UK: Achieving Success With Shared Services In The Public Sector - One For All And All For One

On paper, the case for shared services is clear. It has been documented in numerous government publications, including the Gershon Efficiency Review, and forms part of the Transformational Government strategy.

However, few shared services have been successfully completed in the public sector. Why? And is there anything to learn from those who have taken the plunge and implemented shared services?/P>

AN IDEA WHOSE TIME HAS COME

There are many different estimates on the savings that could be made by the Government if it brought its total expenditure on Finance and Human Resources down to that of best-in-class organisations. With such a vast range of figures, confirming a figure which is universally agreed is a difficult challenge – but all analysts agree that the savings venture into the billions. Think of how many more hospitals, teachers and police could be funded with that sort of money.

Right now there are some 1,300 public sector bodies (including local authorities, police forces and health trusts). Most have their own support services, not just Finance and HR but also legal, customer service and so on. There is an opportunity to do this type of work differently, with one group of people providing shared services to multiple users – thereby doing them faster, better and cheaper.

In the private sector, European companies have used shared services to achieve savings of 25-40% while improving customer service levels; payback has generally between two-to-three years (Deloitte: Shared services handbook: A practical guide to implementing shared services).

But the public sector won't achieve best-in-class status on common processes with marginal or incremental change. What's needed is a giant leap forward – large scale, transformation projects that shake up the way people work and shows them a better way. Enter shared services.

But you know this. You've read it before. The question is – is there an appetite for it at the local level?

SHARED SERVICES IN THE PUBLIC SECTOR: MISSION IMPOSSIBLE?

In our experience, many public sector organisations initially view shared services with scepticism. They have concerns about a large number of perceived barriers, which range from a lack of trust to workforce issues to trying to 'sell in' such a large-scale project.

In discussions, the perceived barriers that are raised typically include:

• Consensus driven governance: how is it possible to get the leadership and commitment needed to drive through such a large scale transformational project, given the decision-making process?
• Risk-averse decision-making: The scope of shared services means a corresponding amount of risk. With everyone looking in the short term to focus on business-as-usual, how can you encourage a more long-term view and release the best people to progress shared services?
• Perceived loss of autonomy: after 15 years of devolving functions from the centre to the agencies, it can look like we're asking people to reverse this trend. How can we communicate the benefits in a compelling way?
• Less financially attractive business case: Government agencies may not have the option of sending processes offshore to low cost locations such as India, and they face high severance costs. With a less attractive business case – is it still worth it?
• Time to implement: given all the factors above, it takes much longer to implement than in the private sector. When can we realistically expect payback?

Equally, there seems to be a disconnect between the centre – fully behind the concept – and departments, agencies and local bodies – not sure they can implement it.

In our view, this is a natural tension between 'them' (centre) and 'us'. It's similar to what we find in the private sector, where the head office becomes enthusiastic about shared services and says, "Yes, let's do it". Meanwhile, the business units are in a panic, wondering how to turn the concepts into workable ideas.

We have found that these issues are surmountable in practice. Looking at successful implementations, there are some common themes that emerge time after time – and those who walk in with their eyes open and with ideas for how to work around these challenges are in the best position to achieve their goals.

COMMON CHALLENGES

Deloitte has been helping organisations to tackle the most challenging aspects of shared services for many years. If we look at those that have successfully achieved transformational change, we see the same universal themes emerging.

So what can the public sector learn from the people who got it right? These lessons are:

CASE STUDY: WESTERN AUSTRALIA

Deloitte is helping the Western Australian Government to move from over 100 providers of finance, HR and procurement to 1.

Deloitte has been the key adviser to the Western Australian Government on its Corporate Services Reform Project since 2003. The Government is establishing shared services for finance and Human Resources (HR) for over 100 agencies. It is expected to go live in mid-2006, and realise savings of 20% or AUS$50m (£21.2 m) per year.

Ideal Candidate For Shared Services

The Western Australian Government had a fragmented structure, which made it an ideal candidate for shared services. Beyond the core services of education, health, police and justice, there were a large number of smaller agencies, statutory authorities, commissions and boards, each of which ran their own corporate services processes and systems.

"Each agency was fairly autonomous, with its own support staff," explains Ron Mance, Executive Director of the Office of Shared Services, Western Australia. "This meant there were 22 different finance systems, 19 HR systems and a similar number of document management systems. So shared services seemed an ideal way to eliminate duplication, achieve economies of scale and drive efficiency improvements."

