A shared services strategy has the potential to greatly improve government spending and increase efficiency, however all parties entering into a shared services contract must ensure they know the reasons and benefits for doing so.
In South East Wales the ten council leaders and ten local authorities chief executive have formed a Board and have came up with the present proposal of shared services considering work strategies by allocating support and specialist that saves money, structure and business process re-engineering.
The Design Proposal is intended to provide an improved service which meets the future
needs of service users with a capacity to process efficiently routine administration, respond
rapidly to routine enquiries and provide substantial specialist resources to the development
needs of the local authorities.
Internal- The current service model in Caerphilly
At present Caerphilly provides employment to near about 96 full time capable employees, 61 administrators, 23 professionals and 12 managers who provide services like the human resource (HR), training and payroll. The overall yearly cost incurred by Caerphilly Council to provide these services is 4.8 million out of this approximately 2.2 million is laboured on external providers of recruitment and training services. The yearly cost is 511 per council staff. The objective of these services is to provide the work strength of Caerphilly Council.
Though HR department is dedicated in providing good quality service but it was unavoidable fact that working on a relatively small scale, a rose ratio of the activity is connected to needed administrative processes and on basis of education the degree of specialisation compared to other professional employee is not as equivalent as compared to the larger organisation.
Caerphilly Council is seeking solution to reduce the cost of service but without settling down on the first class services provided. Local authorities developed services by implementing new techniques that reduced the cost but ended up affecting the quality of services.
External- The proposed model of shared service
In an attempt of improving the services by Caerphilly and Local authority has been in vain because it is really a tedious task to reduce the task and maintain the quality of services without affecting the delivery of right service.
The challenge of effective shared services is often seen as the need to cut costs whilst improving quality of service (Forst, 2001). Reilly (2000) reports that quality improvements follow in a number of ways: through better consistency and accuracy, through best practice being applied more widely and through HR becoming more customer focused and more accessible.
Thus, keeping in mind the current model and considering customer needs the designed team developed a proposed model that aimed the certain aspects like concentrating more on improved HR, payroll and training services. The various perspective like value for money, opportunity to provide strategic support, decision making, managing resources, achieve handy service and time management skills are the needs to be met by proposed model.
Deciding whether HR shared services stand alone which has the advantage of being able to give the offer that meets the customer specific needs or whether choosing the common platform with the benefit of shared cost.
Once being clear as to the reasons for setting up shared services and factors determining which is a more better approach than focus on customer satisfaction and cost savings. If quality and customer satisfaction are of utmost important than any savings made through headcount reduction or cheaper accommodation can be reinvested back into the services offered. If cost is the exclusive driver, and this lead to an emphasis on a common support platform and this leads to an emphasis on a common support platform, then poses important question on how effectively customer needs will be met.
The cost of current service model paid by Caerphilly is 4.8 million. According to the report, after the implementation of the proposed model it will save the annual cost of 1.0 million every year
Studying the report and according to the option 2 as the best option suggested by the CSEW board, the following are the financial aspects depending on cost
- It is assumed the council will get an annual saving of 1 million but after 6 years of payback time.
- Welsh assembly government (WAG) has agreed to give 10 million as the initial investment to start the shared service project but it's not clear weather this money is a grant or a loan.
- Cardiff council, the largest council in South East Wales has opted of the shared service project. This raises doubts in the mind of the Caerphilly council .
- Even Newport and Blaenaw Gvent have joined Cardiff.
The above mentioned financial aspects have many limitations. The limitations are explained in details.
Firstly, it is only assumed that there will be annual saving of 1 million but there can be more deduction in the saving due to the health and safety clause.
Secondly, the Welsh assembly government (WAG) has agreed to pay 10 million as the initial investment but it is not clear whether they have given this money as grant or a loan. If it is a loan the council will have to return it and this will cut more or their savings.
If it's a loan then there will a big question how the Caerphilly council will be able to pay the loan. And this will even lower their annually savings.
Thirdly, Cardiff the largest council in south wales, Newport and Blaenaw Gvent have opted out of the shared service model. This will increase the initial investment of each other council in addition to that the risk shared will also be much greater.
In particular cost reduction, improving service quality, process simplification,
sharing best practice, knowledge transfer and being more in alignment with new business
environments have been prominent in the practitioner literature (Bailey, 2005; Reilly and Pickard, 2000).
