Who Shares Wins

March 9, 2011

Can shared services help local authorities meet the spending challenge? Coalition rhetoric implies this is a relatively simple case of shared back-offices across councils. But its not that simple.

NLGN’s new report, Shared Necessities, argues that shared services will be a key part of the savings councils need, but only if the approach taken is far more ambitious than a focus on the back office.

Our research has revealed the full extent of the challenge to make savings through shared services. To test the Coalition rhetoric that back-office savings alone can protect the front-line we analysed how much could be shared through sharing these services. Our research found that on average 8.9% of council expenditure is on the back office – a figure scaled up from CLG’s subjective analysis return of council finance. Applying the best-case scenario figure of savings of 40% – from the best-of-class examples in the private sector – this would equate to a saving of 3.6% of total expenditure. A more realistic estimate, based on the Cabinet Office projections of 20-25% savings, would leave councils with savings of 1.8%. The average savings required across local government are 4.4%, but some councils must save 8.8% in year 1 alone. Back office shared services, for those councils that have not already done so, can make a sizeable contribution to this. However, this won’t be enough to meet the spending challenge on its own for the majority of councils

But this is not game over for shared services. Our research revealed there is significant untapped potential in shared services for councils willing to go beyond the back office. The next 4 years of fiscal consolidation will be accompanied by radical changes in the relationship between the citizen and the state. This will entail re-designing public service provision and transforming the way that councils operate. The potential for shared services therefore lies in being able to tie the concept into this transformation programme, and to apply the concept to services previously left out of the shared services debate. The most ambitious shared services programmes, such as AGMA or London’s ‘tri-borough’, make significant savings through deeply integrative approaches across a range of back and front office services. This presumption in favour of sharing, and particularly in high-spend areas, must become the norm if local government is to realise the full potential offered by shared services.

Savings through shared services are generated in a number of ways. These can come through scale economies, for instance in technology, assets, management or labour. They can also derive through service improvement efficiencies and reductions in duplication, both across local authorities and within the local public sector. When considered in the abstract, it is possible to see that there are potential shared services savings in a large number of services that are currently not being shared in an extensive way. Social care represents 57% of controllable expenditure for local authorities, yet sharing in this area is minimal and tends to focus on niche low-spend aspects. These areas could make a significant dent in the savings challenge, while also preserving service provision, and it is vital that council ambitions stretch this far.

Our report outlines a range of new models that can assist councils in sharing services across a variety of services. The unique position of each council, coupled with the complexity of service provision, means that there is no ‘one-size fits all’ approach to shared services. Each council must adopt a bespoke solution, finding the combination of models, services and partnerships that bests fits their needs. Models for shared services occupy a spectrum, and councils must decide where on this spectrum they sit.

Informal arrangements, and joint delivery ventures can assist where councils are looking to ‘test the water’, or where a more expansive approach may not be suitable. Conversely, the creation of separate third-party entities could be used where the council aims for deeply integrating sharing across a range of services. Each of the models we outline will have specific advantages which will be appropriate for specific types of councils, and specific circumstances. A large council with spare capacity could operate a Lead Authority Model, and thereby provide services to smaller councils. A smaller authority which has political affinities with a neighbouring authority could look into sharing chief executives and SMT when the opportunity arises, as a way to develop further front office shared services. And furthermore, one of the lessons we learnt from writing this report is that many shared services ventures don’t need geographical proximity.

In addition to this, we considered some of the logical implications of a more wholesale application of shared services. We argue that the shared services market needs to be nurtured with greater levels of information. This would help test the hypothesis that councils are only interested in selling services, rather than buying. To do this we propose the creation of an online market place, similar to eBay or eHarmony, which could assist councils in making a fully informed market decision about how and where they can share services.

We also consider the ramifications for council boundaries. Council borders can often appear arbitrary, and not reflective of a functional economic geography. If a service can be provided better and for lower cost by a shared services arrangement across 4 councils, why are there 4 councils in the first place? And why does London have 33 boroughs, when New York City has 5? We believe there is a strong argument to protect and strengthen current democratic structures at the scale at which they currently exist. But the nature of service provision could be far more flexible. We argue that a logical end-point of more extensive sharing could be a framework of democratic structures, and below it an amorphous and fluid series of service delivery arrangements.

Our report makes clear that shared services have a big part to play in helping councils to meet the spending challenge. However, this can only be the case if a truly ambitious approach is taken. If councils begin to assume that a service can always be shared, unless there is compelling evidence to the contrary, and this can be integrated with the long-term transformative vision of the council, then there are huge potential savings on offer. Our report outlines a range of ways for this to happen. We believe that this, in addition to other innovations in service delivery, could help councils emerge from the cuts leaner, better and brighter organisations.


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