Shared services disaster: a gain for some officials and ERP suppliers?

By Tony Collins

Today an impressive report by the National Audit Office shows in detail how various shared services ventures in central government have, over time, cost rather than saved money.

Five shared services centres studied by the NAO have cost £1.4bn so far; they were supposed to have saved £159m by 2010-11 but the net cost has been £255m. Setting up the centres since 2004 has been good, though, for some suppliers (and officials who wanted to gain new skills in Oracle and SAP enterprise resource planning systems).

The Cabinet Office has now intervened and plans a new shared services strategy, based on the DWP [Oracle v11i ERP) and Department for Transport [SAP ERP] offering independent major shared service centres to departments and agencies.

One of the urgent drivers for the Cabinet Office’s publishing a new strategy in July 2011 was that three shared service centres face an investment of £47m to upgrade their Oracle ERP systems before November 2013, says the NAO.

“The current version of Oracle will not be supported by the manufacturer past this date,” says the NAO. “This means that if their core system fails, there is a high risk that they would not be able to re-instate it quickly. This gave the Cabinet Office an opportunity to see if it could derive better value-for-money options for shared services.”

Saving £32m on Oracle upgrade costs?

The Cabinet Office expects its new plans to save £32m on Oracle upgrade costs, says the NAO. Indeed the Cabinet Office has questioned whether departments need to use large ERP systems. It acknowledges that smaller, simpler software solutions may be appropriate, says the NAO.

Civil servants in search of new ERP skills rather than saving money?

The NAO report hints that civil servants at the five service centres might have wanted to implement new Oracle or SAP ERP software more than to save money.

Says the NAO: “The [shared service] Centres have prioritised increasing the number of customers or implementing new software, rather than working with existing customers to drive efficiency… There are other options to reduce costs in addition to increasing the number of customers or implementing a new ERP system.”

Indeed the NAO questions why the service centres bought big and expensive ERP systems that are now under-used, without looking at smaller and simpler accounting packages.

“These ERP systems [installed at five shared service centres studied by the NAO] are complex and it is not easy to modify them when needs change, such as when an organisation is restructured or processes are redesigned.

“We found the Centres are only using a small part of the capability their ERP systems provide. The systems are capable of handling larger volumes of transactions and more services and it is not clear why such expensive solutions were bought. Other smaller and simpler accounting packages were not looked at to see if they may have provided the required functionality.”

Concludes the NAO:

The shared services initiative has not so far delivered value for money for the taxpayer. Since the Gershon Review recommended the creation of shared services in 2004, the Government has spent £1.4 billion against a planned £0.9 billion on the five Centres we examined.

“By creating complex services that are overly tailored to individual departments, government has increased costs and reduced flexibility. In addition, it has failed to develop the necessary benchmarks against which it could measure performance. The Cabinet Office has issued an ambitious new shared services strategy to address these issues.”

Failing to standardise ways of working

Shared services are about standardising ways of working, not running separate services for every client but the NAO found that the five centres replicated old ways of working.

“The services provided are overly customised. We found shared services to be more complex than we expected. They are overly tailored to meet customer needs. This limits the ability for the Centres to make efficiencies as they have an overhead of running multiple systems and processes.”

Big cheques to big ERP suppliers?

The NAO said departments have wasted money on ERP systems – and now plan to spend more on DRP systems.:

“The software systems used in the Centres have added complexity and cost. All the Centres we visited use Enterprise Resource Planning (ERP) software systems. These are complex and have proven to be expensive. They are designed to manage all the information generated by an organisation by using standard processes. These systems work most effectively with large volumes of heavily automated transactions.

“With a lack of scale and usage in some Centres, limited standardisation and low levels of automation, the cost to establish, maintain and upgrade these systems is high. As a result two Centres intend to totally re-implement their existing systems with simpler, standard ERP software, despite the significant investment already made.

“All the Centres acknowledge they need to simplify and standardise their systems and reduce customisation.”

Cabinet Office took a back seat instead of driving sensible change

Says the NAO: “The Cabinet Office and Civil Service Steering Board could have done more to ensure shared services were implemented appropriately. While the Cabinet Office led by example in initiating their own shared service arrangements, more could have been done to challenge the performance achieved by customers and providers.

