Outsource Magazine

Colin Grace looks at how shared service centres for the UK's public sector need to be expanded and leveraged more coherently in order to bring about much-needed savings.

In 2003, I attended an OGC presentation which highlighted the possibility that one day the whole of Central and Civil Government (CCG) accounting could be centralised and managed within a shared service centre operation. OGC were starting to float the idea that improved Spending Review (SR) planning and forecasting could be based upon improved control and visibility of financial activities across a number of large central government departments.

Over the past seven years the public sector has invested millions of pounds in establishing SSCs with the Research Councils (£130m) being the most recent and notable example who have followed a familiar model of building a central business unit focused upon streamlining business processes across the back office functions of finance, HR, payroll and procurement enabled by a significant investment in an ERP system and associated implementation consultancy.

The public sector in 2010 now has a number of large scale SSCs – DWP, NHS, Home Office, HMRC, DEFRA and DfT ( who have invested around £200m) who to my knowledge are the first to provide services to external clients such as the Cabinet Office. Collaboration across the public sector's SSCs has been growing and has been facilitated by the Cabinet Office to the extent the SSCs share knowledge and best practice.

In the current deficit reduction climate the development of SSCs will inevitably be one of the areas where the Cabinet Office can channel significant cost reductions by accelerating the savings from managing back office functions across all departments. The recent announcement that John Collington has moved from the Home Office to the Cabinet Office will now provide an injection of much needed leadership and experience in driving forward the adoption of SSCs. John Collington has led the development of the Home Office SSC and most notably has championed for the first time in CCG significant consultancy and temporary staff procurement savings.

The SSCs should be targeting savings in the area of 20% across all areas of finance, procurement, funding (grant awards) HR, IT and Estates which typically handle around 20% of Central Government Department budgets and is the second biggest expenditure after staff costs. The next stage of the journey will require some radical thinking and strong implementation management skills which - albeit new skills for the public sector - have been prevalent in the private sector for over twenty years.

So what can we expect to see happening next?

1. All existing SSCs should be taken into a single ownership model sponsored by the Cabinet Office. It’s been suggested over recent months that publicly-owned trading companies could be created with the potential to provide share equity for staff and for private sector risk/reward investment opportunities.
2. All Central Government departments should have their budgets ‘top sliced’ in the new SR round to channel the back office functions into the new SSC organisation. This model worked effectively when the NHS implemented the ESR payroll service for all Trusts in England and Wales covering 1.3 million staff.
3. A new Cross CCG Budgeting and Forecasting System should be developed to track expenditures by individual departments in line with the new SR budget plans. The SSCs should be empowered by the Cabinet Office to ensure government accounting practices including a standardised Chart of Accounts to capture spending and specifically procurement costs in a far more uniform manner. SSCs can make the best utilisation of ERP solutions by managing the key daily transactions to make possible far more accurate Financial and Management reporting.
4. Management within the departments should be compelled to address discretionary spend and procurements that failed to engage a preferred framework or contract arrangement. One major anomaly is that Buying Solutions (part of the Cabinet Office since June 2010) operates public-sector-wide ‘procurement frameworks’ which cover many categories of expenditure including mobile phones, stationery, buildings etc, which are not mandated by the Treasury or Cabinet Office. Departments can still operate their own local procurement framework contracts - a point obviously missed by the review being undertaken by Philip Green to reduce procurement costs and establish better value for money from government contracts by aggregating demand across government.
5. The full adoption of the new SSC model described above will take several years to achieve and more likely take the full term of the Coalition Government. The success in CCG should be then used by the Cabinet Office to promote similar models within other public sectors, most notably Local Government, universities and devolved governments.

There has never been a better time and opportunity to mandate SSC operations across CCG. The investment in SSC organisations and enabling ERP systems is already in place (I estimate it to be around £1 billion over the last seven years) and now the Cabinet Office must be allowed to manage the delivery of four or five large scale SSCs across the UK to achieve the much-needed savings.

About the Author

Colin Grace has spent the past ten years working across the public sector to promote and implement shared service centres (SSCs). From his days working with the Liverpool City Council and BT joint venture in 2000 through to his work with the NHS, DWP, Home Office and now with the East Midlands Shared Services Centre he is well placed to assess the progress to date in achieving service improvements and costs savings - in particular, what can now be achieved in the current deficit reduction climate to reduce costs by at least twenty percent. Colin is a director at Praktis.