Lessons Learned

One of the many lessons learned was the power of benchmarking. "The time we devoted to benchmarking each process against best practice and other agencies really paid off," explains Paul Klein, Deloitte. A lot of scepticism went away after the internal benchmarking. It showed people they could do better, that others in their sector already were – and that the proposed changes were realistic."

Another lesson was to allow enough time for the lengthy procurement process. An ERP (Enterprise Resource Planning) system was chosen so that one platform could support all services – finance, HR and also procurement, but the selection process took longer than expected. Practical matters such as a state election in the middle of the IT procurement process added delays to an already time-consuming process.

"Finding the right balance between internal and external resources during implementation is something each project team will need to determine for itself," comments Ron Mance. The Western Australian Government decided to staff the implementation primarily with Government employees from across the sector, with Deloitte playing an advisory role and Oracle contracted to deliver the ERP. This was in response to public perceptions about the need for Government ownership and concerns about expenditure on consultants.

"The ideal project structure would be one where senior project roles were held by experienced project managers. Large scale, transformational programmes require strong project management skills to keep timescales and budgets under control. While internal staff possess excellent functional skills in Finance and HR, they rarely have project-based experience of running complex projects that encompass IT systems, functions across the business and change management.

The final lesson learned centred on standardisation, an area where consultation and internal communications proved vital. "The agencies were moving from a position of complete control to perceived loss of control," comments Ron Mance. "We tried to be sensitive to that, and worked through the change management issues with them."

To design standardised processes, whole-of-government workshops were held to discuss the issues and lower customisation requests to the absolute minimum. This process involved a large cross-section of agency representatives from across the sector – over 1000 public servants have been involved in some way since the design began. In the recent detailed design of the Oracle solution, the process required any proposed customisations to be approved by a Design Council, based on a rigorous cost justification. Only those changes that would benefit the majority of the sector were approved.

As the Office of Shared Services prepares to start operations in mid- 2006 for a small number of pilot agencies, it clearly recognises the need to build and sustain a customer service ethos. Client liaison roles, a contact centre and strong governance through Client Management Councils representing the agencies will all help to support a customer service orientation. "In the public sector, it's as much about improving customer service as cutting costs," agrees Paul Klein.

LESSON 1: AVOID 'ANALYSIS PARALYSIS'

Robust decision-making should be supported by an appropriate level of detail. However, in building and documenting the business case, organisations must avoid the trap of 'analysis paralysis'. This is where an organisation spends so much time analysing where it is at and where it wants to be that it misses the opportunity. This trait is not confined to the public sector – though it may be more prevalent.

What we've learned is that the most important thing to focus on is setting a baseline for costs. The cost and quality of the current back office processes can be assessed through internal and external benchmarking (see our case study on Western Australia). This enables you to understand current processes, who is performing them and what they cost. In most cases, this information is not readily available and will need to be gathered, collated and analysed, based on agreed data definitions. This process must be well managed to obtain trustworthy data and to avoid time slippages.

LESSON 2: SEEK TO STANDARDISE

The business case for shared services depends on getting people to do the same job the same way. Maximum economies of scale will be gained from implementing standard processes both within the SSC and in the user organisations. But variations often exist in different departments.

What we have learned is that much of this customisation is unnecessary and many of the processes can be standardised. The trick is to find where there is already commonality – and where there could be commonality (more often than people will admit initially).

Naturally, there is resistance to standardising the way work is done. People would prefer to continue as they are. So as you change the processes, you must work to change people's attitudes – and get them to join in the change. Those who encourage employees to view the project as an opportunity to change their working environments for the better and come up with new solutions for the way they work are much more likely to succeed.

LESSON 3: DO YOUR BEST TO IMPLEMENT A COMMON SYSTEM

The ideal is to migrate all services to a single Enterprise Resource Planning (ERP) system, such as Oracle or SAP. Yes, it's difficult and yes, there are hiccups. But almost without exception, organisations that have undergone this transition have found the benefits far outweighed the pain. Many shared services practitioners regard it as a critical success factor.

But legacy systems present an almighty challenge to the issue of standardising technology. While organisations could keep their existing systems within a shared services environment, it compromises the benefits they can achieve.

LESSON 4: GET YOUR GOVERNANCE RIGHT

Large-scale change programmes such as shared services cannot succeed without clear leadership and commitment from the top. This is something that successful organisations understand and consistently get right.