“They could have established reliable cost and performance benchmarks and done more to document best practice and lessons learned for customers. Also, they could have done more to remove the barriers to departments and agencies joining shared services.

“The Cabinet Office relied on a collaborative model of governance, which was consistent with the role of central government at the time. Under this model it was left to individual departments to implement shared services and eight shared services have been established. There has been little actual sharing of services between departments…”

Should officials have been forced to take part in shared services?

“Departments have struggled to fully roll-out shared services across all their business units and arm’s-length bodies,” says the NAO. “This is because participation has largely been voluntary. Of the five Centres we examined, three had not attracted the customers they had expected and two had potential spare capacity of 50 per cent.”

Cabinet Office is trying to repair the damage

Using DWP and DfT centres the Cabinet Office plans to have two independent shared service centres and a host of sub centres. But the NAO suggests the strategy may fail unless the Cabinet Office mandates the use of the centres. [But there’s no point in mandating change unless working practices are standardised.  If they cannot be standardised shared services may end up – again – costing more.]

Says the NAO  “The Cabinet Office did not have the powers to mandate shared services. Without a mandate, we do not think that coherent shared services are likely to be achieved. If there is an overall value-for-money case for the taxpayer, the Cabinet Office should seek appropriate authority to mandate the shared services strategy and its implementation.

“The Cabinet Office should also make sure that there is clear accountability for implementing its new shared services strategy.”

MPs ignored

“…the Committee of Public Accounts set out recommendations (on shared services) for the Cabinet Office in 2008,” says the NAO. “None of the recommendations have been fully implemented. All are relevant to shared services today.”

The five shared service centres under NAO scrutiny – and their ERP

• The Department for Environment, Food and Rural Affairs (Defra) Centre provides services to 16,000 customer users (full-time equivalents)7 from the Department and 13 of its agencies. Enterprise Resource Planning System: Oracle 11i, upgrade to Oracle v12 in 2012-13.

• The Department for Transport (DfT) Centre provides services for 14,000 customer users from the Department and four of its agencies. SAP ERP.

• The DWP Centre provides services for 130,000 customer users from the Department, the Cabinet Office and the Department for Education. Main site Norcross. ERP system: Oracle 11i, upgrade to Oracle v12 planned in 2012-13.

• The Ministry of Justice Centre manages two separate systems – serving 47,000 customer users for its National Offender Management Service and 27,000 for the Home Office. Enterprise Resource Planning System: Oracle 11i, upgrade to Oracle v12 in 2012-13 and plans to completely re-implement its system to remove all customisation.

• Research Councils UK Centre provides services to 11,000 customer users from seven Research Councils. ERP is Oracle 12.

Three major shared service centres not under NAO scrutiny

• The Ministry of Defence’s Defence Business Services, which was established in July 2011. ERP is Oracle 11i. An upgrade to Oracle v12 in planned for 2012-13.

• The Department of Health NHS Shared Business Services Ltd (joint venture with Steria) which does not provide services to central government. (ERP is Oracle v12)

• HMRC which set up a shared service centre – but no other departments used it. ERP is SAP.

Comment:

Anyone reading the NAO report could be forgiven for thinking that civil servants setting up shared service centres have aimed to fail, perhaps to prove to ministers that major change within central government is a bad idea. We doubt this.

What is more likely is that civil servants, encouraged by some suppliers, thought it a good idea to buy big ERP systems from which they thought savings would naturally flow. But big has not proved to be better. When will this message get through? Isn’t it time for civil servants to stop throwing money at big suppliers?

[And there may be some substance in the NAO's hint that some civil servants have preferred to work on big ERP systems rather than save money. Having strong ERP skills is an insurance against job loss.]

NAO report  

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3 responses to “Shared services disaster: a gain for some officials and ERP suppliers?

  1. Pingback: Success in outsourcing needs political stability says councillors’ panel | Campaign4Change

  2. Pingback: It’s a kind of accounting magic: How a £233m shared services cost is turned into a £230 saving … « Calchas

  3. Some people really need to wake up and smell the coffee. What is this ERP really doing, “Workflow enabled Financials” might be a good way of putting it. Underlying accounting practises haven’t changed for a 100 years! So why oh why? And no I ain’t buying the civil service has cutting edge processes!

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