Shared services in central government - Highlights from the NAO VFM study, published 7 March 2012
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Shared services in central government Highlights from the NAO VFM study, published 7 March 2012 Sally Howes, Director ICT and systems analysis ICT and Systems Analysis Team
Why our focus on shared services?
• NAO has tracked central government evolution of shared services
over 7 years
• In March 2012, we published our 4th value for money report and we
will continue to track progress
• Our aim was to enable the Parliamentary Accounts Committee to
inform Cabinet Office planning & ensure lessons from the past are
being used to:
• Increase the value of investment so far
• Deliver a better return on the further investment
• Shared services are an essential part of building a slimmer and
more coherent central government - from efficiency to fundamental
reform
• A new vision for next generation shared services published by
Cabinet Office in July 2011 – further investment of £44-95m
ICT and Systems Analysis TeamScope of 2011/12 NAO study: the centres
• These centres
Users: 16,000 serve around 50%
Users: 130,000 of central
government
• To date they have
cost over £1.4b to
Users: 74,000 develop and
operate
Users: 14,000
Out of scope:
• MOD (86,000 users)
• HMRC 67,000 users)
• DH (120,000 users)
Users: 11,000
ICT and Systems Analysis TeamScope of 2011/12 NAO study: service architecture
Multiple customers Customer contact is
managed by case
management and
Customer Customer Customer telephony solutions.
Contact is through
organisation organisation organisation suppliers online and self
managers employees and customers service and through
other routes such as
email, telephone and
mail
Shared service centre
Services
HR and Finance and
Procurement Management Service
payroll accounting
services information management
services services
Business processes
Services are managed to achieve targets set under service level agreements, through the
management of end-to-end business process.
End-to-end business processes are standardised and automated to deliver efficiency savings.
There is a process of continuous improvement to deliver on-going performance improvements and
further efficiencies.
Systems
Services usually operate on an Other systems are used to scan
ERP software (e.g. SAP, Oracle)
and support and store documents
ICT and Systems Analysis TeamScope of 2011/12 NAO study: government strategy
Cabinet Office shared service vision • Admitted landscape is complex, that
July 2011 services are joined rather than shared
Objective: Deficit reduction. Sustainable savings. • Clear that there is scope to improve
Shared services integral to civil service reform.
Simplify back office services and extend scope
through mid and front office. • Business case approved to building a
stronger central team to drive new plan
Lessons learnt:
1.Independence is important • More data driven
2.Delivery of shared services not a core Government skill
3.Bespoke services can be expensive
4.Standardisation is key • Recent deal signed with Oracle featuring:
5.Strong governance is essential
• One discount rate
• Re-use of software licences
Shape:
•2 independent centres by Dec 2014 • Bulk buying (single customer)
•1 Oracle based. 1 lower tier ERP potentially • Reduced s/w requirement
•Small number of standalone centres – performance (consolidation of shared services)
management against these 2 independents
•Business case initially approved Feb 2012 • Oracle Centre of Excellence
ICT and Systems Analysis TeamNAO applied a different approach
Value for Money
Sub Factor Score
• Service oriented view Factor
1.1 Strategy
5
Business Model
• Measuring operational performance today 1.2 Business Case
6
and trajectory
Implementation
and
2.1 Implementation
performance 7
Performance
• Quantified performance enabling Management
2.2 Performance against
Target Operating Model 3
comparisons and provides a baseline for
Performance Framework
Cabinet Office to track improvement as Service
3.1 Service
management regime 6
they move forward Management
3.2 Joint culture
6
• An enterprise architecture approach giving People
4.1 People capability
3
Framework
a holistic view of the shared service centre 4.2 Capability
development 5
including its customers
Process
5.1 Service definition
7
Framework
• Received well 5.2 End to End process
management 6
6.1 Enabling
technology 8
• Part of our new perspective on government Technology
Framework
ICT 6.2 Legacy
management 8
ICT and Systems Analysis TeamFindings about cost and benefits
Departments have invested significant cost and effort in implementing shared
services
• Over the 7 years we examined, the 5 centres were expected to cost £0.9 billion to build and
operate core back-office functions
• To date they have cost over £1.4 billion
5 centres planned to
Departments have not realised the planned benefits save £159 million by the
end of 2010-11
2 centres still Benefits achieved from shared services
tracking benefits
report a net cost
Research
of £255 million The five
DfT Councils Defra DWP MOJ
Centres
UK
Planned net benefit/(net cost)
(22) (71) 61 80 111 159
to date £m
Benefits
Benefits Benefits
Actual net benefit/(net cost) to tracked to
(129) (126) not not
date £m break-even
tracked tracked Only 1 can
only
Over 10 demonstrate
Planned break-even (years) 8 4 8 5 break-even
years
Not Not Not
Projected break-even (years) Never 5
known known known
