SECTION 1: WHY?
Background to Shared Services
Organisations throughout the world constantly face operational and strategic challenges to improve customer service at lower cost and increased effectiveness. Lean theories from manufacturing teach us that most improvement opportunities come from eliminating non-value added activities. Shared Services enables organisations to gain economies of scales and skills. Cost reduction and high quality service delivery can be achieved from economies of scale, and access to specialised skill-sets and subject matter expertise. Public sector organisations also have the fundamental objective of delivering efficient and effective customer orientated services to citizens.
Shared Services is more than just centralisation or consolidation of similar activities in one location. It is the convergence and streamlining of similar functions within an organisation, or across organisations, to ensure that they are delivered as effectively and efficiently as possible. In a Shared Services model, these service activities will be run like a business, delivering services to internal/external customers at a cost, quality and timeliness that is competitive with alternatives.
Shared Services allows an organisation, or organisations to leverage the capabilities of resources across the entire enterprise, achieving and sustaining performance excellence. The underpinning is a concentration of common management practices in a business-oriented organisation focused entirely on delivering highest-value services at the lowest cost to customers. This stimulates greater accountability than having multiple points of responsibility and varied management practices.
Shared Services is revolutionary and can be truly transformational if it represents a fundamental change in an organisation's structure. In a transformational Shared Services environment, service providers are service-oriented, business-based, contributor-valued, and partner-integrated.
Service-oriented: individual customers and their requirements are known, performance is measured, and problems promptly resolved. Providers know what their customers expect for each service and are capable and motivated in meeting these expectations.
Business-based: services to be performed are agreed upon with customers and priced based on services consumed;
Contributor-valued: accountability and responsibility is clearly delineated, and compensation is linked to satisfactory delivery of service;
Partner-integrated: providers and customers co-define their respective roles and agree upon how work is performed across organisational boundaries to meet service requirements and expectations. Providers anticipate new service needs. Users see service providers as direct contributors to profitability.
Additionally in a Shared Services environment energy and interaction is re-focussed between the service provider and their customer. Customers and providers work together on clarifying service requirements, performance improvements, and priorities and share responsibility for successful service delivery.
Successful Shared Services
The move to Shared Services has gained momentum in both the public and private sector and there are many successful Shared Services operating today, some of which we have profiled in Appendices A and B. Some organisations have been disappointed in the results from adopting Shared Services whilst others have achieved benefits far beyond their expectations. An in-depth analysis of best and worst practice clearly indicates that most of these initiatives fail due to a lack of clear understanding of Shared Services and how to manage the change it involves.
Successful Shared Services models not only achieve significant cost savings; they release substantial resources for front-line services and core policy activity. They can bring direct and indirect benefits to citizens by significantly improving standards of service delivery, and multi channel access. Shared Services is an integral part of wider service transformation and public sector reform.
Summarised below are the most common statements taken from Shared Services organisations that indicate what is required to make Shared Services successful.
Secure strong leadership that is cascaded down through the organisation
Align Shared Services with the business strategy and organisation model, IT and processes
Agree a shared vision for the future state of Shared Services
Important to recognise how Shared Services will operate in organisational environment in terms of governance
Involve stakeholders in building and realising the business case to delver significant benefits
Build a compelling case for change and communicate it to employees at all levels to assist with culture change, buy-in and participation
Put in place strong governance, programme and change management from the outset
Simplify with no compromises and maximise automation
Allocate adequate resources - quality and quantity, staff, money etc
Select the right location for the service/business
Performance measures, benchmarking, measuring success
Create a high performance service culture in the Shared Services organisation and select leadership based on competencies required
Measure performance using an established baseline and track progress against benefits to inform decision making
Shared Services can generate numerous benefits. Customers become more satisfied with service delivery because they can specify and control which services they receive and how much of those services they require. There is a significant increase in customer interaction, and in the consistency of shared information, which promotes a service orientation. There are also numerous benefits to an organisation, both immediate and long-term. In addition to the direct financial benefits other benefits can be achieved by Shared Services:
By focusing on business processes for key support functions we can enhance expertise and build greater organisational capacity
Provide each part with a more robust and resilient vehicle for delivering critical services to demanding standards
Provides a platform for greater transparency and clearer responsibility for service delivery, so it is very clear when and where processes are not working
Provide an environment for stimulating innovation and encourage greater flexibility
Technology now makes it easier to provide services securely via a range of channels to multiple locations for front-line and back-office workers, allowing for a more flexible working environment.
By sharing ICT and systems substantial economies of scale can be achieved
Non Financial Benefits
Efficiency should be interpreted in a wide sense, since experience has shown that Shared Services organisations deliver better corporate performance, higher quality services as well as financial savings. Indeed if organisations focus solely on cost savings they are likely to miss the change to improve service outputs by establishing better processes. Shared Services operations provide career opportunities, workforce development and introduce greater professionalism into corporate and transactions functions by establishing centres of skills.
