Friday 29 June 2012

Do Shared Services Save Money?

Pooling of knowledge, experience and capacity offers the best chance to meet the challenges faced by the public sector—reduction of resources available while having to meet increasing demand on services as a result of an ageing population.[“Drivers for Shared Services”, 1]

In many public sector contexts it seems that shared services[2] are assumed without question to be a way of saving money. There may be difficulties in establishing and maintaining shared services between organisations, but there is an expectation that overcoming those problems will lead to long term financial benefits. But why?

The mostly obvious reason is in the name. “Shared Services” describe things that are shared. Sharing one thing is surely more cost effective than separately having two.

Let’s imagine for a moment that I sit in a room with other workers and we all have printers on our desks. The printers spend most of their time doing nothing but sometimes they print things. Wouldn’t it be more cost effective for everyone in the room to share the one printer? Yes… it almost certainly would. That is, assuming that the process of printing to a single shared printer doesn’t become so complicated that the time spent printing outweighs the cost benefits of sharing a single piece of hardware.

But how about if we all share seats?

Well, of course that’s a silly idea. We can’t all sit on the same seat at the same time. Perhaps we might find that there are always at least two people out of the room at any one time, in which case there might just be a case for sharing a pool of seats, but that would be the limit of seat sharing.

So are shared services a good idea? The answer, of course, is, ‘it depends!’

Pros and cons of sharing services

Shared services will only bring benefits if the circumstances are right:

  • If there is spare capacity then sharing that capacity somewhere else may be a good idea.
  • If there is insufficient scale to hold capacity then sharing resources may allow for a service that can’t otherwise be there and improve productivity as a result.
  • If sharing services raises demand above a given threshold it may become cost-effective to obtain a different kind of service that brings higher productivity benefits. For example, a sit on lawnmower rather than a push-lawnmower.

But there are good reasons why sharing services may reduce productivity:

  • If the shared services don’t quite meet the requirements for one party or both.
  • If sharing the service involves more travel, time or communication costs.
  • If sharing a service requires the establishment of administrative services to manage the sharing.
  • If sharing a service requires the introduction of additional process steps which themselves introduce cost and waste.
  • If sharing a service makes a process harder to change and improve because it requires full agreement across all users.

So when you next hear proposals of public sector cost savings from shared services: ask a few questions and see where the savings are actually coming from. Don’t be surprised to discover that many of the proposed savings from shared services come from a bare unjustified assumption like:

Shared services have been found to bring savings of 10% to 20% therefore, if we normally spend £1,000,000 we can expect to save at least £100,000 by introducing shared services.

Indeed, as far as I have been able to uncover, this is basis of many of the McClelland Report’s[3] proposed savings for ICT in the public sector in Scotland.

Shared Services Guidance

The Scottish Government, provides guidance on the sharing of services[1]. But this guidance whilst extensive and detailed in sections, gives no space to a discussion of the circumstances when shared services may be less efficient than separate ones. Indeed there is only a very brief reference to any need to assess the justification for shared services and this is simply through reference to the need for a ‘business case’.

Whilst huge amounts of time and money are going into the centralisation of police and fire services across Scotland and local authorities throughout Scotland are under considerable pressure to share services in order to save money, it may be that they would do far better sharing their ideas and costs but implementing them independently[4].

  1. Scottish Government, “Shared Services Guidance 2011”

  2. For details of the Scottish Government’s work on Shared Services see this page of their web site:  ↩

  3. The McClelland Report: “Review of ICT Infrastructure in the Public Sector in Scotland”, June 2011,  ↩

  4. “Is the evidence of shared services success flawed?”, Inside Outsourcing, Computer Weekly, Karl Flinders, August 2011,  ↩

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