Released for publication by the Minister of State Services, Hon Annette King, 4 July 2007.See also: Cabinet Minute: Shared Services in the Public Sector

Office of the Minister of State Services

Chair

Cabinet Policy Committee

Shared Services in the Public Sector

Executive summary

1 This paper reviews previous studies on the potential for shared services in the New Zealand Public Service, and considers the shared services experiences in New Zealand, Australian State Governments and other jurisdictions. Previous New Zealand studies identified little scope for financial savings from a shared services centre in the Public Service. Overseas experience of shared services is mixed. Indications are that savings from shared services are lower and slower than anticipated.

2 The paper concludes that although the potential for savings is limited, a more concerted approach to sharing of services may deliver other benefits and improve value for money over time. The way to realise these benefits is not by setting up shared services institutions, but by supporting and encouraging more efficient use of existing government investment. Four opportunities for greater use of shared services are identified. The first involves more rapid and active sharing of good practice systems and processes. The second involves a requirement to review shared services opportunities during machinery of government reviews and at the point of major system upgrade or replacement. The third is a mandatory shared approach where the all-of-government benefit or level of investment is such that government requires a single system for all. The fourth is to further explore the costs and potential benefits of a shared services approach for small agencies to address current capability issues.

3 The paper invites you to consider the proposed approach to promoting greater use of shared services, to decide whether to seek further work on these, and if so to direct officials to report back on how to progress implementation.

Background

4 On 21 February 2007 Cabinet directed the State Services Commission (SSC), in consultation with the Department of the Prime Minister and Cabinet (DPMC) and

The Treasury, to consider the potential for, and implications of, the greater use of shared services in the public sector, and invited the Minister of State Services to report to the Cabinet Policy Committee by 6 April 2007 on the advice received. (CAB Min (07) 2/18 refers).

5 Following confirmation with the Minister of State Services, this paper focuses on the potential for greater use of shared services in the Public Service, although the proposals in this paper may also be applicable to the wider State Services.

Comment

Review of research

6 This section summarises the research findings relevant to the potential for shared services in the New Zealand Public Service.

Defining shared services

For the purposes of this paper, shared services is defined as situations where back office administrative/support functions are undertaken:

  • for multiple agencies by a separate agency for which these services are the primary function; or
  • for one agency by another.

7 Administrative/support functions may include:

  • human resources (HR) e.g. payroll, employee benefits, learning and development, recruitment, and personnel administration
  • information technology (IT) e.g. information management system administration and help desk
  • finance e.g. accounts payable and receivable, general ledger, tax management, treasury and cash management, and management accounting
  • administration e.g. facilities management, asset management, document and records management, research/library services, and procurement

8 Generally, agencies obtain Administration/support (back office) services in one of four ways:

8.1 Decentralised - each agency does its own.

8.2 Centralised - some/all of these functions are provided by one agency for others.

8.3 Shared services - these functions are provided by a stand-alone agency whose mission is to provide these as efficiently and effectively as it can.

8.4 Outsourced-services contracted out to the market.

9 This paper focuses on the potential for greater use of the second and third of these arrangements. It excludes outsourcing and shared services approaches to front office activity, such as service delivery.

10 Different types of services are more or less suited to a shared services approach:

  • Mature activity, such as financial management, HR management and facilities management, is considered to provide poor candidates for shared services because the cost of change is high, but the marginal increase in efficiency is modest. In a well developed market for mature services (e.g. accounts payable, payroll processing), outsourcing can be a more efficient solution than shared services.
  • Maturing activity, such as electronic document management, and debt recovery, is considered also to typically provide poor candidates for shared services. Although efficiency gains would be greater than for mature activity, the cost of change is still high. However, there may be benefit in identification and promulgation of good practice and business processes.
  • Developing activity, such as online collaboration, online document signature and lodgement, and network provision, in which there is little uniformity in approach and little consensus on good practice, may be well suited to a shared services approach.