Challenges and Issues
There are many challenges and issues to be faced when embarking on a Shared Services journey and the most common ones cited by experienced Shared Services practitioners from both public and private sector are detailed below.
In addition, local democratic accountability and concerns around the impact on the locations of the workforce are important factors for location decisions in some areas of the public sector. However, a balanced view of this will take account of the potential for Shared Services to support the positive movement of public sector employment between areas of differing economic conditions (e.g. from fast growing urban areas, to rural locations).
As well as the issues raised above there are numerous legal issues to be considered. Below is a Top Ten List of legal issues to consider, this is not an exhaustive list.
Do the partners have legal capacity / vires to do what is proposed?
Does the joint working fall foul of the doctrine of non-delegation/other principles of public law.
The choice of partnering structure
State Aid and Competition
Employment law issues
Strategy, Process, People and Technology
How can these challenges and issues be tackled? Strategy, Process, People and Technology are four key streams to be addressed on the journey to Shared Services. Each is important in its own right and addressed collectively will lead to success. It is important that we tackle them in the right order. Shared Services should not be seen from the outset as a technology issue. The combination of the four should lead to standardisation, simplification and sharing successfully whilst achieving the organisation's overall vision.
It is critical to have a vision of what good looks like for an organisation and to develop a strategy to deliver this vision. Some key questions need to be answered at the start of a Shared Services journey e.g. how will the organisation engage Shared Services ? will it act as a provider of services ? will it be a user of Shared Services from an external provider ? or will it enter into partnership with others ? It is important that the strategy embraces the operating structures and models and takes account of the local cultural and political environment.
One of the most challenging and time consuming aspects of Shared Services is reviewing existing business processes. However if done correctly it can maximise the benefits to be realised and can make the transition to Shared Services much simpler and smoother. Understanding the added value that each step in the process brings to the overall outcome can be enlightening, and can ensure that the right people are engaged in the process at the right time optimising the valuable skills across the public sector where they are needed most.
The perception is often that business processes must be tailored to local need to deliver local requirements. However, in order to deliver successful Shared Services for a number of organisations standard business processes with effective governance and change control in place will optimise the efficiency and effectiveness of the operation. The McClelland review of public procurement recommends a move from bespoke applications to packaged applications to take benefit of industry standards and best practice processes.
In 2006, the previous administration conducted an ICT Infrastructure Scoping Study across public sector organisations which also indicated that many organisations within each sector had implemented packaged applications software from the same supplier.
There are various methodologies and techniques that have been adopted from industry for use in identifying opportunities and priorities for Shared Services and others for supporting established Shared Services operations around quality and continuous improvement of business processes. These methodologies are also used extensively for standardisation and optimisation of business processes whether they sit in a Shared Services environment or not, for example:
Value Chain Analysis, the value chain categorises the generic value-adding activities of an organisation, identifying primary activities and support activities. Costs and value drivers are identified for each value activity with the aim to maximise value creation while minimising costs. This goes hand in hand with the aims of increasing efficiency and effectiveness.
This customer centric, process based approach, allows an organisation to gain a better understanding of how its resources are distributed across a range of generic activities, highlighting those that are of most value from the customer's perspective. When done across an organisation, or organisations, it helps to identify significant areas of duplication and overlap, which would lend themselves to simplification, standardisation and sharing.
Value Stream Mapping is part of lean principles and complements six sigma methods which were born out of manufacturing, but have since been adopted and used in logistics, supply chain, and service related industries including Shared Services. Many world class Shared Services organisations have adopted these methods and principles. The aim is to improve processes and elimination of waste. It captures the whole process from end to end and uses a team approach and performance measures to critique activity.
Six Sigma was originally developed by Motorola to systematically improve processes by eliminating defects. A defect is defined as nonconformity of a product or service to its specifications. The core of the Six Sigma methodology is a data-driven, systematic approach to problem solving with a focus on customer impact. Six Sigma asserts the following:
Succeeding at achieving sustained quality improvement requires commitment from the entire organisation, particularly from top-level management.
Continuous efforts to reduce variation in process outputs is key to business success.
Business processes can be measured, analysed, improved and controlled.
Without doubt the journey to Shared Services is a challenging one as it involves cultural, organisation and skill changes and effects people in all aspects and levels of an organisation as well as its customers, and when dealing with 3rd party suppliers and partners.
Careful planning of communication, addressing change management, and change readiness, together with relevant and timely training is vital to the success of Shared Services. They go hand in hand with strong programme management and execution.
Our most valuable resource are the people who deliver public services at all levels. It is therefore vital from the outset of a Shared Services journey that the change management strategy is clearly defined to ensure that those implementing change and those affected by change are part of the process and can buy in to the benefits that Shared Services will bring to the organisation and individual.