Today's technological infrastructure and availability of highly qualified, multilingual staff enables shared services organisations to conduct relationships with local, regional and global entities such as suppliers, banks and local management. Implementing shared services includes advantages to the key users as well as the business. Although it cannot give the full proof for cost reduction but can assure required technology and infrastructure requirements but is a forceful means for change within the organisation. The technology solution is considered to be initiative for corporate world. Benefits of shared services include:
- Improved HR services like performance appraisal, job evaluation, training and development and education.
- Opportunity to provide close strategic support and potential to develop services.
- Innovative change.
- New way of working.
- Expert support and specialisation team to plan and gain the right outcome needed.
- Providing support that is necessary to recruit, develop and make the best use of employee working.
- Better training facilities.
- Centralization benefits.
- Hiring issues and specialization of task.
- It eliminates redundancies.
Example Keep (2001) finds large numbers
of NHS organizations setting up or considering HR shared services. Cost is a driver.
But she finds little evidence of cost savings being directly realized. The savings
estimated are based on what could have been achieved if each organization had its own HR function, rather than savings on the current baseline.
However, if the shared services are not managed in the correct manner and the improper planning and implementation can have the adverse effects on the project, working employees and customers. Heavy losses can be incurred if proper care is not taken from beginning.
Shared Service and outsourcing
During the past decade the value for shared services is increasing rapidly for private and government sectors. A shared service provides a new driving force to adopt the business strategy more efficiently in the technology age which in turn withstands the redesigning of the organisation. In general shared services has long term advantages where as outsourcing involves much uncertainty.
A 1999 International Data Corp. study noted that more than 60 percent of the companies that outsourced financial processes had shared services organizations that were at least three years old. This "stabilization" period allows the SSC time to reengineer processes and drive out non-value-added costs before turning operations over to an outsourcer. There are exceptions to the Rile. Companies in Europe have found outsourcing decentralized processing to a single provider to be the fastest route to achieving the benefits that a shared processing environment can offer.
Many times people tend to a mistake by relating shared services and outsourcing as one term where as this are two different entities. The organisational aspects of the shared services and outsourcing differ significantly from point to point. Few points that compare the shared services and outsourcing are as follows:
- The general organisational structure of shared services has networking with shared service center where as outsourcing has bilateral relation.
- The strategies used in shared services is long-term stable cost saving and knowledge sharing where as outsourcing has it for short term.
- The Shared Services have ability of risk sharing and knowledge among partners where as outsourcing does not involve any risk sharing or knowledge sharing.
- Human resource management, coordination of the shared service network, process re-engineering, standardization of process and risk sharing in shared services are unique to outsourcing.
- Shared services have reduced process duplication where as in case of outsourcing there no such reduced process duplication.
- In shared services organizational aspect of the Human Resources helps staff in re-deployment and training where as in outsourcing its staff reduction.
Example of the company that benefitted from shared services venture is company Knight Ridder Inc. which includes business processes like human resource functions, general ledger, fixed assets accounting, budgeting, purchasing accounts payable, vendor management and benefits administration process. The company reported the annual savings of 30 percent, 20 million per year than the previous year. The other benefits gained by the company are better internal controls, greater decision support, higher service levels and increased purchasing power with suppliers. The methods of achieving savings and gaining competitive advantage are integrated systems, process re-engineering, consolidation and process standardisation.
Consequences of success and failure
Once the shared service is implemented it will have improved services in cost effective manner and maintaining the quality of service. Caerphilly council will have the right approach of getting things done and better techniques for HR services. But as all projects has some drawbacks the implementation of shared services in Caerphilly council too has some risk factors involved such as:
- Impact on Budgets.
- Psychological effect on employees and stress due to loss of job, transfers or relocation, lower rates of pension gives direct impact on existing staff.
- Difference in management and cultural issue are stronger which causes delay in work.
- Geographical issue is a critical factor which arouses conflicts between the management and the staff and better staff may be lost due to travelling to new places which is time consuming and difficult sometimes.
- Conflict arises on the ability to decide who will be in charge of the shared services and various roles offered to the management consultants in developing the shared services.
In order to achieve benefits and adopt the new shared services Caerphilly should follow certain guidelines
- To avoid conflicts of interest it should be kept in mind that small council is not dwarfed by large more dominating council.
- Secondly, it is more important to convince and inform lower levels of management and staff to ensure smooth implementation.
- Proper training should be given to staff to handle new proposed model.
- Software technology needs to be trusted.
- Don't expect any quick fix solutions.
- Motivating employee to the right path.