New Zealand research

11 Three studies on the potential for shared services in central government in New Zealand have been conducted, the findings of which are relevant to this work. Appendix 1 provides an overview of the findings of these studies.

12 The 2000 Shared Services Scoping Study, jointly commissioned by the central agencies, looked at the potential for shared services within a grouping of eighteen agencies, and for shared services between the three central agencies in the back office processes of HR, finance and IT. The study, undertaken by Cap Gemini Ernst & Young (CGEY), suggested that shared transactional service centres do not offer financial savings for the Public Service because of the low volume of transactional processes and difficulty in extracting small amounts of staff savings. These findings were not considered to be directly applicable to health and education Crown entities, and there is now a range of shared services initiatives among District Health Boards (DHBs).

13 With regard to the central agencies, CGEY found that the volume of transactions was not sufficient to enable material benefits in excess of the costs of establishing either a standalone shared services centre, or such a centre within one of the central agencies. Central agencies subsequently recommended that no further work be undertaken on that project.

14 The Information and Communication Technology (ICT) Feasibility Scoping Study, conducted by the SSC in 2004, considered the possible benefits of rationalisation and consolidation of ICT infrastructure. The study identified that a business case existed for an all-of-government wide area network (WAN), but not for any other technology area studied. It resulted in the commencement of the Government Shared Network project. Syndicated procurement was also identified in the report as being a potential means of gaining savings. This has since been implemented.

15 The 2006 EXG Review on Government ICT spending was conducted to "consider the scale of government ICT spending and whether and how this should be focused on areas that contribute to productivity gains". In relation to shared services, the review found that "the E-government Programme should maintain the focus on opportunities for joined up applications and shared services by agencies, particularly where single, authoritative sources of information can be developed. It was proposed that there may be a role for focused shared services initiatives, particularly for smaller agencies. To date, no further action has been taken on this, but this paper suggests further exploration of this opportunity.

Shared Services: NZ Public Service, DHBs, Local Government and other jurisdictions

16 This section summarises the shared services experience in the Public Service, DHBs, New Zealand Local Government, and other jurisdictions. This paper does not revisit the private sector experience of shared services. The limited applicability of the shared services results achieved in this sector to the government sector was covered in the CGEY reports.

Public Service

17 Most current shared services activity utilise the centralised model where one agency provides for others and participation is generally voluntary. Examples include: Government Shared Network, Government Logon service, the Learning and Development framework, Engagement Survey Tool, and the State Services Brand Research.

18 Syndicated procurement is a variation on this approach. Agencies must opt in at the start of the procurement process to access the initiative. For each purchase, a lead agency undertakes the tender and negotiation process on behalf of those who have indicated interest. Around thirty contracts have been established to date. Evidence suggests that these have achieved a lower overall cost to government via savings in transaction costs or lower prices. The syndicated procurement programme has now been consolidated into a system wide initiative based at the Ministry of Economic Development.

19 There is a small number of arrangements where one agency provides a function for another agency. For example, SSC provides finance functions for the Serious Fraud Office and some financial services for the Ministry of Culture and Heritage. These arrangements are based on a service level agreement and priced for cost recovery. Contract arrangements and price are periodically reviewed. Officials advise that these specific arrangements work well for the parties concerned. However, anecdotal information suggests that this type of arrangement can come under pressure if client and provider agency needs diverge, and may be difficult to sustain.

20 There is also a range of informal mechanisms such as practice networks or communities of interest for sharing ideas and practice developments, for example among

Chief Information Officers, Chief Financial Officers, and HR managers.

21 In a few instances the case has been made for mandatory participation without affecting chief executives' ability to deliver outputs. For example, cash management is provided for all Public Service departments by The Treasury because there are financial gains for the Crown from an aggregated approach which would not be fully realised in a voluntary opt-in model.

District Health Boards

22 There is a range of shared services activities among DHBs. These have been initiated and developed by DHBs on a voluntary basis as they have seen fit. DHB shared services activity includes:

  • a shared services facility providing HR, finance and IT services to its two DHB owners
  • four regional agencies that offer a range of services to their member DHBs
  • shared laundry facility jointly owned by four DHBs
  • DHBNZ contracting for and coordinating joint initiatives across DHBs.

