The nine guidelines, which are available on the BuyIT Best Practice Network website[6], are as follows:

 

• Guideline 1: Vision –  this document outlines the ethos behind shared services;
  
• Guideline 2: Convergence and Compatibility – this document outlines the need for convergence and compatibility within the supplier market space and public sector;
  
• Guideline 3: Commercial Structures and Global Sourcing –  this document outlines the merits of the various commercial structures;
  
• Guideline 4: Preparing for Implementation – this document outlines the key enablers and phases necessary to implement share services;
  
• Guideline 5: Benchmarking and Measurement – this documents outlines the role of benchmarking to measure performance;
  
• Guideline 6: Better Buyers and Suppliers – this document outlines the changes necessary to create the optimum conditions for delivery of shared services;
  
• Guideline 7: Governance – this document outlines the role of governance such as good leadership;
  
• Guideline 8: Strategic Business Case (Key Questions) – this document outlines the special features of a shared services business case;
  
• Guideline 9: Measuring and Realising Benefits – this document outlines the principles and necessity of measurement and realisation of benefits. 

The BuyIT Best Practice Network guidelines were developed in collaboration with both government and industry but do not represent government policy.

 

Commercial Constraints

 

Guideline 3 on Commercial Structures and Global Sourcing recommends various commercial structures that may be applied to the provision of shared services but concludes that there is no right or wrong answer.  The six familiar structures discussed in Guideline 3 include the following:

 

• Unitary – this is a single organisation consolidating and centralising a business service.  This model is frequently used in the private sector;
  
• Lead Department – this is a single organisation consolidating and centralising a business service that will be shared by other organisations;
  
• Joint Initiatives (Internal) – this is an arrangement between two or more organisations to set up and operate shared services;
  
• Strategic Partnerships (External) – this is a contractual relationship with a third-party service provider to provide a range of services including shared services;
  
• Joint Venture – this is a legal entity formed between the government organisation and a service provider to undertake the shared services;
  
• Outsourcing – the outsourced shared services may be undertaken by another government department or a third-party service provider. 

In any one of these situations, the benefits and risks need to be analysed from a contractual, procurement and financial perspective.  Guideline 3 has also identified that commercial managers (not traditionally associated with government) will be required to provide additional skill-sets to ensure the success of such commercial structures.  They will be required to avoid “drift” in vision, scope and timescales and to manage relationships and to integrate cultures (internally and externally).

 

If arrangements are made internally, as envisaged in the Joint Initiatives (Internal) or Outsourcing model, between two government departments, robust escalation procedures will be required to ensure that shared services are delivered according to the required service level arrangements, to resolve conflict and to manage risk.  The opportunity to litigate will be unavailable in such circumstances.

 

NHS Finance is an example of a JV where 37% of the transactions are undertaken in India.  The benefits associated with this model, such as time differentials, the cost of living differential and the provision of services by a highly educated workforce, outweighed any data protection issues relating to the transfer of data outside the European Economic Area and management of trade union concerns.

 

Barriers to Sharing

 

The Cabinet Office has identified that “governance and cultural issues” will be substantial barriers to the success of shared services within the public sector.  Other obstacles include recoverability of VAT, acceptable funding and investment options, the application of EU Public Procurement rules, data sharing concerns, the viability of an appropriate commercial model and potential headcount caps. 

 

Guideline 4 on Preparing for Implementation identifies various barriers to achieving share services including functional and departmental boundaries, insufficient change skills, insufficient timescales and middle management.

 

It is clear that more refinement is necessary to shape the shared services concept.  The Cabinet Office’s shared services team has identified that larger departments may want to offer services back to the public sector, in which case frameworks will have to be developed to make such arrangements work.  The private sector is also formulating its approach to the shared services offering.  It is also accepted that shared services pricing is unsophisticated and that there is little transparency in the possible ROI.

 

These issues will need to be addressed if shared services are to be become a permanent fixture in the public sector procurement field.

 

Bigger and Better

 

Shared services attempts to provide greater acceleration towards joined-up government in a manner not previously envisaged by citizen or government.

 

It will be a challenge for public sector organisations to transform back-office or middle-office functions into a single entity across geographic boundaries without fear of losing resources.  Vested interests in both the customer and supplier community may not want to see further successful shared services implementations.

 

Guideline 1: Vision of the Best Practice Guidelines emphasises “each IT project that fails erodes the trust in the industry, not just among clients but also politicians and the population as a whole.  This fuels a vicious circle of a ‘them and us’ mentality, including ever more onerous, input based specifications, more rigid contractual terms, monitoring and risk transfer”.

 

It remains to be seen whether the desire for convergence will allow both the government and the supplier community to provide compatible contractual solutions in the shared services space.

 

What of the citizen who is the ultimate recipient of improved access to government services across geographic boundaries?  There are significant benefits to be gained from such access but further centralisation of information may intensify concerns in the public mindset that UK plc is being pushed headlong into an Orwellian landscape offering no return.

 

What the future holds for shared services as a concept is hard to tell.  Both suppliers and customers will have to embrace the new way of doing business if shared services are to prove successful.  Is this a passing trend or will Scotland lead the way with its “Futures Projects” whilst England continues to debate the issue?

 

Viv Nissanka is In-House Counsel with Northgate Information Solutions plc.

The author’s views are personal and do not represent the views of Northgate Information Solutions plc