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Part 1: An introduction to shared services

Shared Services Strategy - part of the wider public service reform agenda

1. The delivery of high quality, user focussed and innovative public services in Scotland has been a key priority for the Scottish Executive since the creation of the Scottish Parliament in 1999. A significant and sustained increase in resources has been invested in the Scottish Public Sector to this end (average 8% increase per annum between 1999/2000 to 2003/04 ¹).

2. In parallel with this period of unprecedented investment in our public services, Scottish Ministers have also focussed on public service reform to ensure that the services received by the public are joined up, accountable and delivered in the most efficient and effective manner. Our overall vision for public service reform has five fundamental elements that will underpin and support the modernisation of the public sector; namely that transformed public services will:

i. be user focussed and personalised, organised around users and citizen needs and aspirations, not the convenience of the service provider;

ii. drive up quality and encourage innovation

iii. continue to improve efficiency and productivity

iv. be joined up and minimise separation;

v. ensure strong accountability.

3. We have already initiated a number of complementary work streams in support of our reform objectives, including the Efficient Government Initiative, the McClelland review of Public Procurement in Scotland, the Integrated Services and Governance Modelling Project, Review of Local Government Finance, Best Value framework, Modernising Government and our e-Care and Customer First programmes. This Shared Services Strategy has been developed as part of the Efficient Government Initiative but interlinks with these other initiatives and is a key component in our reform agenda. It aims to provide a vision for 2015 and a framework for strategic action to deliver this and has the following key objectives:

i. identify and realise opportunities for efficiency savings and service improvements to be gained through the adoption of shared service initiatives, thus freeing resources for investment in front line services;

ii. promote the development of shared services, processes and systems that are resilient to changes in service delivery structures and boundaries and better able to meet the needs of joined up public services;

iii. build on the standards and infrastructure being put in place through the Modernising Government, Customer First and e-Care initiatives and ideas developed through the Efficient Government Fund.

4. Shared Services is one of the five workstreams within the Building a Better Scotland - Efficient Government Plan and is a key driver for the delivery of the 2010 efficiency targets set out in the plan. In the context of this strategy the opportunities for shared services fall into two main areas:

i. Support functions such as Accounting, Payroll, Procurement, Human Resources, Facilities, Information and Communications Technology ( ICT). which all organisations need to support their core business and which are delivered to customers within the organisation, rather than to the public.

ii. The common operational processes and systems that underpin front line services and which are duplicated across multiple organisations.

Shared services - a mainstream business concept

5. As with many business management ideas, the early adopters of shared services were large corporations in the United States in the 1980s. By the end of the 1990s, the concept had become an accepted mainstream approach for improving organisational efficiency and continues to grow in popularity. It is now increasingly being adopted in the public sector in the United States, Canada, Australia and New Zealand, as well as the UK.

6. The growth of shared services within the public sector is highlighted by an Accenture 2005 survey ² of senior government executives in Europe, North America, Asia Pacific and Africa which found that 85% of those interviewed believed that shared services are playing, or will play, a role in supporting their organisation's strategic goals. In addition, 66% said they had already implemented, or were in the process of implementing shared services. Only 6% said they would not consider a shared services model.

Why adopt shared services?

7. Organisations and governments have adopted a shared services model because it is a proven way of delivering more efficient and customer focussed support services. There is now a significant body of evidence from both the public and private sector around the world to support this, a sample of which is included in Annex A.

8. The results of three recent independent surveys of organisations with shared services operations identified average net cash savings of 14% ³, 15% ⁴ and 30% ⁵ respectively with some organisations achieving up to 60% ⁶. These savings are broadly derived from three main areas:

i. Process re-engineering
Removing duplication and non-value- added activities and re-designing simpler, faster and more robust processes which require fewer staff to operate. Frequently linked to the introduction of new technology.

ii. Standardisation
Adopting the defined best process within the business units of an organisation, or across a number of different organisations allows all to achieve re-engineering savings, as well as providing further savings from joint procurement of ICT underpinning new process/es and shared staff training in new process/es.

iii. Consolidation
Bringing together some or all aspects of the service delivery within a single entity to meet the needs of all business units or partner organisations maximises economies of scale allowing further reductions in staff numbers and associated costs (accommodation, workstations, etc.). Single instance of ICT infrastructure reduces procurement and operational costs.