23 Shared services initiatives are being progressed in procurement and also in relation to clinical and clinical support services. Officials are advised that substantial gains have been achieved through syndicated procurement of pharmaceuticals for hospitals. Appendix 2 provides an overview of DHB shared services activity.

Local Government

24 Some shared services arrangements have developed in the local government sector. These are largely in the IT area and involve the provision of services to small district councils by a larger council. The driver for these initiatives has been a lack of critical mass and capability for small council with small rating bases.

Other jurisdictions

25 Overseas jurisdictions have taken different approaches to implementing shared services. These include whether it is voluntary or mandatory, the range of services provided, whether underlying systems are aligned before or after moving to shared services, the customisation of service, and the pricing policy used. For a description of the core aspects of different approaches, see Appendix 3. The conclusions from the review of the overseas experience, taking into account the New Zealand situation, are set out below.

26 The Australian, United Kingdom and Canadian experiences with shared services primarily relates to the transactional elements of finance, HR and ICT functions. In a number of cases there is a significant scale advantage in the overseas jurisdictions. The United Kingdom refers to needing a minimum of 20,000 employees being covered and better returns with over 50,000 employees covered by service sectors.

27 Some of the underlying features in the Australian situation mean transactional gains are larger. The terms and conditions of the staff within the core government are more standardised in Australia than in New Zealand. In Queensland or example, there are common terms and conditions of employment for staff in core government agencies, which lowered the cost of transition for HR services.

28 Different approaches are taken, from large up-front investment to incremental development. A large early investment in systems and organisational change is normally associated with a mandatory approach and a much larger scale change. In Queensland experience to date shows higher investment costs and delays in achieving the expected annual savings. In Queensland and the Northern Territory there has been some replacement of corporate services staff within departments. The scale and impact of this is unknown as no agency is tasked with monitoring savings.

29 In some cases there is up-front specification of service levels to be delivered. In order to measure the performance benefits, the service quality levels need to be specified in advance. This has not been the case in all overseas jurisdictions, for example, Queensland. The voluntary approach appears to be linked to a higher focus on performance specification to attract agencies to join, for example in New South Wales.

30 The United Kingdom and Canada (State and Federal Governments) expect gains from the move to more consistent systems and processes, implementing transferable systems, application of best practice and knowledge-sharing as well as from cost reductions. These gains are achievable without implementing shared services because the systems and process are developed by, and distributed from, the centre. Canada (Federal Government) significantly rationalised its financial and HR systems prior to announcing a move to shared services.

Conclusions from previous research and experience of shared services

31 The following points from our analysis are relevant to your consideration of the potential for greater use of shared services in the New Zealand Public Service.

32 The bulk of shared services initiatives cover mature transactional business processes. These offer little scope for savings in the New Zealand Public Service.

33 The ability of shared services to deliver savings is variable. Officials have not been able to obtain hard data about the savings from initiatives either in New Zealand or overseas. However, anecdotal evidence suggests that actual savings take longer to achieve and are lower than originally expected, largely because of agencies reinstating internal capability and the costs of a start-up and transition.

34 Sector-wide shared services initiatives seem to depend on a very strong internal or external imperative such as legislation, budget cuts, or a directive from government.

35 Although scope for efficiency gains are limited, there are other benefits that may derive from shared services including increased effectiveness, consistency, consolidation, and improved service quality (i.e. value for money).

36 Among maturing services there may be some scope to deliver system-wide improvements in service performance through the identification and promulgation of good practice. Developing services may also hold potential for a shared services approach.

37 A centralised approach, where one agency provides for another, can deliver benefits to small agencies by lowering risk, and improving capability and resilience.

38 Some chief executives will pursue shared services activity where there is a clear benefit in doing so. However, shared services activity with an all-of-government benefit or with benefits that accrue to service users or agency clients is not likely to emerge on its own.

