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It mostly covers my work as UNISON Scotland's Head of Policy and Public Affairs although views are my own. For full coverage of UNISON Scotland's policy and campaigns please visit our web site. You can also follow me on Twitter. I hope you find this blog interesting and I would welcome your comments.

Wednesday, 15 June 2011

Shared service and the Clyde Valley

The latest stage in the Clyde Valley shared services saga has councils apparently agreeing to pursue further a range of proposals. Let’s be clear, there is nothing wrong in principle with councils and other public service organisations sharing services. Many of the initiatives being pursued across Scotland reflect the absence of a regional level in Scottish local government for appropriate services.

What is almost always wrong is the large ‘back office’ shared service model being considered in Clyde Valley. Consultants come along and produce a model that looks logical based on economies of scale. They offer the prospects of job and cash savings, in this case apparently 1000 jobs and £19m to £29m revenue savings. However, this is illusory because this model almost never delivers. Experience shows that the savings rarely materialise and certainly not at the level to justify the up front expenditure involved. Transaction costs increase and work is simply displaced onto other staff. Not just our experience, but reflected in studies from the USA and Australia as well as in England. More details in the UNISON Scotland briefing.

Let me illustrate this with two examples I was personally involved in negotiating, not from the public sector, but from the supposedly lean and efficient private sector. These happened over ten years ago, so we can now properly evaluate their effectiveness.

One Scottish company with operations across the UK decided to take their transactional HR staff from operational units and centralise them into a shared service centre. On paper this was going to save nearly £1m. Ten years on senior operational directors tell me the actual savings were not realised, the service is poor, and much of the routine work has been displaced to other staff. In his words “I now have scarce, highly paid, senior operational staff performing clerical tasks – badly!”

The second example comes from another very large Scottish company that decentralised its IT functions to each operational division. It used to be centralised, but some 15 years ago they followed the then management fad, promoted by guru Tom Peters, and split it up. Then a new consultant came along and persuaded them that the future was in shared services and outsourcing. That’s what they did and five years later the Directors of Finance and HR came to me furiously exclaiming that the operational divisions, had in effect, reinvented their IT units. Why? Because they quickly discovered they were paying over the odds for a range of administrative tasks that their own staff could do cheaper and quicker – just like they use to do! Result, the company was paying twice for the same service and their total IT costs were enormous when benchmarked against similar companies.

Anyone considering creating shared service factories should also read John Seddon’s book ‘Systems Thinking in the Public Sector’. He also gives a range of examples of why this approach simply drives up transaction costs because the new service ends up mainly dealing with failure demand rather than resolving the real issues. The shared service managers produce impressive looking statistics showing all the calls they have dealt with. The problem is that they are measuring transactions not solutions. Anyone who has dealt with a service call centre will have experience of being passed around the system. Well that’s what this type of shared service does in buckets.

Then we have the process. The Clyde Valley initiative is a classic example of how not to do it. To be fair, Sir John Arbuthnott in his initial review was a model of openness. But when the project went back to the local authorities for development they reverted to their traditional industrial relations model. Disappear into darkened rooms with the consultants, work up a proposal and only bring it to the staff and their representatives when they have invested lots of time and money. As a consequence they feel the need to defend their solution, even when the obvious practicalities invade the model. Not surprisingly, the staff who have been treated like mushrooms, react sceptically and conflict develops.

Shared services can make a positive contribution to effective and efficient public service delivery. But adopting models that have already failed world wide and failing to properly engage staff who deliver the service, is not the solution.

1 comment:

  1. Great piece and keep up the good work exposing the shared services saga.

    Here are 2 more examples for you.

    The shocking story of Southwest One from Sommerset. They have made a pre-tax loss of £16.5m.


    And one from Australia. This time, a total loss (so far) of $78.8m.