9. From a Scottish perspective, it is estimated that public sector organisations spend between 5% and 15% of their operational budgets on support services. This is equivalent to an annual cash spend of between £1.2bn-£3.7bn, based on the 2006-07 Departmental Expenditure Limits of £24.6bn. If the average savings level of 20% from the three surveys highlighted above was applied to these figures, this would give a potential level of savings from shared support services of between £250m and £750m across the whole of the Scottish Public Sector, equivalent to between 1% and 3% of total operational costs. While these figures are for illustrative purposes only, they highlight the significant scope for efficiency savings to be realised within support service areas.

10. In addition to these direct financial benefits there are a range of other significant benefits including:

The most popular areas for shared services

11. The table opposite shows a summary of the results of separate surveys into the most common areas included in shared service arrangements in the public ⁵ and private ⁶ sectors. While the order of the top six areas is slightly different, the same areas are included in both lists, indicating little difference in the applicability of the shared services model to support services between the public and private sectors.

12. Within Scotland, public sector shared service arrangements are becoming more common as organisations become aware of the benefits that can be delivered. A number of organisations have implemented, or are in the process of implementing national shared support service arrangements including Scottish Enterprise and NHSScotland. Large organisation such as Glasgow City Council, the City of Edinburgh Council and the Scottish Executive itself have implemented, or are in the process of implementing, internal shared support service arrangements for functions that were previously distributed across operating units or departments.

13. Examples of wider shared transactional services can also be found, with the Scottish Public Pensions Agency providing pensions administration and payroll services on a national basis for retired teachers and NHS staff and the NHS in Scotland moving towards a single shared Payroll Service for all staff. The City of Edinburgh Council and South Lanarkshire Council provide payroll services to their local Police and Fire boards, with the later also recently agreeing to provide a payroll service to a neighbouring council.

Sharing goes beyond corporate support functions

14. Corporate support functions are the most popular areas for shared services initiatives and given the body of evidence highlighting the benefits that can be gained from sharing in these areas, they will be a key area of focus for the Shared Services Strategy. However, we recognise that the benefits of sharing are not restricted to these support functions and the strategy aims to promote sharing across a wider range of efficiency initiatives.

15. In the Higher Education sector, Scottish universities already participate in a number of well established national shared service arrangements such as the UCAS student admissions process and the SuperJanet ICT network.

16. The Customer First programme run by the Local Government Improvement Service is developing the national citizens account, authentication protocol and property gazetteer which will all operate on a shared basis. Similarly, the systems underpinning the operation of the national concessionary travel application on the Local Authorities Citizen's Smart Card, will be run on a national shared services basis, as has procurement and production of the cards themselves.

17. A number of Efficient Government Fund bids proposed the development of common processes or systems which support specific front line service areas, ranging from Social Care to Transport. This is a clear recognition by the bidders that their organisations deliver the same range of services to local populations and that standardisation around a good model for service delivery can offer significant opportunities for improvement in efficiency and service quality. While the EGF bids received by us cover some of these opportunities, there are many more examples where essentially the same services are delivered locally using a variety of different processes and systems within the Local Government, Health, Higher and Further Education, Police, Fire and Rescue sectors.

18. In the specific area of Local Authority Revenues and Benefits services, the Audit Commission published a report in November of 2005 ⁷, which highlighted opportunities for service improvements and efficiency savings of 5% or £150m in England, with shared services and partnership approaches offering the most potential for delivering savings. With the cost of Council Tax collection per household ranging from £8.86 (average top quartile) to £24.20 (average bottom quartile) across Scottish Councils in 2004/05 ⁸, there is clearly scope for efficiency improvements in Scotland in this area.

19. One of the examples of sharing given in the Audit Commission report was the Anglia Revenues and Benefits Partnership, where the first phase of this shared service implementation between two district councils reduced average times to process benefits claims from three months to one, at the same time as delivering 6% efficiency savings, with further savings anticipated in later phases through full staff integration. While there is some limited shared service arrangements for revenues collection in Scotland, with the City of Edinburgh Council undertaking Non Domestic Rates administration for Midlothian Council, such arrangements are the exception, rather than the rule. A number of Efficient Government Fund bids have been submitted for shared revenues collection initiatives which indicates that Scottish Councils recognise the potential benefits of a shared approach in this area.

20. The potential benefits from adopting standard processes across a sector has been recognised by the Association of Chief Police Officers in Scotland ( ACPOS) which recently endorsed a programme to investigate the development of common, best practice operational support systems for policing in Scotland.

