The government’s Operational Efficiency Programme will have a significant impact on public sector use of information technology; over what timescale and in what form remains to be seen, says Lesley Meall, FSN contributing editor.
Over the past six months or so everybody in the UK, and many people outside it, have become aware of the country's growing public sector debt. In the month of April alone government borrowing soared to a record £8.5bn (four times greater than in 2008); then in May, the ratings agency Standard & Poor cut its economic outlook from ‘stable' to ‘negative' for the UK, and warned that its coveted AAA long term credit-rating was under threat. So the Operational Efficiency Programme (OEP) couldn't have come at a better time – for the country and the technology industry.
When the findings of the government's OEP were published in April (after a year spent examining operational spending in the public sector) the government's external advisers had identified a potential £15 billion in annual savings from back office operations and IT, collaborative procurement, asset management and sales, property and local incentives and empowerment. So additional public sector use of information technology seems inevitable. "We are forecasting growth, particularly at a local government level," says Stephen Roberts, principal analyst with the public sector research specialist Kable.
But any technology company that anticipates a feeding frenzy will be disappointed, because Kable expects the change process to be a lot more gradual than the OEP suggests. "I don't think this growth will happen in the three years, but in six or seven and local government will be the superstar," says Roberts. He's not sure how realistic the OEP figures are either. "The CSR07 value for money programme has already resulted in lots of savings, " he observes, "so it's not enough to put a finger in the air, and say that you can reduce inefficiencies in the public sector simply because there is a lot of bad IT going on." Even if there is.
"There are lots of areas where internal integration between government departments and better external interfaces could easily be improved," suggests Danny Jones, partner, EMEA, with the business sourcing advisory specialist TPI, adding: "It wouldn't be hard to do things better." As an example he cites the many scenarios where the public sector could make cost-savings by: handling more government transactions online, streamlining and standardising systems, and opting for the most efficient way of delivering services – even if this means dealing with the fall-out from politically unpalatable initiatives.
The good, the bad and the ugly "The strongest theme in the OEP is that poor quality of information on IT spend is a drag on central monitoring and the efficiencies that derive from standardisation." says Roberts. So organisations employing over 250 people will need to collect value for money indicators, and those with over 2,000 employees will need to conduct systematic reviews of back office systems, and putting this right will create plenty of opportunities for specialist suppliers, without putting too many public sector noses out of joint.
But the report's secondary theme – that back office use of shared services should be stepped up – is going to be more of a challenge. "The uptake of shared services has gone very slowly in government," says Jones, and creating resources for sharing has proven easier than getting public sector and quasi public sector bodies to use them. "Just look at what's happened with the NHS Shared Business Services (SBS)," he suggests, where the government is on the ‘in-house' leg of the shared services journey, offering functions including finance, accounting, payroll and purchase-to-pay, through a joint venture with Steria.
According to government figures, NHS SBS provides shared services to around 25 per cent of NHS organisations, but what of the remainder? Well, in February this year NHS chief executive David Nicholson wrote to all NHS trusts giving them a gentle nudge in the right direction. "Delivering efficiencies in back office functions, would free up more funds for front line care and deliver real savings for the NHS," he explained, advising those with in-house services to check that they represent "better value for money than alternative options such as NHS SBS, or other shared service or outsourcing solutions."
A private sector chief executive wouldn't need to write this type of letter, because the transition to shared services – no matter how unpalatable or unpopular – would not be voluntary. Overlapping priorities and conflicts of interest also make the public sector transition a challenge. "It's not an easy thing to manage," says Jones, "and the further away from central government you get the harder it becomes." Even if the most cost-effective and efficient way for local government to deliver services is for a number of departments or regions to share resources, and eventually spin them off into the private sector, it may not happen simply because it is not a vote winner.
But these are not the only reasons why shared service initiatives have gone less well in the public sector than in the private sector. "For shared services to take off more rapidly, they have to be marketed, packaged, and account managed more effectively," suggests Roberts. "This provides scope for more involvement from the private sector," he says, either through partnerships such as NHS SBS, or though full-blown contracting out. "Interestingly, outsourcing wasn't even mentioned in the OEP," he observes, "but converging shared services with outsourcing is likely to be the best way of speeding up its adoption."
Learning from the private sector
For many public sector and quasi public sector organisations and departments this (seemingly inevitable) transition will follow a longer and more winding road than in the private sector. "The OEP is pushing the public sector away from softer cost savings, but the move towards shared services and outsourcing has to be handled very carefully," says Joanna Sedley-Burke, business development director with Sovereign Business Integration. If public sector services are not already delivering, it will not improve things to either share or outsource their inefficiencies and ineffectiveness. "You have to get the processes right first," she asserts.
Another lesson that the public sector could learn from the private sector is to not put quite so many of its eggs in one basket. "There have been some cases where the public sector adoption of shared services have actually made things worse," says Jones, "and plenty of examples where big complex public sector IT projects have delivered some equally big failures." So in the future, the public sector would do well to follow the private sector trend towards multi-sourcing, rather than indulge in any more disastrous "10 year IT contracts that effectively convey monopolies".
As Sedley-Burke comments: "If the relationship is too short term it is hard to get commitment from the supplier, but if the relationship is too long the supplier will get too comfortable." Success can depend on getting the correct balance, but as she acknowledges, "this is a difficult judgement call", and to get it right, many public sector bodies will need to become much better contract managers. "There are commercial providers that specialise in procurement improvement," she says, although the OEP tends towards collaborative procurement as the route to cost savings and efficiencies.
"The report calls for greater transparency in procurement across government, with an implicit assumption that this would give even more traction to pan-government contracts of the kind negotiated by OGC buying solutions," says Roberts. But there are lots of reasons – not least to do with getting better value – why public sector IT managers prefer to negotiate outside framework agreements. "Not all of these would be dispelled if OEP recommendations such as a shared enterprise resource planning vocabulary and shared management information are implemented," he adds.
"Recognising that getting the best value for money does not necessarily mean opting for the lowest-cost option is something that the public sector has not been brilliant at so far," says Sedley-Burke, any more than it has managed to identify the most efficient and cost-effective approaches to proving ICT or business processes, then acted on this. But it's hard to see how OEP savings can be made unless moves towards shared services and outsourcing are accelerated. As Roberts adds: "It seems likely that the amount of IT directly procured by bureaucrats will reduce, while the amount actually used by the public sector industry increases."
