Public Services Reform: Alf Asks for an Expert View from China

As you will know if you are a regular reader of my blog, I am a big fan of Shared Services and have been involved in many Shared Services programmes, covering the full life cycle. Shared Services in the Public Sector has always been especially challenging, yet many Local Authorities currently seem to be looking to Shared Services as a cost cutting measure. I have repeatedly argued that the complexities of the Transformation Risk continue to be seriously underestimated. If the risks materialise, then the benefits case is completely wiped out.

Obviously, stakeholders can turn to heavy-weight transformation specialists to help them mitigate the risks, operating client-side, but I fear that at the moment too much dependency is being placed on consultants who talk a good case but have moved on by the time the benefits case is measured post facto. Public Sector procurement practices and Catch 22 initiatives are favouring branded consultancies, at the expense of professional interims – yet the professional interim is the true transformation expert, hardened with years of delivery and implementation expertise.

In order to gain another perspective, I asked the advise of a leading outsourcing specialist,  Haitao Qi 齐海涛, in China. According to the authoritative AT Kearney surveys on outsourcing, China and India remain by far the most attractive locations for outsourcing.

I posed the following challenge to Hatao Qi :

” As you probably know the UK Coalition Government has taken drastic steps to reduce UK borrowing, including seeking 30%+ cost-cutting in both Central and Local
Government. Many Public Sector organisations are looking to Shared Services for
cost-cutting to avoid cutting front-line services. Unfortunately, the risks for
achieving enduring savings of circa 30% from Shared Services programmes are very high. It is often argued  that the best alternative to Shared Services is Outsourcing and perhaps even Off-shoring to countries like China or India. Also many believe that enduring cost reduction is achieved more quickly from Outsourcing than with Shared Services. What would be your advice?”

Hateo Qi’s response was:

“The UK should choose to outsource, including offshoring to China or India because:

  • Outsourcing creates long-term relationship rather than Shared Service.
    Eg. Lump-sum personnel Model (See note 1)
  • Outsourcing restructures business processes, in better way to avoid
    bureaucratic costs
  • Outsourcing seeks companies with EOS (See note 2)
  • Outsourcing keeps spending in certain level with model as reverse BOT (see note 3)
  • Outsourcing invests in plans, but not as needed changes from internal structure”

Over the coming weeks, this blog will be reflecting on the Shared Services Vs. Outsourcing choice.

Notes:

  1. Lump-sum personnel Model is the offshore outsourcing model with service providers use all resources to serve outsourcing buyers
  2. “EOS” is Economic of Scale, to reach that means the value chain get most Efficiency
  3. “BOT” is Building-Operate-Transfer Model, which means private companies
    invest in certain infrastructure and take profits from that in a contracted
    time. After contract end, the buyer takes infrastructure ownership back

Public Services Reform: Shared Services, Outsourcing and Mutualisation?

Originally, scheduled for January, the Cabinet Office has now delayed the publication of the Public Services White Paper until after the local elections in May.

It seems that the White Paper will “expand employee ownership of public services by increasing the number of new structures including co-operatives, mutuals and spinouts, and provide details of how to establish a right to mutualise.”

This is the first of a series of blogs which will look critically at the Government’s Public Services Reform.

Over the last couple of months, this blog has taken a hard look at Shared Services in the Public Sector. Themes have included:

Unless there is some fundamentally new ingredient into the mix, the business case for increased investment in Shared Services looks a high risk option in order to achieve serious cost reductions – in this regard 40% cost reduction is the norm in the Private Sector but I established earlier that even 20% cost reduction is likely to be wiped out by the materialisation of the risks.

So far, the overriding focus of this Coalition Government has been: (1) Reducing the Budget Deficit; and (2) Reform.

The blog has established that the operationalisation of the Reform Agenda into well crafted transformation programmes is so far not well evidenced. Given the Government’s very real commitment to transparency, it must be assumed that the evidence is not yet available.

The Public Services White Paper is one of the critical reforms of the Coalition Government. Although not as publicly sensitive as Healthcare Reform, it is likely that the Public Services White Paper will receive enormous attention in the media, plus trade unions and public sector employees.

It is widely expected that the Public Services White Paper will signal the departure from “Big Government“, the approach of the Labour Government, which also favoured centralised control. It will be interesting to see the approach to the existing Back Office Shared Services programmes, which according to the National Audit Office have not achieved acceptable business benefits. Here are some of the potential options:

  • Existing Shared Services proposals will be allowed to continue
  • Greater consolidation of Shared Services will be encouraged across departments and between local authorities, and other public sector bodies
  • Existing Shared Services will be rejected in favour of some form of outsourcing
  • Other hybrid models proposed

Under the Labour Government, the argument for rationalisation after Peter Gershon‘s review was more Shared Services, investing in large centres, with economies of scale, deploying standardised and shared processes (Big Government). Many major consulting firms were involved under the previous Government and would have argued that this was Best Practice, and provided lowest transaction costs against standardized and quality assured services.

Given Progressive Conservatism under David Cameron and the finely balanced Coalition with the Liberal Party, the details of Public Services Reform are hard to call.

The Coalition Government seems to have a fundamental dichotomy. On the one hand, they are neoliberal wanting to use market forces to devolve Big Government. On the other hand, there seems to be a desire to restrain neoliberal processes and promote concepts of localism and mutualisation. Indeed it is hard to see the savage cost savings mandated by George Osborne being achieved with localism and mutualisation.

Whereas Margaret Thatcher was an unrestrained neoliberal, with a clear vision for privatising vast state-owned industries, the Coalition Government’s Big Society agenda seems to muddy the waters.

Over the coming weeks, I shall revisit the challenges.