Efforts to share traditional back office services have been underway for years – but now Whitehall’s specialist units are beginning to sell services such as legal and payment work to their colleagues. Mark Rowe reports.
The theory behind public sector shared services is simple and straightforward; and while in practice most schemes have in fact proved complex and troubled, the government hopes that the current civil service reform agenda will give the idea a new lease of life (see interview). By pooling departments’ back office operations, the Cabinet Office says, civil servants should produce economies of scale that drive down spending by as much as £500m per year.
So far, the efforts to set up shared services across Whitehall have focused on services such as HR, finance and payroll. However, the Cabinet Office’s Next Generation Shared Services Strategic Plan, published last December, outlines a wider range of work that could be brought together in ‘non-traditional’ shared services. These could include internal audit, programme and project management work, and commercial contracting procurement skills, it says.
The pioneer is the Treasury Solicitor’s Office (TSol), which already provides legal services for the environment department (Defra). In April, TSol will take on similar work for the communities department; in July, it’ll take on the Ministry of Justice’s cases; and by early 2014, it expects also to handle the Departments for Transport and for Energy & Climate Change. The Ministry of Defence will join in late 2014. And Paul Jenkins, the Treasury solicitor, says he’s optimistic that the joint legal team servicing the Departments for Work & Pensions and for Health will move over to TSol next year.
This growth will see TSol’s staff increase from what Jenkins calls 750 “fee earners” today to 1,500. Most teams moving into TSol will physically stay within their original departments but be paid, contracted to and managed by Jenkins.
Since Defra’s team came within his remit, Jenkins says, freezes and cuts to the fees his team charges have improved the efficiency of the department’s legal operations by about 40 per cent. However, he adds that “we’re not primarily about saving money and reducing jobs. This is about delivering more flexible, efficient services.” A central team, he explains, can apply specialised expertise as and when it’s required: “We’re creating a critical mass of lawyers so that we can expand or shrink the numbers dedicated to a particular department according to demand.”
Over at National Savings & Investments (NS&I), Julian Hynd is utilising his agency’s expertise at making and accepting payments. Hynd, the executive director responsible for NS&I’s Government Payment Services operations, took over transaction processing services for the Court Funds Office (CFO) in 2011, providing a banking and administration service for 140,000 ‘customers’: people with money ‘held in court’, such as children awarded damages in county courts, or people whose assets are managed by a Court of Protection-appointed deputy. These funds total £3.3bn in cash and £200m in securities – and in the NS&I’s first year of managing the service, it cut the CFO’s like-for-like payment handling costs by a quarter.
Last year, NS&I took on the Equitable Life Payment Scheme on behalf of the Treasury – which made £1.5bn available to policy-holders who lost money invested in the pensions company – and brought it to full operation in nine months. “That’s faster than the private sector was proposing,” Hynd says. NS&I is now in discussion with three organisations from two government departments, and Hynd hopes to secure further shared services within three months.
Handling 50m transactions a year, Hynd believes NS&I “is more mainstream than the term ‘non-traditional’ suggests.” Looking across Whitehall, Hynd sees 400 organisations whose operations involve money flowing in or out; he believes that 80-90 might benefit from commissioning NS&I to handle payments. “Capability-wise, we are further down the stream than other departments who are doing this,” he says. “We’re a bit of an iceberg: people think we’re only about premium bonds and the Post Office.”
The efforts of Tsol and NS&I have been welcomed by the Cabinet Office. “As part of our vision for a more unified, less bureaucratic civil service which is smaller and faster, we want sharing services to become the norm,” says a spokesman. “We will continue to draw on the lessons of the Next Generation Shared Services team to ensure we establish a model that is resilient enough to cope with existing and future challenges.”
Yet is there a risk that NS&I and other departments that evolve into shared services centres become too big, undermining the close relationships so essential to customer satisfaction? Jenkins – whose distaste for comparisons with “empire-building” is palpable – is mindful of such pitfalls. “I know how crucial it is that every department, every minister, has their lawyers that they can trust,” he says. “We mustn’t undermine that.”
As a safeguard, Jenkins says, each department will have its own dedicated legal adviser: though employed by TSol, they’ll sit with the top team in the relevant department. In addition, Jenkins is establishing a network of relationship managers “who understand [a client’s] business needs, and tailor our work to that. You need to bring other departments onto your books in as inclusive a way as possible, so that the people who are joining feel they are being treated well.”
Hynd knows the history of government shared services, and says that when he read the National Audit Office’s damning 2012 report he “knew exactly what they were talking about.” Among many past weaknesses, Hynd feels the most significant was a failure to identify departments’ back office requirements. “You need to engage with the client, as they may not really know what they want,” he says. “You need to provide transparency. Change afterwards becomes very expensive.”
Hynd says his colleagues found it useful to run a “dummy live” model of the services on offer. “We’d take a letter, scan it in, and show how it would progress through the system. It demonstrated to us that you may think you know everything, but until you get into the bowels of the system you’re taking on, you don’t”.
So far, the CFO declares itself a satisfied client of NS&I. “Our running costs have fallen by £4m a year, and NS&I is able to provide a more stable service to clients by using tried and tested technology,” says a CFO spokesperson, who praises NS&I’s handling of the CFO’s “many vulnerable clients... adults who lack the capacity to manage their own financial affairs.”
Logistically, Jenkins reckons his biggest challenge is to manage a single team employed on a large number of different terms and conditions, pay bands and leave entitlements. “It’s really difficult: harmonisation and assimilation takes years and years,” he says. IT can be another headache: “So many departments seem to have IT contracts where providers charge the most extortionate amounts for the simplest of changes. You need to look at the cost implications of that.”
Even so, the NAO believes that shared services at TSol and NS&I may progress more quickly than traditional ventures. “Most of the lessons and challenges identified in our report on back office shared services are applicable to non-traditional shared services,” says Mark Wynniatt, an audit manager at NAO. “However, the non-traditional shared services have the potential to make progress more quickly, as they don’t generally require the initial outlay on technology, so the payback can be quicker.”
Ultimately, the key is not to follow the money, says Hynd, but the specialism. “We have a banking engine at the heart of what we do: we are a retail, financial services organisation. We can’t play in arenas we don’t know. When you stray from your core competence you run a risk of doing something that doesn’t generate value. Don’t pursue opportunities for growth’s sake.
“Shared services in government have a bad reputation and I’m sure there are [bad] examples,” he concludes. “But there are also lots of good examples – and we should try not to lose sight of that, because the more tainted the image of shared services becomes, the harder it will be to develop.”