Alternative models of service delivery

SouthWestern’s David Grindle outlines how external service delivery providers can reduce cost and improve quality, while also helping organisations to focus on their core priorities.

Over the last number of years, government spending reductions have imposed unprecedented challenges on the Irish public sector. While funding continues to be restrained, the demand on many core services is increasing. This is especially true of high value areas such as social protection, education and health. To address the challenge government has been, often in partnership with the private sector, working to innovate and drive service transformation.

Consolidating areas of expertise in an organisation into a single shared service centre is not a new idea and there are a number of established benefits that can be realised in doing so. These include the pooling of expertise, a reduction in service provision costs through economies of scale, improved customer service, and opportunities to standardise processes across the organisation for a particular function. The emphasis placed on each of these potential benefits in any shared services business case depends on the medium and long-term strategic objectives of the organisation.

The starting point for any shared services business case should be an assessment of the current business function including the scope of services, costs, transactional volumes, and key service issues, the current staff skills profile, and geographic distribution. Capturing non-core staff effort at this point is important e.g. an office administrator may spend 60 per cent of their time raising purchase orders (finance) or recording sickness absence (HR). Once the baseline is established, a proposed future operating model can be designed to deliver the required benefits.

Investments that need to be considered at this stage include infrastructure (buildings, IT, telephony), staff (training, recruitment, project teams, consultancy fees), and change management (business process reengineering, communications, stakeholder analysis). In addition, it is worth considering a phased implementation either by moving a single division to the new model or moving discreet processes for the entire organisation to the shared service one-by-one. Due to the timescales and investments required, it is difficult to realise cost savings over the short term and if implementing shared services in-house, the return on investment should be considered over the medium to longer term (three to five years). ‘Soft’ savings such as standardisation of processes and pooling of expertise can be realised more quickly.

Many internal shared service projects fail to achieve their goals due to:

• poor availability of change management skills in-house;

• core business issues take priority over the non core shared service project; and

• insufficient budget and skills required to implement the enabling technology

Advantages

Many organisations choose to establish a shared services centre as a precursor to external delivery. The justification for this is often that many organisations want to claim as much of the benefit as possible internally before handing over to a specialist provider. This can have advantages for both the client organisations and the external service provider (transformation partially completed, culture change partially embedded). Given that the benefits have been quantified and qualified in many cases already, these benefits can be built into the commercial deal with the outsourcer.

On the other hand, the advantage of partnering with an outsourced provider prior to the establishment of a shared service are many:

• access to specialist knowledge and experience from the start;

• insight into multi-service or cross-functional outsourcing opportunities (HR, finance, procurement, IT etc.);

• access to the provider’s IT solutions (often multi-tenant) thus reducing the need for investment in this area; and

• reduced change management effort.

Instead of effecting a change from current working practices to shared services and then a further change when outsourcing, the change is made a part of a single transformation effort.

At the point of outsourcing, one of the key decisions that needs to be made is whether or not to offshore to a lower cost geographic location. To realise benefits in the offshore model, considerable scale is required and increasingly the business case is being eroded by escalating costs in offshore locations and poor client feedback (particularly where telephone contact is required). There are also intellectual property (IP) and data protection (DP) issues to be considered, particularly where data is being transferred outside the European Economic Area (EEA).

UK experience

It has been estimated that the outsourcing industry in the UK employs over 3 million people. It is interesting to look at the experience of our nearest neighbour of external delivery in the public sector.

The concept of shared service organisations playing a role in enhancing public services first emerged in the UK in the mid 1980s. Then, in the early nineties, a number of local councils began using firms such as Capita to manage various administrative functions. Outsourcing and shared services continued to grow and indeed have flourished under successive Conservative and Labour governments as administrators have realised the improvements and efficiencies which could be made by outsourcing non-core functions. For example, Lambeth Council in London currently outsources 75 per cent of its services from frontline services like waste collection through to issuance of parking permits for example.

Over the years, a variety of structures have evolved, featuring centralised departments, shared service solutions and public/private service centres or a combination of same. Depending on the situation, these structures can be established on an ‘insourced’, ‘outsourced’ or ‘joint venture’ basis. For example, two organisations might come together to establish a centre which caters for particular functions which they have in common or staff might leave the public sector to join a private outsourcing company to lead a dedicated team dealing with specific administrative tasks.

Overall, the outsourcing experience in the UK has been a positive one. Since the 2007 report published by Sir David Varney which outlined major opportunities to strengthen public sector delivery, the UK Government has increased public sector outsourcing by more than 60 per cent. However, while the report made clear that outsourcing had worked to deliver substantially better value for money for the UK taxpayer, it also acknowledged some difficulties and highlighted examples where it had proven ineffective and counter-productive.

Sometimes, problems have occurred because an unsuitable partner has been selected and this underlines the importance of understanding the process being undertaken and matching the correct skill and resource sets between the private and public sector. But if there have been some problems there have also been tremendous successes.

In 2007, the Northern Ireland Civil Service awarded Capita the mandate to transform the HR functions for 43,000 employees across the region. HRConnect delivered by Capita is widely held up as an example of best practice in the industry and in August, Capita acquired SouthWestern for €35 million from private equity group Ion Equity. SouthWestern, which retains its corporate identity, is the leading domestic provider of outsourced managed services in Ireland.

Whatever the structure or the basis on which outsourcing is established, all the successful partnerships share some key traits. These include flexibility, efficiency, a highly trained staff, reliability and the use and constant updating of highly sophisticated IT systems.

For example, SouthWestern delivers a range of services on behalf of local and central government as well as government agencies and semi-state bodies. These include:

• the Department of Agriculture, Food and the Marine (animal traceability);

• Bord Bia (quality assurance);

• the Private Residential Tenancies Board Ireland (tenancy registrations);

• Injuries Board (claims handling); and

• Fáilte Ireland (inspections).

Delegating these functions to outsourcing companies ensures they are carried out effectively and cost efficiently while enabling the client organisations to focus on their core functions. Huge opportunities still exist in Ireland across local and central government for enhancing services through shared services or outsourcing. The potential here is for improved levels of service for the citizen while delivering reduced cost to the taxpayer.

David Grindle is the Chief Operating Officer of SouthWestern and has extensive experience in establishing, transforming and delivering shared service and outsource solutions to public and private sector clients internationally and in Ireland.

SouthWestern

West Cork Business and Technology Park

Clonakilty, Co Cork

Tel: +353 (0)23 883 2800

Email: david.grindle@southwestern.ie

Web: www.southwestern.ie