21. We have also had recent discussions with the Convention of Scottish Local Authorities in Scotland ( COSLA) and the Society of Local Authority Chief Executives ( SOLACE) Scotland on a similar theme of process standardisation and transformation within the Local Authority sector. This would build on the work that has already underway by groups of Councils in the areas of Social Work and Education administrative support systems, the Customer First programme's Citizens Account/Customer Relationship Management ( CRM) workstream, and the ideas and initiatives brought forward by Councils in bids to the Efficient Government Fund.

22. While organisations can collectively improve efficiency and service quality by developing a common best practice process which each then implements, technology developments are supporting further shared efficiency opportunities by allowing common, web-based systems to be deployed, hosted and maintained by a single organisation on behalf of groups of users. This in turn will support the data sharing developments being taken forward by the e-Care and Customer First initiatives by reducing the number of system interfaces required.

23. The savings achieved by adopting a shared approach in these areas would be in addition to the £250m to £750m potential savings from shared corporate support functions highlighted in paragraph 9. While we recognise that the potential for consolidation of staff directly involved in the local delivery of front line services in different organisations is limited in comparison to corporate support functions, the benefits achieved by process re-engineering and standardisation should be equally applicable in these areas.

24. The potential for integration across public sector organisations in areas such as Health and Social Care and Criminal Justice is central to the wider debate on Public Service Reform and is being explored by the Integrated Service Delivery and Governance Modelling Project. The Shared Services Strategy supports this wider reform agenda by seeking to put in place common support services and processes which are more independent from the structures of front line services and better able to adapt to any future changes in these arrangements.

25. We recognise the need to ensure that the elements of the strategy that relate to process standardisation in front line services take account of the direction of the debate on public service reform and integration, in order that any new processes reflect and support emerging joined up service delivery arrangements. There are already good examples of where this has been done in areas such as the single shared assessment processes that have been developed as part of the Joint Future work with Health and Social Care.

The steps to shared services

26. Much of the evidence and examples of shared services initiatives gathered as part of the preparation for this strategy is based on the creation of shared service centres, operated on behalf of multiple business units or organisations. Many organisations have chosen this approach because it maximises the potential for efficiency improvements, but it represents one end of a path to sharing, which has a number of stages within it, each of which can deliver valuable efficiency improvements. This is highlighted in figure 1 below.

Fig 1: Options for sharing

27. A number of the most significant challenges to shared services will relate to the final step on this path due to the requirement to take difficult decisions on staffing reductions across organisations, service location and the operational model for the shared service organisation. The rate of progress along this path and the agreed end point for an initiative needs therefore to reflect the perceived balance of risk and benefits within the participating organisations, the relationships between their leaders and key managers and the ability of their organisational cultures to support the required changes.

28. In some circumstances an effective first step could be to focus on the development of an acceptable good practice process/system which could form the standard for adoption across a particular sector or sectors. This would allow the benefits of process simplification and standardisation to be realised while helping to build the relationships, trust and organisational cultures and change management structures needed to support more challenging future transformation.

29. If, however, there is clear consensus for the adoption of a full shared service model from the start, then this should be seen as the preferred way forward as it will maximise the potential for efficiency savings which can be re-invested in front line services by the participating organisations.

• Are we right to widen our view of shared services from the more traditional internal support functions to the processes and systems that underpin our front line services?
• Are there opportunities for sharing in other functions and service areas that we have not identified?
• What other examples are there of shared service good practice in Scotland?
• Are there other options for sharing that we have not identified in Figure 1?

Implementing shared services is not an easy option

30. It is clear from the information gathered in preparation of this strategy that achieving the significant potential efficiency gains from sharing highlighted in paragraph 9 will be neither simple or quick. This is reflected in a recent survey by AT Kearney ³ in the US which identified that only 67% of organisations achieved the level of benefits set out in their business case with the top five challenges encountered being:

i. Fundamental lack of awareness/skills in managing change to shared services
ii. Lack of clear leadership support/commitment to change
iii. Maintaining or improving services levels/meeting user expectations
iv. Establishing an effective governance structure
v. Lack of cooperation between government departments/difficulty building consensus.

31. This is not surprising, since the adoption of shared services represents a radical transformation in the approach to service delivery which will have a major impact on the jobs and working practices of many managers and staff. We do not underestimate the extent of leadership and change management expertise that will be needed to achieve such a transformation.

32. Early and continuous communications with staff and engagement with their trade union representatives was a central element in the successful Western Australia whole of government shared service program, which included significant job reductions and has a target for annual recurring net savings of A$55m. In addition, a significant commitment was made to the training and development of the staff transferring to the new shared service centres to ensure they had the skills and support needed to operate effectively in their new working environment.

