Sharing services – an introduction
Eric Pickles and Grant Shapps are fond of responding to Local Government leaders complaining about Local Government cuts with three responses:
- Local Authorities should not complain when they pay their Chief Executive more than the amount paid to the Prime Minister
- Local Government would be fine if it simply abolished non-jobs (Grant Shapps claimed Manchester Council should not cut 2,000 jobs but instead get rid of their ‘twitter tsar’)
- Local Government could make substantial savings if it did a better job of sharing ‘back office services’
We’ve addressed the first issue before and the second issue is obvious baloney so does not bear discussion (well, maybe if you’re lucky we’ll give it a run in a few weeks).
The third issue, that of shared services, is of real interest to local government and to those of us who work within it.
There are SO many aspects of shared services that need addressing and hopefully over the coming weeks we’ll manage to comment on such issues as:
- Effect on local accountability
- How sharing costs can be accomplished in a fair but un-bureaucratic way
- Effect on the staff members who find themselves working in a different environment
- All the IT issues
- The length of time it takes to implement
However, today I just wanted to address the underlying principle. I thought I’d create a little scenario to help demonstrate the central premise.
Authority x has 10 members of staff. At their maximum capacity each staff member could produce 10 things per day. However, because demand fluctuates they only process 8 things (i.e. housing benefit claims) per day. Authority x is able to operate at 80% efficiency. The authority could reduce its staffing by 2 members of staff but at times of high demand the authority would underperform and this might have a dangerous knock on effect.
Authority y is the same size. Between the two authorities they need to process 160 things per day. By merging the service with Authority y it is easier to manage extra demand and therefore reduce the amount of downtime. Theoretically we can increase productivity to, say, 90% allowing the work to be done by just 18 members of staff; two less than if both had operated separately.
In addition, we can reduce the management; perhaps one manager can manage the whole merged service or perhaps there were two in each authority and we can get by with one manager and one deputy within the new shared service.
So, by merging the service from two authorities, we are able to reduce staffing by two and possibly save a manager or two as well. Being optimistic that works out at a reduction of 4 staff from a total of 24 or a 17% reduction. In addition, there may be savings from the production of policies or economies of scale from computer systems etc.
And there is your 20%… In theory!
But in order to get there I’ve assumed productivity gains and a reduction in management. The former might be doable in the context of one authority if they worked differently and the latter is definitely achievable within one. The establishment of the shared service will also have set up costs and redundancy costs.
A few consultants I know (in unguarded moments) have noted that the shared service business cases don’t deliver the savings that the Government have suggested and that the set up costs could be spent separately in each authority for the same return.
There are a lot of good things to be said for shared services and the potential savings are substantial but right now they are not the lone solution to our problems.
More to follow…