As political parties argue about the nation’s budget deficit, one thing is obvious. It is no longer a question of whether public spending cuts will occur, but how quick and deep they will be.
Protecting frontline services requires more than salami-slicing budgets - radical change is needed.
It is not surprising that public bodies wrestling with this scenario are keen to consider the potential role sharing can offer. Our new guidance report, Sharing the Gain: collaborating for cost-effectiveness, published last month, sets out three questions decisions-makers must answer.
Where are you now? Where do you need to be?
First, it is necessary to assess the challenge and identify fertile avenues for change. High-performing frontline services consuming a tiny amount of the overall budget are unlikely to be the place to begin. More promising opportunities are more likely in larger services and processes, particularly those replicated across the organisation, such as support services.
Benchmarking these services against other bodies provides evidence of where they stand in cost and performance terms, as well as an indication of the potential for improvement.
Answering this question is also about effective financial management. As well as working within current budgets, managers need to develop a financial strategy that allows costs to be managed in line with medium-term plans.
What blend of change techniques should you use?
Second, being armed with intelligence about current cost and performance levels allows detailed analysis to decide what should happen where to deliver savings.
At this point a range of ideas can be put forward, from application of ‘lean’ and systems-thinking techniques, to outsourcing and shared services. The challenge is to:
- consider as wide a range of ideas as possible without becoming bogged down in analysis paralysis;
- balance the requirement for short-term gains with the need for sustainable, long-term savings;
- ensure that value to the customer is maintained, without unintended consequences such as cutting cost in one area only for it to increase in another;
- be consistent with organisational plans, so efficiency measures support, rather than cut across them.
Keeping the customer at the forefront of decision-making is critical, as is open-mindedness about what will achieve desired outcomes.
It is important to recognise that change techniques are used rarely in isolation. Any sharing of processes should involve appropriate use of ‘lean’ analysis and process design methods, followed by efforts to improve processes.
How do you ensure you get the impact you want?
Finally, whether the outcomes deliver the expected results depends on the assumptions that underlie the analysis and the quality of change management.
Naïve assumptions are dangerous. At the Chartered Institute of Public Finance & Accountancy we have been careful to avoid simplistic links between service sharing and economies of scale. Managers would be wise to find reference sites for their proposed change options to ensure their assumptions are grounded in reality.
An option worth considering
We have been keen in our report not to prescribe how, or if, sharing services should figure in an organisation’s efficiency armoury. Options are context specific. Where organisations have partnerships in place, collaboration may be appropriate.
High Peak BC and Staffordshire Moorlands DC embarked on a strategic partnership that examined all council services as candidates for collaborative working. This began with a shared chief executive and management team and allowed for a reduction from 37 to 21 managers, generating savings of about £560,000. Other operational savings are expected to deliver a further £600,000 of annual savings in the next few years.
Hereford Council, NHS Herefordshire and Hereford Hospitals Trust have adopted a more radical approach. Starting with a chief executive shared between the council and NHS Herefordshire, the partners are now looking at the joint provision of services, including IT, finance, procurement, human resources, payroll, communications, audit, legal and estates. Recurring savings of £700,000 are expected by 2010. The partners anticipate final annual savings of £5.4m.
These examples cannot be simply emulated. All cases are different. Sharing services and collaboration are not easy options, particularly where services and processes are brought together. However, evidence shows benefits for those organisations that have carried the process out appropriately and managed the change effectively.
While it might go against the grain of some established thinking, in the difficult times ahead, all decision-makers must seriously consider shared services and collaboration.
- Sharing the Gain: www.cipfa.org.uk/sharingthegain
Dr Paul Jackson, Shared Services Adviser, Chartered Institute of Public Finance and Accountancy