A new study by the National Audit Office has praised the NHS for being at the forefront of adopting shared services in the public sector, even though only a fifth of NHS trusts have widely adopted the financial concept.
The Cabinet Office is currently pushing for the adoption of shared services across government to deliver efficiency savings. The NAO report says public bodies should review whether there are more cost-effective ways to obtain their corporate services.
The NAO report highlights the adoption of shared services – for corporate functions such as HR, payroll and finance – as a valuable tool for achieving efficiency savings and streamlining processes within the public sector. Based on the experience of the private sector it says such a move can result in efficiency savings of up to 20%.
The report says shared services are beginning to progress across government, but that reported savings have so far been low. “The savings reported to date are relatively small and suggest there is substantial untapped potential for securing savings through shared services and other means.”
It adds that there are a variety of options available to organisations looking at shared services, ranging from in-house expertise, through to shared arrangements and fully outsourced options.
“Central government as a whole made slow progress initially in taking shared services forward after Sir Peter Gershon identified their potential in 2004,” says the report. It adds momentum is now picking up, citing the NHS as a leader within the public sector.
This is despite the NAO report stating in its recommendations “the majority of NHS bodies are not using shared services”, and that Shared Business Services’ share of the market so far stands at 21%, forecast to deliver £16m of annual efficiency savings in 2007-2008.
To drive up adoption within the NHS the NAO recommends “Where service provision is retained in house, boards of NHS organistions need to be clear that this represents better value for money than alternative options such as NHS Shared Business Services or outsourcing.”
Although the NHS and Prison Service are named as two of the most advanced public sector adopters of shared services, the NAO report notes they “experienced early problems with customer satisfaction”.
The report states: “Organisations receiving these shared services reported early problems. This is a common experience with large transformational programmes. Difficulties stem mainly from operational problems associated with the challenge of implementing large and complex systems and from the cultural change necessary in customer organisations.” It says “evidence from NHS Shared Business Services is that customer satisfaction rises over time”.
In the NHS the move to shared services is being deliverd by a partnership between the DH and Xansa called NHS Shared Business Services, covering finance, HR and payroll, running Oracle 11i software.
Over the next eleven years the NAO estimates that NHS Shared Business Services will potentially deliver net present value savings of £250m, “of which £160m is likely to occur over the first nine years, with a break even point after five years”.
Non-financial benefits cited by NHS Business Services’ customers are said to include better management information, paperless and faster transaction processing, and significant changes in procurement costs
The NAO says that shared services go hand-in-hand with streamlined processes, as organisations have to examine how they currently handle finance and HR functions. Moving to shared services is highlighted as a key tool for process re-design and strealining. The NAO says of shared services: “They do not represent an end in themselves, but they provide a means, alongside mechanisms, to greater effeciency and effectiveness.”
According to Cabinet Office £1.4bn a year could be saved on finance and human resources functions, and service quality improved, by implementing shared services across the public sector.
The Cabinet Office’s figure of £1.4bn for potential annual savings is derived as 20% of the estimated annual expenditure of £7bn on finance and HR, but the NAO notes this is not broken down by department making it “difficult for the Cabinet Office to track meaningful progress towards the overall figure”. The NAO adds “There is a lack of transparant data about the cost of public bodies’ existing corporate services.”