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A litany of disasters has made shared services easy to swallow
Opinion: Gershon findings were a reaction to IT costs and failures to deliver benefits

By Paul Bentham

Published: Wednesday 20 June 2007

If IT suppliers are worried shared services might mean fewer big government contracts, they should look at the recent past. Addleshaw Goddard's Paul Bentham explains how the new regime will work.

Since the launch of Sir David Varney's report on transformational government, shared services are being lauded as the latest panacea to the government's services ills. Whereas the Gershon report was about cost reduction, the Varney update focuses on the improvement of public services, in addition to reducing cost. Shared services have been positioned as the answer.

So why has the pendulum of favour swung in the direction of shared services? Well, news broke earlier this year that private companies stand to reap profits of £3.3bn from the government's controversial PFI initiatives, which understandably got the hackles of taxpayers up. Due to the political climate and the imminent change of prime ministers, the government has to be seen to connect with the electorate. And the electorate is becoming increasingly disgruntled at the level of failure with public/private initiatives, particularly where technology and outsourcing projects are concerned. You've only got to look at the track record.

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Back in the spring a doctor application system, which was supposed to match junior doctors to specialist training posts was shelved by ministers. Doctors complained that the system - the medical training application service (MTAS) - was profoundly flawed and that many juniors had been unfairly treated. The MTAS site has also allegedly been the subject of two security breaches, which caused the opposition to call for the resignation of health secretary, Patricia Hewitt.

One of the most troubled outsourcing projects was the now defunct Child Support Agency. The outsourced IT system was at the root of the agency's problems. An investigation by the National Audit Office (NAO) found that go-live of the system had been authorised, despite the CSA and its supplier being aware that there were 52 defects within the system. The NAO branded the project "one of the worst public administration scandals of modern times".

So there's little wonder that following public relations disasters like these and the drives for cost savings and efficiency as outlined by Gershon and Varney, shared services are proving to be quite palatable. The vision of the government is that by 2016, the majority of the transactional elements of Corporate Services in the public sector will be delivered through a handful of professional shared services organisations. Some of these organisations will remain within the public sector although many will be outsourced. The government wants to follow in the foot steps of the US, Australian and Irish governments, all of whom have been following successful shared services strategies for years.

In a nutshell, shared services are about the consolidation of a set of services common to multiple business units, such as HR or finance and accountancy. Sharing a service provides the opportunity to reduce waste and inefficiency by reorganising or reusing assets and sharing investments with others. Processes, facilities, maintenance contracts and management effort are likely to be duplicated across different departments. The idea is that the re-organisation of these on a local or a national basis could free resources that could be re-invested in citizen focused activities and the improvement of services.

The Cabinet Office has developed a team tasked with the responsibility of accelerating the take-up of shared services and developing the strategy for all the government departments to converge and consolidate. This team has been given very definite objectives, including: reduction of headcount and financial spend; a saving of £1.4bn per year of the annual £7bn spend on HR and finance; significant improvements to business processes and IT; and a happier, more motivated work force. All in all, the team has been given a real challenge.

This strategy for shared services will span nine government sectors, including defence, the Department of Work and Pensions (DWP), education, health and the Home Office. The shared services team has already initiated activity in all these sectors - some are in the delivery stages and others in the planning phase. But it's a landscape that is changing rapidly. In just the last few months, government shared services operations have been launched at Defra, the DWP and the Prison Service.

An example of a successful shared services environment is the NHS/Xansa Shared Business Services, which provides financial shared services to more than 100 Trust Boards and 200,000 staff across the NHS. This initiative uses a joint venture vehicle, which promises a low-risk route to best-in-class finance and accountancy delivery and an average 30 percent-plus reduction on operating cost. Fundamental to the JV's success is its commercial nature - it combines the best of private and public sectors.

But shared services are by no means a sure thing. The area is riddled with contractual and legal potholes. For example, the application of VAT for shared services can act as a major disincentive if that VAT is irrecoverable. Another is the issue of the EU Public Procurement Rules and their application to buyers and sellers - careful legal guidance is needed to ensure these are not contravened. Other barriers include the sharing culture - it can be difficult for organisations to acclimatise to a sharing environment when they are not used to it. Change programmes need to be managed with kid gloves to ensure that the transition to a shared services environment happens easily.

A failsafe contractual approach to structuring a shared service environment is crucial to success. If all possibilities and eventualities are not properly investigated and catered for the project could well fall off track. And organisations need the right governance in place. From corporate issues such as procurement and transition governance (TUPE) and operational issues like the management structure, to service governance factors like service level agreements, governance needs to prevail throughout the shared services contract and the entire project.

Instigated by Gershon and Varney, shared services in the UK will continue to boom. And whilst the current focus is on back-office services such as HR and finance and accountancy, it is likely that in time similar treatment will be applied to front-office services such as contact centres. There is no reason why shared services cannot bring massive reform to the operational running of the UK public sector. But organisations need to be aware that they need to prepare a thorough business case, be appraised of the different delivery models and ensure failsafe contracts are structured and sound governance is followed to maximise the chances of success.

Paul Bentham is a partner in the technology and outsourcing group at Addleshaw Goddard www.addleshawgoddard.com