Risks of Shared Services

The shared services agenda has become such a driving imperative across the public sector that the language that surrounds any potential downside is all around 'addressing challenges' and 'overcoming inhibitors'. The implication is that, in the education sector, these 'challenges' are mainly of the sector's own making, stemming largely from institutional culture and attitudes and representing what is a fairly irrational resistance to a commonsense solution of the type often referred to as a 'no-brainer'. Whilst shared services can undoubtedly deliver benefits, and whilst the sector can undoubtedly be overly resistant to change, the reality is, however, a little more complex. In this resource we prefer the plainer language of accepting that shared services bring certain risks that must be acknowledged and managed.

Similarly, we need to be wary about making inappropriate comparisons with other sectors and service delivery models:

• 'Shared services' in the private sector often consist of common services across a range of dispersed organisations belonging to the same parent company. It is also worth noting that implementation difficulties and failures in the private sector are less likely to come to public attention.

• Shared services in the public sector have been successfully implemented in organisations such as the NHS and HM Prison Service. These organisations exhibit a very high degree of commonality of function, albeit with some examples of specialisation, and, at the risk of stating the obvious, do not have to compete with one another, or indeed anybody else, for customers. Also, as KPMG (2010) noted: '...a major advantage that the NHS Trusts have over Colleges is that they can claim back the VAT expenditure. This makes a significant difference to attracting private sector investment, and the payback time for both parties.'

• Many commentaries on shared services describe service models that amount effectively to outsourcing. Whilst outsourcing of 'commodity' activities may be a cost effective option, and whilst the Cloud may offer new opportunities in this area, outsourcing is a simple commercial relationship that does not amount to a 'shared' service. The issues surrounding institutional use of public Cloud services are addressed elsewhere in resources covering Cloud Service Models and Cloud Deployment Models.

Finally, there are diverging views about how exactly the concept of 'economies of scale' might apply in this context (and strong parallels with the debate around the optimum size of institutions - see the section on Right-sizing):

• KPMG suggests the sector does not consist of organisations of sufficient size to implement the most basic type of cross-organisational sharing in an effective way and that even sharing across different institutions does not amount to shared services on a similar scale to those seen in other sectors:

  'In the private sector, shared services have most often been implemented within a single group of companies, and have rarely crossed company boundaries, but most HE institutions are not large enough to implement significant standalone shared service functions. The Cabinet Office has estimated that 20,000 employees is the minimum size of organisation that can implement the shared services model on its own - with optimum operation requiring over 50,000.'

  KPMG 2006

  'Success stories in shared services in the private sector and elsewhere in the public sector are frequently on a much larger scale than that achievable in tertiary education.'

  KPMG 2010

• On the other hand, certain scholars argue that driving down unit cost by increasing scale does not, of itself, necessarily result in effectiveness or efficiency if it fragments the process work flow. Seddon (2010) cites examples where breaking a process down into more specialised and standardised components does indeed reduce the unit cost of certain types of transactional activity. The problem is that the overall workflow is fragmented and incapable of dealing with variation and complexity. Cost per transaction may be lower but overall many more transactions are required to actually satisfy customer needs. Seddon relates some notable problems with shared service to an over reliance on scale to deliver efficiency without properly addressing process design.

  'Economy of scale is a myth. Economy comes from flow.'

  'In the public sector the gains from redesigning services are much greater than any subsequent savings from 'sharing', which are marginal by comparison.'

  Seddon 2010

The importance of good process design is a message reflected throughout the JISC Flexible Service Delivery Programme. The experience of North Hertfordshire College (NHC), which managed to reduce the cost of its finance processes by 30% in a six-month period, is a case in point. The project case study says. 'On a related note the other main lesson is the need to get business processes in order before looking at solutions such as new technologies, outsourcing or Shared Services. Had NHC not made these process improvements it would be quite possible for third party providers to appear seductively cost effective. By reducing its existing cost base it has raised the bar for any other service provider.'

For the many shared service success stories there are also some notable failures:

A report by the Public Accounts Committee (2011) on the reorganisation of the UK Fire and Rescue Service control rooms states: 'This is one of the worst cases of project failure that the Committee has seen in many years. FiReControl was an ambitious project with the objectives of improving national resilience, efficiency and technology by replacing the control room functions of 46 local Fire and Rescue Services in England with a network of nine purpose-built regional control centres using a national computer system. The project was launched in 2004, but following a series of delays and difficulties, was terminated in December 2010 with none of the original objectives achieved and a minimum of £469 million being wasted.' In this case the approach to imposing a national approach on locally accountable services was fundamentally flawed and provides lessons for the education sector.

The FEAST Report (Clark et al 2011) looks at lessons learned from a number of shared services closer to the sector. In particular the issues faced by the Research Councils UK Shared Services Centre Ltd (RCUK SSC Ltd) in implementing joint administrative functions including finance, human resources, IT and procurement across the seven Research Councils are of relevance.

Colleges and universities have tended to approach shared services cautiously, not least because of lessons learned from early experiences in this area (see the 'Elephant in the Room'), and, as a result, recent experiences have provided a positive basis on which to build.

JISC infoNet offers numerous resources to aid the planning of a shared service and avoid the potential pitfalls. Resources which you may find particularly useful include infoKits on Portfolio, Programme and Project Management (P3M), Risk Management, Process Improvement and Change Management. All of these are linked under 'Related resources' listed to the left. Resources on Stakeholder Engagement in the developing Design Studio may be of additional use.

'There are very few examples of shared services between organisations that are in competition with each other. In an increasingly market-driven higher education sector competition between institutions is likely to increase, thus impacting on the potential for shared services.'

KPMG 2006

'By not paying sufficient attention to cultures, governance, history, and also to the diversity of processes within different parts of an organisation, the levels of risk for any shared services project grow rapidly. It is too easy to grab solutions from one sector and then seek to impose them in a different sector and then discover the flaws.'

'Scale appears more intuitively appealing than evidence would suggest; what really matters is reducing complexity by designing fit for purpose process flows.'

'Experience in the sector as a customer or partner of shared services is high; however few institutions have deep experience of being a service provider to others and internal staff may not readily adapt to the necessary cultures of being a service provider where accountabilities are significantly different.'

'Direct competition with the private sector solely for financial savings must be carefully considered with regard to public private subsidy issues.'

Clark et al 2011