Shared illusions

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The government continues to encourage public bodies to share services despite the evidence showing that this is a flawed concept. Any emphasis on standardisation and transaction volumes is doomed to fail

Eric Pickles lauds Westminster, Hammersmith & Fulham, and Kensington & Chelsea for making savings through sharing services, and he is, to say the least, encouraging other councils to follow suit. As the shared services bandwagon grows, will we see, as Pickles hopes, billions of pounds wiped off public service expenditure, or will we be wishing with hindsight that the communities secretary had been more circumspect?

That the three London councils will save money is beyond dispute; the savings represent less-of-a-common-resource savings – in their case fewer managers. But when you see the business plans for sharing services, the less-of-a-common-resource savings are always one-off and marginal; the big savings promised by the advocates of sharing services – in particular the IT and outsourcing companies feeding on the opportunities – are savings from centralising and standardising service work.

To put it bluntly, this is a con; appealing, yes; plausible, of course; but, nevertheless, a con. Economy from scale in services is a myth.

Pickles ought to look at the evidence: SouthWest One, a shared services partnership between three authorities and IBM, is in trouble; councillors find themselves trapped; their leader now tells us that it would be more expensive to get out of the deal than stay with it, leaving the councils to bear long-term costs.

Like many others, South Holland and East Lindsey district councils built their shared services venture on the same basis as SouthWest One, their plan being that others would happily send work their way generating the necessary volume of activity to cover the establishment costs; but, like SouthWest One, others aren’t playing.

In central government, the recent National Audit Office report concluded that the big flagship shared services ventures across agencies are costly failures.

Prepare for lots more of the same. I predict that Birmingham City Council will rue the day it got into bed with Capita in a classic shared services outsourcing deal. The councillors there have just woken up to the fact that their shiny new call centre is full of failure demand – that is, demand caused by a failure to do something or do something right for the customer.

Birmingham is paying Capita more as services fail because the contract is based on transaction volumes, and the same phenomenon is a ubiquitous feature of shared services deals. We see the same with the widely-promulgated Decats initiative – lots of money spent on plans for standardisation and centralisation of activity, with the usual big numbers as ‘projected’ savings, but don’t hold your breath, as some councils have discovered to their dismay.

Which takes us to the heart of the con: the widely held belief that centralising and standardising work will reduce transaction costs and, therefore, produce efficiencies. One central feature of service organisations is the variety of demand placed upon them by customers; standardising work can only serve to prevent the service from absorbing variety, hence costs can only rise and the first signal is the jump in volumes of failure demand.

Yet because players and contracts are focused on transaction volumes and internal measures are focused on transaction costs, no one sees the impending disaster. The signal is treated merely as an indication that they need more resource; indeed they applaud themselves for achieving lower transaction costs while the total number of transactions it takes for people to get a service rises inexorably.

Pickles should pay less attention to such nonsense, no matter how superficially plausible it might seem, and instead pay more attention to the evidence. Local authorities that have abandoned these ‘scale’ designs have delivered jaw-dropping savings, no projections or promises required, no let-down or misery to ensue. If councils across the land followed suit, Pickles would learn that his ambitions are, in fact, limited as well as faulty.

Their secret is a simple one. They have studied their services and learned how many of the impositions from Whitehall have been part of the problem and need to be eradicated to get to a better solution; they see how compliance with directives has only served to worsen services and drive up failure demand. They have also studied what matters to the users of the services, yes citizens; and not through some faux exercise on citizen engagement dreamed up by Pickles’ advisors, but by studying demand. Simple.

They have designed services to give citizens what they need. In doing so they have driven out costs, a paradox, that Pickles’ advisors would be advantaged to understand. Then perhaps Pickles wouldn’t drive public services into a trap from which it is hard to recover. He might also consider the dysfunctional role the thousands of policy-wonks play in his Whitehall factory.

I’m confident this blog will have no impact whatsoever on Pickles and the Whitehall machine. I have learned through dispiriting experience that Whitehall doesn’t do evidence. And I am confident Pickles’ costly chickens will come home to roost. In droves. Who should we hold to account?

John Seddon is an author, management expert and managing director of the Vanguard consultancy. www.systemsthinking.co.uk

4 comments on Shared illusions

  1. The Bald Eagle says:

    A nice, well written, well reasoned piece that Pickles and his like would do well to heed. It’s such a pity (as you rightly say) they won’t.

  2. P Butler says:

    “Innovative ideas, great evidence and erm file it in the round file would you Miss Moneypenny”….

  3. Paul Banjo says:

    This article has a lot of really good food for thought, but may be falling into the trap of making sweeping generalisations. To say that ‘Economy from scale in services is a myth’ is clearly not true. There are numerous cases of achieving successful service scale economies.

    The key point, surely, should be that rather than encouraging councils ‘A & B’ to emulate councils ‘X & Y’s solution, the emphasis should be on Councils ‘A & B’ actively exploring a range of innovative options, and then moving ahead with the one that makes most sense in their particular case. Sheepishly copying what others have done, with invariably different local circumstances, will end in a woolly outcome.

    Where there is sharing scale economy clearly possible, with a realistic business case, then do it. On the other hand, if the solution lies more in service / process redesign, within a single council, then do that, and don’t share. Horses for courses.

    In addition, let’s not forget that many of the sharing failures are not due to a flawed concept / business case, but rather a failure of implementation / execution.

  4. I have no argument to make about shared services, but the idea of contracts and payments based on transaction costs, which outsourced services mainly are, is throwing money away. Public money at that.

    Paying businesses for activity is like paying me per word I type. They dont hav to bee spelt rite do dey? Or if they have to be typed again, you can pay me again, as they don’t have to be spelled write the second time. Or the thurd, as I get paid regardless.

    In fact, if you see the link below, all sorts of silliness ensues once you start focussing and paying people based on activity.

    http://thinkpurpose.com/2012/07/16/100-wrong/

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