39 Mandatory participation in sector wide programmes should be used carefully as, although it can be a valid tool to support shared services, it can also create compliance behaviour thus undermining efficiency and service quality gains.

Greater use of shared services

Context

40 Government investment in Public Service systems and capability is currently high. It is important that the investment decisions of individual agencies have actively considered whether there is opportunity to raise the return on prior investment by other agencies. Further, it is important that active consideration is given to whether there is scope for a multiple agency or system level investment rather than proliferation of investments.

41 Thinking about shared services has changed since the late 1990s. Economy of scale efficiencies are no longer the primary objective of a shared services approach. There is an expectation that joint initiatives will deliver additional benefits such as:

  • service quality improvement through greater standardisation of good practice and consequent better processes and systems
  • efficiency benefits in relation to development costs for new services/processes, better use of scarce or expensive capability/expertise and multiple uses for single investment
  • development and maintenance of a strong Public Service capability across the whole State Services, not just in individual agencies

42 In the 1990s there was less coordination among State agencies, and many experienced the burden of having to 'do everything themselves'. Since that time, agency leaders have increasingly cooperated and coordinated. Relationships and engagement models among agencies have matured, and there is an active culture of cooperation and collaboration among Public Service chief executives. The current context includes efforts to progress Development Goal targets for networked and accessible State Services and coordinated state agencies.

Potential opportunities for shared services

43 There are potential benefits from the greater use of shared services. However, the way to realise these is not by setting up shared services institutions, but by supporting and encouraging more efficient use of existing government investment. Four potential opportunities are described below.

Opportunity 1: Sharing good practice, processes and systems

44 This opportunity is about agencies proactively sharing good practice business systems and processes. This would enable quality and efficiency gains through consistent systems and processes, transferable systems, and application of best practice and knowledge sharing.

45 As an example, three agencies currently operate candidate databases for appointments to Government boards. One leading practice system may offer a more efficient and better service, with more consistent and better results. Another example is grants processing. The New South Wales Government has established a best practice approach to grants applications and processing. This has been implemented throughout New South Wales, and has been made available to the other States to adopt if they wish.

Implications

46 One advantage of this approach is that it could be implemented within existing systems and networks. Central agencies could assist by actively identifying practices and processes for sharing and supporting their promulgation.

Opportunity 2: Requirement to review shared service opportunities

47 This is a rules-based opportunity that can be applied to mature, maturing and to developing activity. It involves a requirement for active review of shared services opportunities when either:

  • a machinery of government review is being undertaken; or
  • decisions are being made to purchase, replace or upgrade major system capability.

48 It is proposed that the shared services opportunity review would cover whether:

  • a shared services option is feasible and desirable
  • existing prior investment by government can be leveraged (e.g. is obtaining this function elsewhere an option)
  • other agencies are intending to invest in this capability (is it timely and efficient to club together, as per the syndicated procurement model).

49 An opportunity review would be required when IT systems or other systems are being upgraded or replaced. For example, the scheduled replacements of the border management information systems of the New Zealand Customs Service, the Department of Labour's immigration services and the Ministry of Agriculture and Forestry's quarantine and biosecurity functions provide an opportunity within the next twelve months for such a review. The current review of the New Zealand Food Safety Authority provides an opportunity to explore specifically the options for shared services for this agency.

Implications

50 Guidance and a toolkit for agencies about when and how to consider shared services opportunities could be developed. This would include how to handle an approach by other agencies, and methods to assess costs and potential gains.

51 Relevant legislation and policies could be reviewed to ensure they do not contain unwarranted impediments to shared ICT services and joined up applications.

52 Central agencies could lead the way, both by role-modelling the approach and by providing frameworks for funding, charging, ownership and governance.

Opportunity 3: Directive

53 There is a small number of situations where a directive may be required. This is likely to be in situations where an all-of-government benefit is not able to be captured in the decisions of individual agencies, or where the level of investment or the nature of the service is such that Government wants to ensure a single service. A decision on a whole-of-government directive would only be taken once a business case had shown a directive to be the best approach compared to alternatives.

