Next Generation Shared Services in the UK

On December 28th, 2012 the UK Government announced plans for significant changes in their corporate shared services. The Next Generation Shared Services Strategic Plan outlines how government departments and arms-length bodies will share functions to deliver potential savings of between £400 and £600m ($650-$975m) a year in administration costs.

These cost savings will come from harnessing the benefits of shared services, including standardized processes, fewer errors, increased automation, leveraged technology, and more efficient use of resources.

As head of the Civil Service, Sir Bob Kerslake, said “By bringing together more of the services that departments use, we can not only save the taxpayer millions, an important goal in its own right, but we can deliver on our commitment to become a more unified body providing a first class service to the public.”

How will the shared services be structured?

Full details of the structure will be revealed later this year, however there will be a maximum of five Shared Service Centers (SSCs). Two SSCs will be independent of any single customer, and three SSCs will be standalone in terms of operations but will be subject to performance monitoring. There will also be a Crown Oversight Function responsible for governance.

The two independent SSCs will be provided through the divestment of the Department for Transport (DfT) SSC to an outsourced provider and the second will be built on the Department for Work and Pensions (DWP) SSC.

The functions that will move into share services include: Human resources, payroll, record to report order to cash, and accounts payable. Only certain ‘core functions’ will be moved into the shared service center, and for ‘optional’ services, departments can compare costs with their in-house services and decide whether they will retain the service or move it to shared service center.

Stephen Kelly, Chief Operating Officer for Government, will oversee the program as Senior Responsible Officer and will work with departments to drive through the transition.

How will the plan save money?

Here’s a breakdown of where they hope to achieve the savings

• £128m ($205m) is the savings target on transactional services by implementing a consolidated shared services strategy, achieved through scale savings, efficiencies and lower ERP costs
• £32m ($51m) is estimated to be saved by avoiding a system upgrade costs through system consolidation
• The rest of the savings (£240m-£440m or $390m-$715m) would come from improved performance of the independent shared service centers and standalone shared service centers
• The report estimates ERP annual operating costs could be reduced by more than 40% through consolidation and by up to 70% through the use of lower-cost ERP solutions

How will the ERP consolidation impact the cost savings?

A considerable amount of the savings will come from lowering the cost of the ERP solution.  The report says there are wide variations of current ERP costs, but there is a current average operating cost of £160 ($257) per employee.

The report states that a significant saving of more than 40% will be available by merging into one solution. This would also avoid approximately £32m ($51m) of upgrade costs by only needing to upgrade one installation of Oracle Release 12, taking the cost to an estimated £93 ($149) per employee.

These savings do not include the savings that could come from the competitive procurement of a low cost ERP in the cloud, which they estimate could represent a saving of 67% against the Oracle average, and take the cost to £52 ($83) per employee. The Next Generation Shared Services program involves investigating  emerging Software as a Service (SaaS) offerings and reducing the number of ERP systems across central government.

How will the shared service centers be governed?

Also announced in the report were details on the creation of a Crown Oversight Function that works with departments to deliver improvements in the quality of service and reduction in the operating costs of shared services towards upper quartile performance.

The Crown Oversight Function will monitor performance of all five SSCs and departmental retained functions.

Will it work?

The report doesn’t try to hide the criticisms and failures of previous attempts at shared services. The report states, “There have been many public pronouncements of failure and some, less public, successes in this arena.” Also, the report notes that most of the savings that they hope to see stem from government departments hitting upper quartile efficiency levels, and that “currently no government departments are operating in this upper quartile”.

Further, The National Accounting Office (the public sector auditor) commented that the Next Generation Shared Service program is ‘high risk and ambitious’. They outline the risks including:

• A lack of clarity around responsibilities and accountabilities resulting in poor decision making and a dilution of benefits.
• Difficulty in transitioning departments with  complex tax, funding, charging and procurement rules
• Departments unable to agree common processes or declining to join the NGSS program on the basis that it does not deliver sufficient benefit for the individual department.

However we at sharedserviceslink.com do agree with their statement that  “issues, of course, arise but these generally result from poor implementation, poor leadership, or a combination of both. There is no longer any dispute about the fact that well implemented and organized SSCs produce a lower cost and a better quality for service for their customers leaving them able to concentrate on their front-line mission.”