Self-service, remote and mobile working have all provided increased flexibility and can often address skill shortages and employment challenges within a geography or community. However not all skills will be transferable and therefore it is vital that in developing Shared Services opportunities that the impact on the workforce is properly assessed. Undertaking an equalities impact assessment is a helpful way of understanding how different approaches might impact on areas of the workforce, and identifying whether any particular groups are disproportionately affected. This allows you to consider the options for limiting the impact through redeployment or retraining if appropriate.
Shared Services can be a major change for some. A change management programme that is well planned from the outset, with effective communication, support, training and strong leadership needs to be invested in before and during the journey. This may be a step too far for some and therefore the human capital issues must be managed and planned for.
There are a number of tools that can help to do this including Kotter's Eight steps to Successful Change and William Bridges' Managing Transitions Making the Most of Change.
As with all aspects of public service reform, strong leadership is highlighted as key to delivering a successful outcome that is truly transformational. Strong Leadership in turn will ensure a culture of openness and engagement is in place, to deliver buy in and allow people at all levels to drive change forward.
ICT provides the platform and foundation of Shared Services, advances in technology and the reduced cost of deployment have allowed organisations to adopt many differing operating structures and models to suit their circumstances.
Shared Services can be built by adopting integrated enterprise-wide solutions or through best of breed business applications linked together with a Services Orientated Architecture (SOA) providing the platform for streamlined and consistent business processes and workflows. Additionally the reduced cost and availability of Wide Area Networks (computer networks whose communications link across metropolitan, regional or national boundaries) Virtualisation (combining of multiple physical devices) of servers and disc technologies together with multiple access channels e.g. Mobile, Desktop, Set-top (TV) Kiosks, Wireless etc. has resulted in Shared Services being designed with maximum efficiency and effectiveness for employees and customers alike.
Shared Services Consultation Analysis
In addition to the challenges and issues identified above, feedback from the Shared Services consultation highlighted that VAT, Procurement and TUPE Transfer of Undertakings (Protection of Employment) were areas of most concern to the respondents. These are complex issues that require careful consideration and a summary of our understanding of the latest position is covered below.
- VAT - The key VAT issue is whether public bodies are able to recover VAT incurred on goods and services received from their suppliers. If they can, involvement in Shared Services should not cause VAT problems. However, if a public body has to restrict the recovery of VAT incurred on goods and services received from its suppliers, it is likely that it will be less inclined to become involved in Shared Services.
Section 33 of the Value Added Tax Act 1994 provides a special refund scheme which allows local authorities to reclaim VAT incurred from its suppliers. Where bodies listed in s33 of the VAT Act 1994 incur VAT in connection with taxable business activities, they can recover the VAT as input tax subject to the normal rules.
There are 199 Scottish Public Bodies covered by delegated authority to the Scottish Parliament. There are also 66 education bodies making exempt supplies and not falling within the provisions of s33. Consequently, unless there is a change in VAT legislation, VAT maybe a significant barrier to the delivery of Shared Services in Scotland for some bodies.
The Cabinet Office has made representation to HM Treasury who are considering the VAT treatment of Shared Services arrangements on behalf of NDPBs and the Education sector.
- Procurement - There are a number of key questions to be addressed when considering whether EU procurement rules require that Shared Services delivery models or other supporting contracts must be subject to competition.
Will the private sector be involved in supporting delivery of the service either through new or existing contracts? If so, are those contracts framed in a way that allows the service to be extended to the contacting authorities that will use the service?
Are the relationships which are to be established between public bodies and/or any delivery vehicle contractual in nature (e.g. are they service or service concession contracts as defined in the Regulations)?
If they are contractual, are there any exemptions which would nonetheless allow the contracts to be awarded and performed without competition?
Will the private sector be engaged as an equity stakeholder in the proposed delivery vehicle?
The Scottish Procurement Directorate produced its most recent guidance in July 2007 with the Scottish Procurement Policy Note "SPPN 01 2007 Covering Note on Shared Services". The guidance goes some way to answering some of the issues mentioned above. The European Commission's formal position on the issue is expected to become clearer later in 2007. In the meantime, great care should be exercised in the establishment of Shared Services delivery models and specialist legal advice should be sought in all cases where the EU procurement rules might apply.
- TUPE - TUPE or Transfer of Undertakings (Protection of Employment) regulations are an important plank of employment law in the UK and, under different names, in other EU countries. Introduced in 1981 they aim to ensure that an employee whose employment transfers to another company (for example if the department the employee works for is taken over by an outsourcing company), has his employment rights respected. They also apply in some cases for work transferred to contractors. This includes hours of work, pay, pension entitlement and so on.
The Chartered Institute Public Finance and Accountancy produced a reference publication The Commissioning Joint Committee guide to Service Sharing and Economies of Scale 2007.