33. The extent of the change management input, linked to the requirements for process re-design, new technology and office re-configuration, mean that shared services initiatives require substantial financial investment, with the savings taking a number of years to be realised. The evidence gathered would indicate that a typical timescale is 1-2 years for project implementation and a further 2-3 years for full benefits realisation.

34. Using the examples of the Western Australia shared service programme, our own NHSScotland shared financial services project, and the Royal Bank of Scotland's Finance shared service ⁷, we can calculate an average ratio of upfront investment to net annual return of around 2:1. Assuming the current Efficient Government Fund of £60m was invested on a similar basis, this would achieve a net annual savings figure of £30m. Achieving the notional £750m saving noted earlier in paragraph 9 would require an investment of £1.5bn. A major element of this expenditure will be technology related, but in the context of the significant annual spend on ICT in the Scottish public sector, which one recent industry estimate indicates could be as high as £820m ⁹, it would be reasonable to assume that a proportion of this could be used for shared initiatives.

35. Clearly the actual amount of investment required and returns achieved will vary considerably between projects, but this simple calculation does illustrate the order of magnitude of investment that would be required for the widespread adoption of shared services initiatives. It is essential therefore that any proposed shared services initiatives are underpinned by robust business cases and options appraisal which ensures that the opportunities to build on any existing investments in processes and infrastructure that are capable of supporting larger scale shared services are fully explored. It is equally essential that clear baseline measures for service cost and quality measures are established as part of the business case, against which to measure progress on benefits realisation.

36. It is also important that we do not repeat the mistakes of the past and recreate large centralised support organisations that seek to dictate service levels rather than respond to the needs of their users. The best of current shared service operations view meeting customer needs in the most efficient way possible as their core objective and have governance, service level agreements, performance monitoring, benchmarking and continuous improvement arrangements in place that help achieve this.

• What do you see as the major risks associated with shared services?
• What can we do to overcome these risks?
• How do we best provide the investment funding required to implement initiatives?
• How do we best respond to the concerns of staff over changes to jobs?

Scotland is in a strong position to gain from shared services

37. The challenges to implementing shared services covered in the preceding paragraphs are common to all organisations and governments, but we believe that Scotland has some advantages over early adopters and larger governmental jurisdictions. The number of organisations and stakeholders involved within the Scottish Public Sector is of a manageable scale (as summarised in Annex B) and there are a number of well developed networks which are helping to build the strong personal relationships between senior figures which will be essential to taking this agenda forward. Already we have seen the NHS in Scotland introduce a programme for the roll out of shared arrangements for financial, payroll and procurement services across the 15 Scottish Health Boards and we have highlighted a number of the other shared initiatives that are underway across Scotland. This is an encouraging starting point and should act as a catalyst for the consideration of similar arrangements across the wider public sector in Scotland.

38. In addition to the benefits of scale, Scotland is also well placed to take advantage of the learning curve on shared services. As this is now a mainstream approach to business improvement on a worldwide basis, there are a number of major suppliers of integrated software systems which have been designed to support efficient shared services and have benefited from continuous development and enhancement over the last decade. There has also been significant developments in computer network and communications technology which support the effective delivery of shared services from widely separated geographic locations.

39. Linked to these technological developments is a growing range of accumulated expertise and knowledge in the implementation and management of process transformation and shared services. This includes experienced individuals from within our own innovative public sector organisations and consultancies, systems integration companies, software vendors and shared service operators. As an example of this, the Royal Bank of Scotland, which operates one of the most highly respected Human Resources shared services operations in the world ¹⁰ from Manchester, and a more recently created Finance shared service centre in Edinburgh, has been providing support to our Shared Services Sub Group. The Government of Western Australia has also been providing the Executive with detailed information on their shared support services implementation.

40. In conclusion, given the developments already underway in Scotland, the extent of the evidence on the benefits of shared services and the availability of expertise and support to help overcome the challenges that will be faced in implementation, there is a clear case for the promotion of shared services and processes on a national basis. The development of a national strategy to co-ordinate action across the public sector is an important first step. The next section considers what might be achieved by an co-ordinated movement towards shared services adoption within the Scottish Public Sector and what actions are needed to support such a move.

• Have we made an effective case for developing a national shared service strategy for the public sector?
• What could we do to strengthen the case?
• What can we do to maximise support for the strategy?

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