54 In situations where uniform compliance with a single service is wanted by government, Ministers may direct their portfolio departments accordingly. The Ministers of State Services and Finance may jointly direct Crown entities to comply with specified requirements for the purpose of both - (a) supporting an all-of-government approach; and (b) improving public services either directly or indirectly.

Implications

55 As noted in the EXG report on the Review of Government ICT spending, central agencies could support this approach by identifying opportunities that are not within the current plans of individual agencies and sector groups, or where the size and lack of resources of the agencies is an impediment.

Opportunity 4: Back office service for small agencies

56 If benefits other than cost savings are accepted as a rationale for pursuing shared services arrangements, a shared back office arrangement among small and medium agencies may be worth investigating. These services could be provided by one agency for others, via a bureau model, or by several agencies each supplying others with a specific back office service. This would enable agencies that lack critical mass to obtain quality, consistency and consolidation benefits, without the transaction burden of each having to engage with the market to outsource these services. Although the potential of this option has been identified earlier, it has not been explored in detail.

Implications

57 This approach may be more costly than the current arrangements, because it would be necessary to pay more for some additional capacity to achieve the desired lift in service quality and effectiveness. Specifically, such an initiative might involve transition, sunk and possible start-up costs. The timing and nature of investment decisions would be important considerations for this initiative.

What central agencies can do

58 Central agencies can contribute by making it easier, quicker, and simpler for agencies to progress shared services. For example, the SSC could establish expectations with chief executives that support take-up of these opportunities, facilitate the sharing/broking of good practice, and develop standard contracts and practices for use by agencies to make sharing of services easier. This work may be of further use when, as progress towards the Development Goals continues, chief executives focus on better coordinating front office services.

59 Central agencies may have a role in aligning incentives for shared services. There can be a disadvantage in being the first mover on a particular initiative. If the aim is to actively pursue shared initiatives, incentives to do so may need to be established.

Conclusion

60 Previous investigations in New Zealand have identified little economic benefit from pursuing shared services centre initiatives in the Public Service. Opportunities for common network infrastructure and syndicated procurement have been followed up. Although a direct comparison is not possible, available information from other jurisdictions supports these findings in relation to the limited potential for this type of shared services in New Zealand. Available information does not provide hard evidence of the results achieved by shared services initiatives, and suggests that results are mixed.

61 Government investment in State Services capability is currently high. In recent years, a stronger culture of collaboration has developed among Public Service chief executives. The need to achieve gains in relation to State Services efficiency, quality and effectiveness, rather than solely efficiency, is accepted. Analysis suggests there is potential for greater use of shared services.

62 This paper has proposed four opportunities: 1) active sharing of good practice systems and processes; 2) a requirement and process for active review of shared service opportunities during machinery of government reviews and at the point of major system purchase, upgrade or replacement; 3) a directive approach where the all-of-government benefit or level of investment is such that Government wants a single system to be adopted by all; and 4) the further exploration of the costs and potential benefits of a shared services approach for small agencies.

63 If Ministers endorse this way of thinking about potential shared services opportunities and are keen to explore them further, Officials can develop further advice on how to progress them.

Consultation

64 DPMC and The Treasury have been involved in the preparation of this report.

Financial implications

65 There are no financial implications arising from this report.

Human rights implications

66 There are no human rights implications arising from this report.

Legislative implications

67 There are no legislative implications arising from this report.

Regulatory impact and compliance cost statement

68 There is no regulatory impact or compliance cost statement arising from this report.

Gender implications

69 There are no gender implications arising from this report.

Publicity

70 No publicity is planned.

Recommendations

71 It is recommended that the Cabinet Policy Committee:

1 note earlier investigations have concluded that there is little scope for efficiency gains from a shared services centre approach in the Public Service

2 note the shared services experience of Australian State governments, the

United Kingdom and Canada is mixed, and savings and quality gains are generally less than expected

3 endorse consideration of future potential for shared services in the context of :

3.1 service quality improvement through greater standardisation of good practice and consequent better processes and systems

3.2 efficiency benefits in relation to development costs for new services/processes, better use of scarce or expensive capability/expertise and multiple uses for single investment

3.3 development and maintenance of a strong Public Service capability across the whole State Services, not just in individual agencies

3.4 progress toward Development Goal targets for networked and accessible State Services and coordinated state agencies.

