Banding together

Even before the Gershon Review in 2003, public sector organisations were being encouraged to adopt shared services as a means to save 'back office' costs. With even greater pressure to find a way to slash budgets but to protect frontline services, it's an obvious option to choose. Private sector companies talk of achieving 20-30% reductions in operating expenditure through using shared services models which must make any chief executive's eyes light up. But before they bank their savings, they should pause a moment to consider whether they can replicate private sector success. The first point to note is that it is only large, complex and widely distributed companies that have the potential to realise big economies of scale that come from bringing together dispersed transactional activities into one place. Smaller organisations do not have that opportunity. An integrated approach Secondly, the real benefits come from an integrated approach to the service delivery model such that processes are re-engineered, streamlined and automated where possible before being combined. This requires some sophisticated consultancy support and investment in new technology. Will public sector organisations be able to spend to save in this way? Thirdly, we should remember that true back office costs in the corporate functions of organisations do not represent a significant expense burden. For example, HR functional costs are 1.3% of the total running costs of London boroughs. Is all this effort worth a relatively paltry reward? Before giving up on the idea, what public sector organisations can do is to band together to find the right solution. There has long been informal collaboration between public bodies, but this needs to go a stage further. Equally trying to achieve change through central diktat has not to date been successful despite the advantages of achieving sector wide synergies. So what we should expect to see is a bottom-up revolution where district councils and counties, police forces, government departments or NHS trusts combine their corporate functions within or across sectoral boundaries. Cloud technology Cloud technology overcomes some of the IT integration challenges, but standardisation of terms and conditions of the participating organisations makes a huge difference to the effectiveness of economies of scale. Where these partnership arrangements have collapsed in the past has often come from a failure to acknowledge that sovereign bodies have their own agendas to pursue, driven by politicians or in response to customers and citizens. Without well worked out governance structures to deal with the inevitable centrifugal tendencies these partnerships fall apart. So are there other options to consider? Straight outsourcing is one but you have to be sure that you save money over the long term not just in the short honeymoon phase and that you protect or enhance service quality. Then there is a hybrid arrangement whereby public sector organisations team up with a private sector operator, but with the public sector still employing its staff assigned to the joint venture. This avoids TUPE issues but leaves challenging management problems. Creating or linking with a social enterprise is another variation on this theme, but without answering the same basic question: how to ensure satisfactory service delivery at an acceptable cost? What public sector bodies should do is define their service vision and the principal means to achieve it at lower cost than at present. Where further efficiencies are required in back office support, they should eschew fads and fashions, often pushed by consultancies hungry for work, and focus on what changes are likely to deliver sustainable benefit at an acceptable price. Peter Reilly is director HR Research & Consultancy at the Institute for Employment Studies . He has published IES reports on reward, human resource planning, HR shared services and outsourcing