The following blog, first published in June 2011, seems relevant ahead of the UK’s general election.
For four years, John Gelmini and myself have been critical of the UK Coalition Government on public service reform. From, the beginning, we predicted widespread cuts in front-line services, rather than genuine cost-reduction and effective reform. For us there has been an absence of vision and overall strategy, with implementation watered down by using ineffective change managers. There’s been too much cronyism, with big consulting firms, technology and outsource providers too close too political leaders. In short, reform has been ineffective because of absence of vision, strategy, and effective implementation. The best example of an omni-shambles is the current state of the National Health Service.
Ahead of the election, some key questions emerge:
- Do we believe that Big Government or Small Government is best for the UK?
- Given the level of UK debt, how effectively would each political party manage public services?
- Is there an alternative to radical reform of the UK’s public sector?
- How should public services be most effectively reformed and which political party is most capable of leading the reform agenda?
With the Coalition Government scheduled to deliver the Public Services Reform White Paper after this week’s elections, this week I zoom in on the risks of Shared Services Implementation. Many organizations are calling in major consulting organizations to help them design a Shared Services solution that will provide the necessary cost-cutting. Best Practice in the Private Sector would be 40% plus cost savings, before looking at cost arbitrage from offshoring to lower labour cost countries. In Local Authorities, projected cost cutting of circa 20% is being considered acceptable BEFORE evaluating the financial impact of risks crystallizing. This week, we take a closer look at the risks.
After introducing effective Shared Services in its own global organization, Oracle concluded that effective Shared Services needs to be part of the organization’s strategic approach to products and services. Oracle argued that Shared Services is most effective in organizations with multiple lines of business. According to Oracle, smaller organizations should perhaps look at Outsourcing for a more cost-effective solution. I get the impression that many Local Authorities have chosen Shared Services as a means of achieving Cost-Cutting, rather than as part of a strategic vision. Shared Services is a long-term business decision. Also, I hope that Local Authorities look critically at Shared Services vs. Outsourcing despite the stakeholder challenges. Clearly, the governance model for Local Authorities collaborating on Shared Services will be critical. Local Authorities of different political colours will be committing for the very long-term to make Shared Services a success. For many Local Authorities, Shared Services is probably more of a knee-jerk reaction to Cost Cutting, rather than part of a carefully crafted strategy – this will lead to failure in my view, with cost overrun, delays and poor service quality.
3. ENVIRONMENTAL & POLITICAL CONTEXT:
The external and internal contexts for delivering successful Shared Services are immensely challenging and verging on hostile. The political imperative is for short-term, self-financing results, with concepts of Spend-to-Save out of favour. Projects with a four-year pay-back period will realistically be pushed out to five years plus, with risks crystallizing and post implementation audits will probably look to the original cost-cutting justifications as spurious – cost savings will not materialize. The internal context for a colossal transformation programme is equally challenging, with Local Authorities down-sizing aggressively, employees and unions will be likely be hostile to new ways of working. Also the next four years will see significant changes in the leadership in Local Authorities, with the Government increasingly challenging on Value for Money from Chief Executives in Local Authorities.
Technology both in terms of infrastructure and systems will be paramount to the success of Shared Services. Local Authorities will face high levels of attrition in specialist staff, with highly skilled professionals moving to better paid opportunities in the Private Sector or even overseas. The current approach to contractors and consultants is likely to be severely tested. Local Authorities who turn to the contract-market in desperation are likely to pay penalty prices. The context will be enormously challenging to deliver Shared Services on time, to cost and quality – the consultants will have long gone, been paid, knowledge transfer is likely to be patchy and the best staff will have moved on to richer pastures in the Private Sector.
Manager and Employee Self-Service are a critical part of the design of any Shared Services solution. The solution will require employees from the lowest level to Chief Executive all entering their own personal data for HR, salary and expenses purposes. It will also be an essential part of a Best Practice Procurement solution. Self-Service in Central Government has had a patchy record – at one extreme Director Generals “chickening-out” of Self-Service decisions, at the last-minute – and at the other when Self-Service processes were deployed, with enormous levels of error condition and colossal backlogs resulting. Business cases for Shared Services will be both critically and heavily predicated on the successful deployment of Shared Services. Changing the hearts and minds of the employees is always an enormous challenge but in the current political context, the risks are compounded enormously. Local Authorities are unlikely to have the specialist HR/OD skills in-house to deliver the transition, and will be forced to turn to external Professional Interims/Consultants or to the major consulting houses, again probably in distress.
Self-Help is similar to Self-Service. The aggressive Shared Services solution will be designed based upon all employees from the lowest grade to the Chief Executive all using self-help screens in order to complete Self-Service. Again like Self-Service, the changes are massive and will require top-class specialist HR/OD skills to stand a chance of success.
Deploying effective expertise in Local Authorities to implement and maintain complex Shared Services solutions will also be enormously challenging. Technically and professionally skilled personnel will probably increase the attrition rate for this important grouping, moving to higher paid jobs in the private sector or overseas. Simplistic views on natural wastage from John Redwood and other politicians do really not stack-up for Shared Services. The Shared Services design is predicated on scientific analysis of role-responsibilities and it is critical that potential employees are carefully matched to required competencies. The Public Sector Shared Services story is full of “square-pegs in round-holes”. Unless Shared Services is set up on a green-field basis, it is likely to be severely challenged with the rate of improvement way behind the metrics in the Business Case. It is well-known that Continuous Improvement is always seriously sub-optimal when compared to innovation opportunities in the design of the product or service. Again this comes back to a robust and cohesive strategy, rather than being swayed by the promises of consultants.
8. FINANCIAL MODELLING:
The Business Case to approve the Shared Services will be based on a Financial Model of the projected outcome of the investment. There are excellent guidelines in the HM Treasury Green Book but many Local Authorities will prefer to call in consultants to help with the financial modelling. The model looks at the Discounted Cash Flows of all incremental costs, capital expenditure and savings, over the planning period. The savings are calculated by comparing baseline costs per process with benchmark data provided by CIPFA or other accredited sources. The model assumes a “To Be” position based upon being average or in top-quartile etc., in relation to benchmark data and a very big act of faith on behalf of the programme sponsors. Unfortunately, benchmark data is not error free and is distorted by variation in industries or definitions of data capture. Even within the Public Sector, compare DWP, HMRC, DEFRA and a City Council, they are all very different. In the Private Sector, Finance Directors in FTSE 100 Companies will be used to discussing Financial Models with their Boards, talking about Sensitivity Analysis and Independent Risk Assessment. The situation is different in Local Authorities and the political context is difficult with the media picking up on the National Audit Office’s criticism of Financial Management in the Public Sector.
9. CONCLUSION & NEXT STEPS
Based on my experience of more than a dozen ERP & Shared Services implementations, in my judgement, these proposed Shared Services programmes are all likely to fail to deliver the business benefits successfully. In the most likely scenario, risks will not be effectively mitigated and projected cost savings will be wiped out – executive heads will surely roll.
This blog has looked at one aspect of Public Services Reform, namely the risks Implementing Shared Services. Many of these risks will also be generalizable to wider Public Services Reform, including Mutuals, Outsourcing etc. Sponsors and executives will probably turn to consultants for help – unfortunately consultants typically are advisory focused rather than delivery and will be dependent upon internal expertise.
Much of this potential pain can be alleviated by deploying Professional Interims as Client Side delivery specialists to zoom in on the risks and manage effective risk mitigation. Professional Interims are the natural experts for delivery and implementation, not consultants. Shrewd Public Sector clients will deploy Professional Interims throughout the programme life-cycle to provide effective challenge, rather than just accepting the promises of consultants.