4 note the four types of opportunities for greater use of shared services

4.1 sharing good practice and systems

4.2 requirement to review shared services opportunities

4.3 directive

4.4 shared back office services for small agencies

5 direct the State Services Commission, in consultation with The Treasury and the Department of the Prime Minister and Cabinet, to report back to POL by 31 July 2007 on how sharing good practice processes and systems and a requirement to review shared services opportunities may be implemented

6 direct the State Services Commission, in consultation with The Treasury and the Department of the Prime Minister and Cabinet to report back by 31 July 2007 on the feasibility, and likely costs and potential benefits of a shared service approach for small agencies.

Hon Annette King

Minister of State Services

 
 

Appendix 1

Summary of New Zealand research

1 The 2000 Shared Services Scoping Study, jointly commissioned by the central agencies, looked at the potential for shared services within a grouping of eighteen agencies, and for shared services between the three central agencies in the back office processes of HR, finance and IT. The study, undertaken by CGEY, suggested that shared transactional service centres do not offer financial savings for the Public Service.

2 The major reasons for the study's conclusion were:

  • The large number of relatively small entities: in-house resources to manage shared services contracts will still be required in small agencies. Small agencies will also be unable to save part of an FTE when multi-tasking.
  • A relatively low volume of transactional processes (versus strategic or managerial) when compared to private sector organisations: in the eighteen departments included in this study, there was a relatively small number of such transactions, reflecting the policy as opposed to operational focus of departments. Their transactions were simple (e.g. few purchase orders, little accounts receivable), rather than complex, which also reduces opportunities for improvement in a shared services environment.

3 These findings were considered to have limited application to health and education Crown entities. It was thought that these groups of entities, each with a similar operational focus and high volumes of like transactions, may be suited to a shared services approach. In keeping with this finding, there has been development of a range of shared services initiatives among DHBs. These are described in Appendix 2.

4 With regard to the three central agencies, CGEY found that the volume of transactions was not sufficient to enable material benefits in excess of the costs of establishing either a stand alone shared service centre, or such a centre within one of the central agencies.

5 Central agencies subsequently recommended that no further work be undertaken on that project.

6 Building on this study, the ICT Feasibility Scoping Study, conducted by the SSC in 2004, considered the possible benefits of rationalisation and consolidation of ICT infrastructure. The study identified that a business case existed for an all-of-government Wide Area Network (WAN), but not for any other technology area studied. It resulted in the commencement of the Government Shared Network project. Syndicated procurement was also identified in the report as being a potential means of realising savings. This has since been implemented.

7 The 2006 EXG Review on Government ICT spending was conducted to "consider the scale of government ICT spending and whether and how this should be focused on areas that contribute to productivity gains" (paragraph 1 of EXG Review Report).

8 Specifically in relation to shared services, the review found that "the E-government programme should maintain the focus on opportunities for joined up applications and shared services by agencies, particularly where single, authoritative sources of information can be developed. Central agencies could assist by identifying opportunities that are not within the current plans of individual agencies and sector groups or where the size and lack of resources of the agencies is an impediment" (paragraph 97 of EXG Review Report).

9 Further, the review commented that "the public sector planning frameworks including Managing for Outcomes and Preparing the Statement of Intent guidelines, and current business case processes and guidelines, could be strengthened to reflect an increased emphasis on productivity and support for the development of shared ICT services and joined up applications. Relevant legislation and policies could be reviewed to ensure they do not contain unwarranted impediments to shared ICT services and joined up applications" (paragraph 98 of EXG Review Report).

