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16 March 2012

Reforming New Zealand's public services

Learning from the mistakes of the UK shared services programmes

New Zealand Government is changing; its agenda to become leaner and more efficient – to do more with less. The release of New Zealand Treasury’s annual report on back-office performance – and the opportunities for future savings it identifies – has surfaced the inevitable tension in the press between Ministers seeing “room for improvement” and public sector unions seeing “overly ambitious” targets and job cuts.

Hundreds of millions of dollars have been spent so far, with tens of millions of dollars saved. John Key’s speech of 15th March 2012 makes it clear that the New Zealand Government’s plan demands better results for the taxpaying customer, with fewer resources. Efficiency improvement is an unavoidable situation, with ‘shared services’ and increasing use of technology already highlighted as chosen routes.

As these approaches move from back-office to front office, the risk of a visible and immediate impact on the taxpaying customer service in the event of problems becomes ever greater.

It is therefore timely that the UK National Audit Office (NAO) has released its report analysing in detail the last 8 years of effort (since the Gershon efficiency review of 2004) into five UK Government shared services centres. This is a report that does not make for pleasant reading.

A full and frank assessment of these initiatives concludes “the shared services initiative has not so far delivered value for money for the taxpayer.” The brutally honest review does not stop there, as the evidence of UK Government having overspent a £0.9 billion budget by a staggering £500m (that’s 55.5% before you reach for your calculator) states that “by creating complex services that are overly tailored to individual departments, Government has increased costs and reduced flexibility.”

The coup de grĂ¢ce is the observation that “in addition, it has failed to develop the necessary benchmarks against which it could measure performance.” As bedtime reading, this report is guaranteed to give any civil servant nightmares.

Two of the five projects in this report have been analysed previously in more detail. A 2011 NAO report into the Research Councils’ shared services programme made similarly grim reading. It reported a whopping 65% overspend (£51m), with a minimum shortfall in the original business case savings estimate (£395m) of at least £71m. The NAO pulls no punches in pointing out that the lack of effective benefits monitoring make even this estimate hard to establish, whilst the programme development phase completed in March 2011 - well beyond the original 2009 timeline.

In 2008, the Department of Transport was the focus of attention, with its 2005 shared services programme projecting costs of £55.4m against gross savings before costs of £112.4m. The report’s findings conclude “that the programme as originally envisaged will not achieve value for money” and will “represent a net cost to the Department of £81.1m up to 2015” if performance in the shared services centre is not improved.

How does this help New Zealand?

These reports are a goldmine of experience for New Zealand Government. The failings highlighted do not mean that shared services are a bad idea – quite the opposite, they are a fundamentally sound way of removing waste and inefficiency from large organisations. Many public and private sector bodies have succeeded in doing what John Key is demanding of New Zealand public service.

What the latest report sets out is where the risks lie in the poor execution of a great idea. The NAO reports highlight the main problems as being in the method of delivery, summarised as:
  1. Over-customising services. This retains complexity, effectively transferring current ways of working into the new model, eliminating any benefits from standardisation; 
  2. A lack of benchmarking and baselining. Without accurate information, cost management and benefits tracking become impossible, leading to unmanaged overspend and a drift away from the original intentions and desired results. 
  3. A focus on implementing new IT systems as opposed to pursuing efficiency. The focus on technology tools rather than the results has increased complexity and cost, whilst IT providers show little restraint in pursuing new sales opportunities. 
UK Government departments relied on the major IT suppliers and consultants, who enthusiastically embraced the desire for ‘business transformation.’ A healthy market in consulting buzzwords has been widely adopted, ‘streamlining and optimising business processes, empowering staff and enabling transformational change.’ Consulting fees have been banked and the sales bonuses paid, whilst the taxpayer has ended up with inflated costs, missing benefits and very expensive technology that doesn’t really do what it said on the tin. IT vendors – despite what they may think - have not yet saved the day.

The New Zealand Government is fortunate in having many sound methodologies, Gateway Reviews and other checks and balances in place to control and limit these risks. However, it also has the potential to repeat the same mistakes made in the UK if these are not rigorously applied. Placing too much faith in the promises of IT suppliers and consultancies in a rush to demonstrate progress can mean cutting corners on rigorous business case evaluation, planning, measurement and the disciplines of programme management. All these have been highlighted as failings by the UK NAO.

Equally ‘losing its nerve’ through compromises made in an attempt to defuse resistance to changing working practices when the going gets tough could also spell disaster.  What is certain is that the New Zealand economy cannot afford to sustain failure on the scale seen in the UK. It has to get it ‘right first time’.

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