ICT and Systems Analysis TeamVariety in setup costs ICT and Systems Analysis Team
Variety in running costs Running cost per customer user ICT and Systems Analysis Team
Comparison of set up and running costs ICT and Systems Analysis Team
Findings about customers and services
• There are few examples of best practice in customers of shared
service centres
• Most have not measured benefits or savings
• By insisting on overly customised processes most customers have not acted as
intelligent customers or allowed centres to be efficient
• Few had standardised their processes first
• Some have retained processes that should have been transferred
• Many customers unable to forecast or manage service requirements making it
hard for centres to plan
• Most have not optimised benefits from the implemented solutions or adequately
worked with the Centres to understand the cost drivers
• Few Departments that have invested in shared services have made it obligatory
for their business units and arms length bodies to use them
• A range of barriers have persisted through the 7 years, especially governance
and culture, security and VAT
ICT and Systems Analysis TeamIntensity or efficiency of customer service
Shared Service Centre Staff numbers 2010-11
Centre FTE Customer Customer
FTE FTE per
Centre FTE
DWP 1,100 130,000 120
MOJ 850 74,000 88
The Five Centres 2,700 230,000 87
DfT 250 14,000 56
Defra 210 8,800 41
Research Councils UK 310 11,000 35
ICT and Systems Analysis TeamFindings about operational performance
• Centres are maturing &
recovering from earlier
problems
• But many problems have
been repeated in the
more recent RCUK
centre
• Good practice in DWP
and MOJ centres
• Strong capability
recruited from private
sector
ICT and Systems Analysis TeamFindings about technology
MOJ DWP Defra DfT RCUK
ERP Oracle 11i Oracle 11i Oracle 11i SAP Oracle 12
ICT as % centre 37% 30% 43% 70%
total cost
ICT supplier Outsourced ICT More in house
• Software systems used in the Centres has added complexity and cost
• All the Centres use Enterprise Resource Planning (ERP) systems
• These are complex and have proven to be expensive
• With a lack of scale and usage in some Centres, limited standardisation and low
levels of automation, the cost to establish, maintain and upgrade these systems is
high
• As a result two Centres intend to totally re-implement their existing systems with
simpler, standard ERP software, despite the significant investment already made
• All the Centres acknowledge they need to simplify and standardise their systems
and reduce customisation to deliver greater value for money
• Oracle upgrade costs has stimulated Cabinet Office renewed interest
ICT and Systems Analysis TeamFindings about role of the centre and
departments
• The centres could have done more to ensure shared services were
implemented appropriately
For centres:
•Established reliable cost and performance benchmarks to prevent mistakes being
repeated
•Help attract customers – we found 2 had potential spare capacity of 50%
For customers:
•Business transformation rather than an ICT agenda - more focus on customers and their
performance
•Promoting best practice for customers
•Tackle the barriers to departments and agencies joining and actually sharing services
ICT and Systems Analysis TeamAn ambitious new vision for next generation shared services Cabinet Office identified risks: •Technology •Governance & accounting officer accountability •Operational & commercial •Cultural NAO additional risks will drive out continued interest: •Cabinet Office resource & planning details so far, eg estimate of transition costs appears low •Timeframe & pace of change (additional 6 months added in by Cabinet Office) •Critical dependencies •Shared service customers •Legacy systems ICT and Systems Analysis Team
PAC conclusion & recommendations
PAC held 23 April
•Poor value for money in the past
• Frustrating that lessons haven’t been learnt and risk that new strategy will repeat mistakes –
with over-optimistic timescales & lack of performance data
•Cabinet Office have not provided strong leadership to get buy-in to sharing services
• Needs to seek the authority to ensure that all departments and their arm’s length bodies use shared
services rather than continuing with their own
•Overly complicated systems in shared service centres have resulted from customers not
being willing to change their ways of working
• Streamlining is essential and good practice needs to be captured and shared (eg Department of Education)
•Cabinet Office lacks comparable data on cost and quality of shared service centres
• They should build on the NAO analysis to establish a baseline to measure success of new strategy
•Cabinet Office 2-step plan may well prove overly complex
• Departments join an existing centre – then than centre merges into one of the two new indpendent centres.
Is there a simpler way?
•Cabinet Office lacks a wider strategy to extend beyond back office functions
• Experience of local government goes wider into front office & key executive posts. There should be a long
term strategy to extend the scope
•Funding constraints may act as a barrier to long term investment & value for money
• Today, centres cannot retain savings for future investment. Cabinet Office and Treasury should review
funding arrangements to see how they could be more conducive to effective long term investment
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