LGA report: shared services projects are delivering savings but can’t plug the budget deficit on their ownPosted by Practical Law Public Sector Law on 15th August 2012.
PLC Public Sector reports:
The Local Government Association (LGA) has published a report on the financial and non-financial benefits of local authority shared services. The report applauds the achievements of local authorities in delivering savings through sharing services, noting that the sector is outperforming central government in this area. However, the LGA is keen to highlight that shared services alone cannot be relied on to plug the drop in funding that local authorities now receive from central government.
The LGA report (produced by Drummond MacFarlane) focuses on five shared services projects:
- Hoople Ltd, a shared services arrangement between Herefordshire Council and two NHS organisations (Wye Valley NHS Trust and Herefordshire Primary Care Trust).
- LGSS, which was established in October 2010 by Cambridgeshire and Northamptonshire County Councils.
- Devon and Somerset Fire and Rescue Authority, which replaced two separate authorities in April 2007.
- The arrangements made between South Oxfordshire and Vale of White Horse District Councils, following an agreement to share services in 2008.
- Procurement Lincolnshire, a shared service for all the local authorities in the county, made up of a county council, six district councils and a borough council.
In particular, the report sought to establish the financial benefits (both direct and those coming from a change in the way that the authorities functioned more generally) and the non-financial benefits (such as increased service performance and the impact on employees) of the five shared services projects (which represented a range of the options available for structuring a project).
The report is accompanied by a new tool to assist in tracking the benefits of front and back office shared services projects based on the lessons learnt from the report.
Common arguments against shared services addressed
The key conclusions of the report provide responses to many of the arguments that are frequently made against pursuing a shared services project:
- The cost of setting up a shared services operation will outweigh any savings. The report found that this was not the case, with set up and integration costs for merging services being modest and paid back within two years across all of the projects considered.
- The service provided will be of lower quality. The report disagrees with the notion that aggregating services together across authorities may impact on service quality, concluding that the projects considered for the report all succeeded in providing either the same or better levels of service. However the report notes the need for good baseline information on the cost and the initial performance levels in respect of the services at the outset of the project. Without accurate information on the starting position, making a case for change and tracking improvements is very difficult, something that was faced when evaluating all five of the projects.
- Any benefits will not be realised for a considerable period. As with the set up costs, the report states that this does not need to be the case. Rapid implementation is possible and indeed beneficial as it can build momentum for change.
- It will not actually save any money. Perhaps the key finding of the report is that sharing services can save money. Not just in the form of initial savings on staff and removing duplicated posts, but longer term through integrating IT, reducing office space and improving shared procurement processes. These savings can also be supplemented by introducing changes to business processes that would not be possible without the momentum for change that a shared services project can bring.
Tips for ensuring a successful project
Strong leadership is required. The report’s key findings note that initial benefits are delivered rapidly with “strong top-down leadership”. Given the challenges that a shared services project can pose, it must be true to say that, without such leadership, these benefits (and any others) are very unlikely to be delivered at all.
However, it is not just about the leadership. The report notes “good staff indicators” go hand in hand with a high level of performance against KPIs, it is vitally important that staff buy in to the process.
Finally, the report concludes that expanding established shared service centres is the way to go. If the hard work has already been done elsewhere then the report points out that it is sensible to take advantage of this, and the expansion of existing shared service projects is encouraged as a way of delivering savings due to economies of scale. Where business transformation is a goal of a shared services project this may not be the correct solution, but it is always one that should be explored.
An unhappy conclusion?
The LGA is keen to highlight the success of these projects and many others in local government but notes that across the five projects £30 million will have been saved. A considerable sum, but in the LGA’s words “nothing like large enough to make up for the sizable cuts that are being made to local government funding” (the LGA estimates the drop in funding at £3.5 billion since 2010/11). This is clearly true, but the more projects that can make these levels of savings will mean that a greater proportion of the hole in local government funding will be filled without the need to make cuts in services, so it is something that must be encouraged.
One note of caution on the report generally is a query as to whether more may have been learnt from projects that have not been as successful as the five featured projects, and if it would have been more productive to examine a cross section of projects to get a better idea of the level of savings that could be made across the sector taking account of project success and failure.