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]shared-services-guidance

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]shared-services-guidance. 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].

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1. shared-services-guidance

   Scottish Government, “Shared Services Guidance 2011” http://www.scotland.gov.uk/Topics/Government/PublicServiceReform/efficientgovernment/SharedServices/Guidanceframework2010.

2. For details of the Scottish Government’s work on Shared Services see this page of their web site: http://www.scotland.gov.uk/Topics/Government/PublicServiceReform/efficientgovernment/SharedServices.  ↩

3. The McClelland Report: “Review of ICT Infrastructure in the Public Sector in Scotland”, June 2011, http://www.scotland.gov.uk/Publications/2011/06/15104329/0.  ↩

4. “Is the evidence of shared services success flawed?”, Inside Outsourcing, Computer Weekly, Karl Flinders, August 2011, http://www.computerweekly.com/blogs/inside-outsourcing/2011/08/is-the-evidence-of-shared-services-success-flawed.html  ↩

A single Police force in Scotland, a single Fire and Rescue service in Scotland - a costly change for no good reason

Why does centralisation save money?

A common theme in Scottish public sector thinking right now is the cost saving benefits of centralisation. If rumours are true then the Scottish Police forces, and the Fire and Rescue services are to be merged and centralised. Why? Because, it seems that there is a common unspoken understanding that centralisation, whether we like it or not, will save money.

You might imagine that reading recent government reports on these initiatives would explain some of the reasons why centralisation might bring savings. But you would be sadly mistaken. From the document "Sustainable Policing Project - Phase Two Report: Options for Reform" the nearest thing to an explanation of the benefits of centralisation is the sentence on page 5:

"The single force model represents the most significant change; however it provides the greatest opportunity to manage change, drive efficiency and in delivering operations when the change is complete. The eight force model represents the opposite."

In other words, there is no explanation of the benefits of centralisation. As readers, we are expected to accept - without question - that the author of this report is right in saying that single force is best.

This assumption is then reflected in the traffic light style summary of the report on page 62 (reproduced below). If you have a spare moment you might like to try (as I did) to go back through the document and uncover the justification for the colour coding of this:

Scottish Fire and Rescue

The Scottish Government consultation "A Consultation on the Future of the Fire and Rescue Service in Scotland" takes a similar approach to explaining the need for change when it introduces the subject on page 2:

"Many people, both in the SFRS and beyond, now accept that the current structure of eight Services supported by some national support services is unsustainable over the medium-term."

As readers we are clearly expected to agree with this statement because the people are unnamed and the argument is completely unsubstantiated.

Oddly, on page 5 of this report there is a nod towards decentralisation that is repeatedly scattered through the report from then on:

"To ensure that we can deliver the best possible outcomes for the people of Scotland, we want to see a context in which: the full benefits of the SFRS are de-centralised as far as possible…"

But the application of this principal within a single force is finally explained on page 21:

"A single service offers the best opportunity for de-centralising as many elements of the business as possible across Scotland. Under current structures resource cannot be transferred between services. A single service would give us the flexibility to de-centralise and move resource to meet specific, identified needs wherever they occur in Scotland."

In other words, the word "de-centralised" is included in the paragraph to make it appear that de-centralisation is happening when it's actually centralisation. Interestingly the paragraph also claims that current structure prevents the sharing of services when clearly this is not the case and the recent English riots is one well known example of this.

But back to the benefits of centralisation. On the same page this report says:

"A single service approach offers significant scope for bringing together funding streams and reducing the complexity of governance and the duplication of effort and control. It also allows for the rationalisation of back office and specialist services, but with the opportunity to spread back-office and specialist functions more widely across the country. Through simplifying the delivery landscape in this way, the costs associated with the existing multiple governance and co-ordinating mechanisms would disappear."

To be fair this looks like a reasonable attempt at a genuine explanation of the apparent potential benefits of centralisation. But the unfortunate truth is that the last 30 years worth of research in this area provides conflicting evidence of benefits of centralisation or decentralisation within the public sector. See for example: "Centralization, organizational strategy, and public service performance".

The idea that a single service will reduce the complexity of governance may be true, but it will not reduce the overall complexity of the problem. Centralised control allows for rapid decision making at the expense of a lack of detailed and localised knowledge. In effect it could be argued that any efficiencies of centralisation are in the way that it allows rapid and consistent decisions to be implemented nationwide regardless of whether or not they make sense at the local level. In practice centralisation is very likely to result in a nation of demoralised staff who feel the stresses and frustrations of having to work within a bureaucracy that neither understands, listens to, or has the time for local concerns.

The reports pretend that this is not the case by arguing that a single force will, through efficiencies of processes and interfaces, be able to address local needs better than a decentralised organisation could. But this is smoke and mirrors as addressing local needs would decentralise control and increase the interfaces involved in decision making processes. The force as a whole cannot be both centralised and decentralised at once.

Different operating structures favour different ways of working. Centralisation makes for efficient delivery of very simple standardised unchanging services but adds complexity and bureaucracy to the delivery of complex and highly variable services such as are required to address the diverse needs of a nation like Scotland.

Decentralisation is a potentially inefficient way of delivering simple standardised services but excels at motivating staff who are faced with dealing with ever changing diverse and complex issues at the local level.

The recent Christie Report on the delivery of public services in Scotland makes it clear that we can only operate efficiently if we accept that there are different needs and priorities across the country and that we need to address those differences. In other words, we will deliver cost savings, not by delivering the same service throughout the country but by prioritising the delivery of the services that matter in the areas that they are delivered. The simple truth is that delivering the same service everywhere is a waste of money.

Cost of change

Incredibly, the suggestion of moving to a single force for the police, fire and rescue brings one certainty: the cost of change. Whilst there will be arguments about the predicted cost, there is no-one questioning the fact that changing to a single force will be a big and costly change.

If there was a strong argument why, in the long run, a single force would bring savings and improvements in service then you could understand that this cost of change would be something worth investing in.

But the majority of the published cost savings are not dependant upon a single force. They relate to reducing capacity and lowering salaries.

In simple terms the government is proposing to reduce the workforce, cut salaries and simultaneously ask them to completely change the organisational structures they work within. If that is not a recipe for disaster, what is?

Why?

What is driving the push towards centralised control?

The only answer that seems to make any sense is centralised control itself. It seems that we have a government that does not believe in giving out control to other people. It seems to believe that our country is safer in the hands of a few hand-picked individuals in arms reach of government: but out of touch with you and me.