Efficiency Drive

December 6, 2006

PPP Bulletin
Anthony Brand, Researcher, NLGN

NLGN’s Anthony Brand calls on the private sector to help increase authorities’ trust of shared services

“Something must be done!” – the war cry of the British politician. In recent months it has been hollered increasingly in the direction of efficiency, cost savings and smarter procurement. This push has been particularly strong for local government, 75% of whose budgets remain reliant on Whitehall. The LGA recently reported that authorities had seen an “unprecedented” 50% rise in local authority spending since 1997 and council services may have to be cut unless something is done about a growing cash crisis.

In fact, funding for local government has increased in real terms by up to 39% since Labour came to power in 1997 according to the DCLG Financial Review. As in most areas of Government, these large increases in funding have not resulted in a proportional rise in the standard of service delivery. The Government, with the aid of the Gershon agenda, is now pushing for greater efficiency across the public sector, £20 billion by 2008 with local government savings accounting for roughly a third of this (£6.45 billion). The initial local government target of £1.2billion in administrative savings has been exceeded by £0.8billion to date, but with a particularly tight CSR2007 expected the pressure is on to keep making savings. Shared services are reported as a core efficiency tool in this task.

The belief amongst the private sector and Whitehall is that shared services in back-room processes in particular can deliver significant benefits. The potential savings across Government back-room HR and IT services alone are estimated £40bn over ten years, freeing up important resource for front-line services. The bulk of interest to date has been around the sharing of these administrative and operational tasks and governments around the world (UK, Canada, USA, Australia) have already implemented them in some form.

Yet many in local government remain unsure of what shared services really means or what it can offer local authorities. The agenda is fraught with good intentions but relatively few realised examples. That is not for want of trying. 32% of councils are already in a shared procurement function and a recent LGC Survey found that 89% of local government respondents saw shared services as an opportunity, only 3% a threat and just 7% a fad. The question then is why only 20% claim to have a fully operational project, with the rest still at the scoping and planning stages?

Share and share alike
As a concept developed and delivered across the private sector, research around shared services has focussed on business models for change and organisational obstacles including:

• Organisational inertia.
• Ability of leadership to drive change.
• Lack of capacity and resource.
• Poor change management.
• Effective benchmarking.

There are significant banks of work already dedicated to meeting these challenges and yet widespread shared services remain elusive in local government. A greater understanding is needed of the peculiarities of these projects in a local government context. In October’s Bulletin APSE’s Paul O’Brien stated that:

“With any partnership arrangement trust is always key and this is particularly relevant when operating in the goldfish bowl of local government where everyone appears to know everyone else and the baggage they carry.”

At NLGN we feel this is of vital importance in understanding the agenda; that baggage, the underlying social, cultural and political environment in which local government operates has a substantial impact on the way any agenda develops. It is all very well saying that this is a business process, that particular local differences should not matter, but if these factors are just glossed over they will continue to stunt the progress of the agenda as a whole. These factors are particularly important when we are expecting local councils to work together as many will need to if they are to achieve economies of scale in shared services. The white paper emphasised joint-working in order to deliver ambitious cost efficiencies and to create improved, seamless public services. However the Audit Commission believes a third of organisations in partnerships experience problems.

Sharing does not come easy and our upcoming research paper, The Underlying Politics of Shared Services, looks at these issues. The report will show that how organisations choose their shared service partners can be instructive. Most existing attempts at shared services operate on a geographical basis with neighbouring authorities joining-up. For many this is just simpler. They often already know each other and have experience of joint-working on regional and cross border issues. They find it easier to meet and form relationships and they may sometimes serve a similar make-up of electorate. However shared services can use modern technology to deliver services from anywhere and sharing over greater distances can be more cost effective and can be used strategically to meet employment and skills needs in different areas, but it also ignores other important factors. As the quote earlier says, sharing takes trust and trust is hard to come by in the political world.

One thing crucial to this issue is that relationships at the top can change. Organisational change relies on strong, committed leadership with a simple clear vision, yet council leaders can change year to year. The window of opportunity for implementing these large structural changes might be small, particularly in those authorities with strong political differences or a delicate balance of power. For another, relationships across local government have a history which affects the shared services agenda. Each council has particular historical political circumstances coloured by previous relationships, local animosity, changing boundaries and multiple re-organisations imposed from above. Not all are willing to jump into new working relationships with their neighbours and most are careful about thy they choose their partners in shared services.

These are issues particular to the local government world and reinforce the fact that councils are not homogenous organisations or brands. They have distinct local characters which come through in their services. They serve different people in different cities, towns and villages, with a different socio-demographic make-up and varied needs. The electorate like to feel that there elected members are there to serve them and their local interests. Squaring these legitimate differences with partnership working and standardisation through shared services is a tricky job.

With recent policy developments rightly championing a devolution of powers and responsibility to a more local level, centralising processes for economies of scale can seem inherently contradictory. As the advocates of shared services will point out this need not be the case, but a lack of understanding around the whole idea continues to make it an uncomfortable agenda for many people.

The impact on local employment is another major concern for those looking to share services. Shared services are looking for economies of scale and cost savings. The most efficient way of delivering IT support for example might appear to be out-source it in an Indian call centre as some private sector industries have done. Rightly or wrongly, the public and political will for such a move is minimal. Even back-room processes provide local employment, use local suppliers and remain inexorably linked to an ideal of public services in the UK. These are difficult political decisions which should not be ignored.

Over-arching central policy issues also impact on shared services in local government in a way that they would never in the private sector, or even Whitehall. The perceived threat of enforced unitary status makes smaller councils wary of getting too close to their larger neighbours. Further more, consistently bad press around private sector involvement in public services undermines public-private partnerships and ignores some of the very good progress made in privately developed shared service partnerships.

Finally, the dearth of successful, well-publicised examples from the public sector is stunting the progress of the agenda as a whole. Potential shared service users have become sceptical over the use of private sector and want to see a coherent, sustained push from within local government before they fully embrace joint-working. Until now, successful local government shared service ventures have been relatively slow in expounding their achievements within the sector and authorities have consequently been hesitant in following their good examples. Incentives are needed for these projects to share their experiences with the wider local government sector and help others achieve the same levels of success. It will be important to support this with a deeper, more widely used, and more accessible bank of available knowledge and good practice on shared services.

Each of the issues above has proved to be a significant barrier to the progress of shared services in local government. The recently published local government White Paper addresses these issues to varying degrees, but it cannot eliminate the need for a greater understanding of shared services and its impact across the local government world. This goes for all stakeholders, private and public. Only through a deeper understanding of the political context, priorities and goals of shared services can private sector providers really engage with local government on this agenda in the long-term. In the end, only greater clarity around the process of sharing, its goals, its consequences and the obstacles these present will allow the agenda to develop faster and more effectively.


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