In the public sector, there can be much less clarity about leadership, decision-making and governance than in the private sector. Worse, projects such as shared services that cross organisational lines can provoke internal politics and turf wars. Without a mandate from the top, your project could be sacrificed to internal politics as people avoid what they perceive may be career damaging moves.

So how can you get departments, agencies and the wider public sector to join without such a mandate? Public sector organisations must find internal champions for the project – and invest time and money in addressing their more significant change management issues. Given the wide range of stakeholders, from unions to different departments to Permanent Secretaries, more must be done to communicate, persuade and reinforce the key messages. There is a pressing need to establish clear reporting lines and develop effective communications strategies. Good governance – involving the right people at the right times – can also help to resolve these issues before they become liabilities and maintain the project's momentum.

LESSON 5: YOUR COST/BENEFIT ANALYSIS MAY SURPRISE YOU

Will the sums work out in the end? What kind of payback period can be expected?

It is here that differences between the private and public sectors have a direct impact on the business case. Shared services projects may take longer and therefore, potentially, cost more in the public sector.

This is due to the need to spend more on change management, higher people costs and slower decision making (e.g. government procurement processes). Payback periods of two-to-three years in the private sector are more likely to be four-to-seven years in the public sector.

However, there are many non-financial benefits that are important to the public sector – so shared services may well be worthwhile even if the costs are equal to the financial benefits. Shared services can be the impetus for cultural change. Prime amongst these so-called 'soft' benefits is building a service orientation. Investment in training the business as managers will ensure delivery of timely and accurate data that will positively influence decision making capabilities. The use of performance metrics, Service Level Agreements and physically removing people from departments that lack a customer focus – these actions can in and of themselves create cultural change.

Soft benefits aside, the next Spending review is just around the corner with the budget belt undoubtedly set to tighten. Unless a shared services programme is initiated now, the ability to meet the next round of efficiencies will be severely jeopardised.

LESSON 6: REMEMBER THIS IS A PEOPLE BUSINESS

The people who operate the shared services centre (SSC) are the key to achieving and sustaining change and creating a service culture. Investment in their training and orientation to new ways of working plays a vital role in building customer focus and professionalism. Training and education should focus on developing the new skills and behaviours that are needed (including skills such as customer service and team building as well as training in new processes and systems).

While those transferring to shared services are important, don't overlook the people in the 'retained organisation', i.e. the organisation post-shared services. Those in the retained organisation need to understand the impact of shared services, how they might be structured and what capabilities their people will need to support the business once the SSC is up and running. The goal is to enable all employees to operate effectively in their new environment.

Service Level Agreements are one of the most tangible elements of a service ethos. They help to define the relationship between the SSC and its internal customers. They also represent an ideal opportunity for all parties to sit down together, clarify expectations and make joint decisions.

Some of the questions that need to be answered are: How will organisations be charged for using the SSC? How will performance be measured and reported back? What happens if agreed service levels are not met? How will the SSC prove it remains value for money? Working together to answer these questions helps to build trust from the beginning, and will help the relationship withstand any hiccups or 'teething' problems in the first months.

We are also seeing many organisations establish customer liaison functions and customer boards to support this new service ethos. Helping government to become intelligent buyers of services is a good investment, as it completes the circle by instilling new behaviours in both the provider and buyer of shared services.

CONCLUSION

It is time for the public sector to be bold. The case for shared services has been made at the highest level – it is time for a detailed look into shared services, to determine which services might be appropriate to share and who to share them with.

This is not a small task – shared services projects demand vision and commitment. However, they are capable of delivering transformational change.

In the UK and globally, Deloitte is helping a number of government organisations and private sector companies to take their first steps to shared services. We have assisted over 250 organisations to successfully implement shared services programmes.

As a firm, we have worked across the public sector, including the Ministry of Defence, Cabinet Office, Department of Work & Pensions, Department of Environment Food and Rural Affairs, Department of Trade & Industry, Department for Education and Skills, Department for Transport, Department for Constitutional Affairs, Department for International Development, Home Office, HM Revenue and Customs and Department of Health. Our clients also include a large number of public bodies such as Transport for London, London Underground, British Broadcasting Corporation and Royal Mail.

Others have taken on the challenges of shared services and succeeded – it is up to you to benefit from their experiences, both the pitfalls and the lessons learned.

Footnote

* Quote taken from Deloitte's Shared services handbook: A practical guide to implementing shared services.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.