News focus: Authorities face the pressure

31 January 2011

3 February 2011 | Lindsay Clark

UK government cuts mean failure is not an option for local authorities and the strategies of their shared services. Lindsay Clark examines their efforts.

If necessity is the mother of invention, then local government had better start inventing. Last year a bomb dropped on authorities’ spending plans, as central government announced a 27 per cent reduction in their funding over the next four years.

For Eric Pickles, secretary of state for communities and local government, sharing of back-office services, including procurement, could be the invention that the cuts necessitate. While this idea is not new, the rapid reduction in public spending makes success essential if councils are to avoid extensive cuts to front-line services.

Paul White, head of procurement at Local Government Shared Services (LGSS), a partnership between Northamptonshire and Cambridgeshire County Councils, says the cuts are making department heads and politicians alike see the need for shared services, and act with a greater sense of urgency.

“I think it has certainly made a necessity of sharing,” he says. “People realise that trying to do things on your own is not sustainable. If you were cutting back business support on your own, that potentially impacts the capacity to deliver the transformational change you need at the front line. By combining your business support services in the way we have, we have been able to retain the capability to do the transformation in both authorities.”

However, while the cuts may be driving the agenda for shared services, they could also be hampering the ability of the model to live up to its promise.

Southwest One, a shared services joint venture between IT services firm IBM and Somerset County Council, Taunton Deane Borough Council, and Avon and Somerset Constabulary, has seen a change in demand in some areas since cuts have been on the agenda. Ian Conner, chief procurement officer, says that since it signed a deal for temporary workers expected volumes have fallen as a result of budget cuts, reducing the potential level of savings.
White said that while he could fully understand the problem they have had with volume, his own shared service initiative, which is open to other councils joining, has got around these difficulties by building a contingency into the joint procurement of an Oracle ERP system, which he hopes will save up to £7 million over the life of the contracts.

“We’ve built in a gain-share model with the supplier, so that as other councils join, the prices go down,” he says. “We’ve done it based on what we know, but if the volume goes up, the price goes down. If a number of employees were slightly lower, it might take us a little bit longer to get discounts, but we will still get them.”

For those not already in shared service deals, falling procurement volume may encourage councils to enter into such arrangements, says Ian Taylor, director of the North East Purchasing Organisation, a shared service body for 12 local authorities and four fire and rescue services. “If anything, falling demand in some areas of common goods and services should increase the appetite for sharing services so you do get the best of whatever volume you have got.”

But seeing and understanding that volume can only come at the end of quite a challenging process, says Southwest One’s Conner. His shared service venture has completed implementation of an SAP ERP system that required buy-in from middle management working in councils and the police authority.

“It is about getting people to do things they don’t like doing and therefore they kick back against it hard and look for reasons they can’t do it,” Conner said.

Now everyone has to use ERP to raise requisition and orders. If stakeholders need a new vendor, it has to be approved by procurement, ensuring its members make the most of shared deals.

“[It’s not enough] just having good procurement practices, it’s about having the ability to go out and sell [them], engage with the client organisations and win them over,” Conner says.

Southwest One has been criticised for the cashable savings it’s made so far. But these are ramping up by half a million a month, and the procurement team has contracted or identified savings of around £140 million, which are to come, Conner says.

If buyers are to succeed in shared services, they had better learn some lessons from the challenges experienced by the forerunners. That’s the thing about necessity. Failure is not an option.

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