In their ongoing drive to reduce costs while attempting to improve services, the government has long believed shared services to be the answer. Annual savings in the region of 20% are commonly cited by those using shared services centres to manage their back office functions, so the option certainly seems tempting. But when the NAO recently reviewed the Cabinet Office’s Next Generation Shared Services strategy they found that there was clearly room for improvement.
The report starts by explaining that for shared services strategies to offer maximum benefits to the participating departments, four elements will be needed: the more departments involved the greater the economies of scale that are possible, buy-in from those departments to migrate back-office functions to the supplier, an incentivised supplier, and a willingness of all departments to adapt to a less bespoke and more standardised service.
Unfortunately, two and a half years into the Cabinet Office’s shared services strategy, things appear to be running a little behind. Many of the departments predicted to be involved in the initiative have yet to commit themselves, and few have agreed to a standardised service offering and to migrate their back-office functions to the two new service centres that were set up in 2013 for this strategy. It is, therefore, little wonder that the savings achieved have been far below expected levels to date.
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Of the £312m of savings estimated to have been made by April 2016 – two and a half years into the strategy – just £90m had been confirmed at a set-up and running cost of £94m.
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Of the 26 organisations that the strategy estimated would have adopted the single operating platforms run by the two shared service centres, just two have actually done so.
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Use of these shared services centres was expected to generate £128m in savings each year, and a further £172m to £272m a year was expected to be saved through improved performance because of this outsourcing. However, delays in migration have “reduced the opportunity to make significant further planned savings” and have “come at an increased cost to customers and suppliers”, according to the NAO.
The NAO makes clear that it is difficult to allocate blame for the delays as the supplier and Cabinet Office have both been slow in developing, building and testing systems. “Both government and supplier performance issues have contributed to many of the problems that the programme has faced. It is not always possible to identify the exact cause of issues because they are complex.”
Three primary lessons cited by NAO
While the reasoning behind why many organisations in the strategy hadn’t met their migration targets may be unclear, the NAO did point to three areas where things could have been improved upon as lessons for the Cabinet Office and any other governmental department considering a shared services strategy to reduce their costs and improve their efficiencies.
1. “The lack of an integrated and agreed business case for the programme has made it difficult for the Cabinet Office to take decisions.”
A clear and agreed upon business case is fundamental to any outsourced project, but none more so than those involving shared services. The research and due diligence process that creates a complete and easily communicated business case is important as a precursor to buy-in from stakeholders and offers a clearer path to the development of KPIs and milestones in the relationship. Where shared services are involved there also needs to be an alignment of business cases where the motivations of all parties – governmental departments, organisations, suppliers/contractors – need to be considered in the formation of an overarching and considered strategy. Without this, there is no benchmark against which progress can be determined with any clarity.
2. “The approach to creating standardised processes was not well managed.”
Central to the savings that were predicted at the outset was the creation of a single operating platform with standardised processes for both of the two shared services centres that all Cabinet Office departments would be required to adopt. Unfortunately, due to a delay in informing one of the two centre operators of this, and because of both of the contractors’ lack of experience in managing transformation projects, governance had been compromised.
3. “The Cabinet Office did not secure sufficient support from departments at an early stage of the programme.”
Communication also seems to have been an issue. Buy-in from Cabinet Office departments was important to the success of this initiative. However, the NAO noted complaints that some departments felt they were not consulted enough before being asked to be involved, that they did not have enough say in which contractors were to administer the shared services centres, and some even felt ‘pressurised’ into agreeing to be part of the programme. Shared service agreements will inevitably require complicated agreements between numerous invested parties.
So for a harmonious relationship to be established, all must feel as though they have contributed to the strategy they are all required to agree to. It will be rare that everyone is happy with all aspects of their new relationship, but if they are involved in the process that creates it, if they know that their voice is heard, if communication is clear and constant, then you have the best opportunity for building a more convivial working relationship.
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The Cabinet Office should make greater efforts to develop a more collaborative relationship through better and more open communication and understanding. Expectations need to be agreed and realistic and grievances dealt with.
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They need to have in place a process for early identification and mitigation of risks, while recognising that not all can be or should be resolved by their contractors.
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A reassessment needs to take place of just how broad a capability the shared services centres have to take on other department’s back-office functionality.
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A clear and agreed business case needs to be created and bought into by all stakeholders, offering guidance on governance, KPIs and funding.
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A cross-departmental perspective is needed as far as funding is concerned to ensure that those with smaller budgets or most financially affected by delays do not affect the productivity of the entire programme.
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Greater standardisation of processes across finance and HR is required in order to see the annual savings promised at the outset.
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Predictable departmental technology demands require more adequate planning to avoid impacting on the wider shared services programme.
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Lessons must be learned from the delays that resulted from the creation of the single operating platform, so that future additional demands – financial, technological or preferential – can more swiftly and seamlessly be implemented.
Delivering Shared Services
With the government spending somewhere in the region of £225bn a year with outsourced providers, the NAO has plenty of data to create a perspective on how these relationships are generally faring. Therefore it is very positive that both the NAO and the PAC (Public Accounts Committee) have recognised improvements in the government’s management of these contracts in recent years.
The NAO’s report on the Cabinet Office’s shared services programme certainly shows room for improvement. But they are listening and learning, and remain confident that they will provide many of the savings promised at the outset. This can be seen in a recent comment from a spokesperson at Shared Services Connected , an organisation running one of the shared services centres: “We recognise the challenges the National Audit Office report has highlighted, but we are confident that we are making good progress and that these savings will accelerate as we move clients onto a single technology platform and continue to grow our business.”
Inclusion, communication and collaboration are key to success here and across any shared services agreement. The Cabinet Office must now regain the support of all stakeholders in order to set this programme back on the right path.