10 In relation to shared services, the Reference Group for the EXG Review, comprising fourteen ICT leaders, believed that the state sector management framework, with its heavy focus on individual agency outcomes, may be an impediment to further cooperation on the provision of shared services.

11 It was proposed that there was a role for focused shared services initiatives, particularly for smaller agencies. They concluded that no new evidence emerged during this study to support the view that any other large scale shared services project such as the Government Shared Network should be undertaken at this time.

 

Appendix 2

Overview of shared services initiatives among DHBs

Four Regional Shared Services Agencies

1 There are different levels of shared services among DHBs. Four shared services agencies were set up at the time that the Health Funding Authority was disestablished. These were set up in four locations using residual capacity from the Health Funding Authority, and are wholly owned by their shareholding DHBs. The shared services agencies each have a governing board, and are funded by their shareholders on a pro-rata basis. The agencies are located in Auckland, Waikato, Wellington and the South Island. They provide a range of services such as contract administration, audit, research, health needs assessment, and support for regional service development. Other services may be purchased on a fee-for-service basis.

Health Alliance

2 Health Alliance is owned by Counties Manakau and Waitemata DHBs. The agency provides a range of back office services including payroll, accounts receivable and payable and finance services for the two DHBs. Although there are currently different IT platforms operating within the Health Alliance, there is an agreement between Health Alliance and Auckland DHB to move to greater convergence of IT systems over time.

FMIS Implementation

3 Waikato, Otago, Canterbury and Southland DHBs collaborated on the implementation and resolution of post implementation issues of their new financial management and information system.

Shared Capacity

4 Southland and Otago DHBs have a shared Chief Financial Officer and a shared Funding and Planning Manager. Hawkes Bay, Wairarapa, Mid-Central and Wanganui DHBs share laundry facilities. DHBNZ is the member-owned association of DHBs. It hosts fosters collaborative process around issues as required, and supports communication and coordination between DHBs as a group, and the Ministry of Health.

Syndicated Procurement

5 The Crown Health Financing Agency, the long-term banker for the DHBs, negotiated the purchase of insurance for DHBs at a price based on the aggregated risk and liability. Pharmac purchases bulk medicines on behalf of the DHBs. This has enabled savings on the pharmaceuticals themselves and also significantly reduced transaction costs for the purchase.

6 Canterbury Health provides laboratory and radiography services to West Coast DHB. This ensures availability of service 24/7 where otherwise scarce clinical capability and cost would not allow this.

 

Appendix 3

Summary of shared services experience in other jurisdictions

Northern Territory

  • Started in the late 1990s
  • Mandatory approach to implementation as it needed scale advantage of all departments participating
  • Covers 36 departments with around 16,000 FTEs at start of which around 1,200 to 1,300 worked in corporate services
  • Covers transactional services for HR, finance, IT, property leases, and fee-for-service on fleet services and printing
  • Shared services is a separate department
  • There is no or very limited customisation of the service provided, but agencies may employ own staff to produce customised financial reporting
  • Nature and quality of the service to be provided is specified
  • Efficiency savings leading to costs saving retained by government not agencies as no fee- for-service on most services
  • Agencies are not forced to use new improved systems
    • agencies may continue to use old systems reducing the expected cost savings of process improvements or
    • when Cabinet agreement that service provider will cease to service old systems may continue to use own paper based systems and employ or re-employ staff to process
  • The scale of rebuilding of internal capacity is unknown
  • Have been able to get some service improvements taking advantage of scale in remote areas
  • Currently Northern Territory shared services is undergoing a review

Queensland

  • Mandatory participation covering around 60,000 public sector staff
  • Started with six service clusters and has moved to three service clusters - core, health and education
  • Covers the transactional elements of HR, finance, and document and records management with plans to expand services covered
  • Separate agency under the Treasury e.g. similar to CCMAU
  • At start not widely known what the cost of the services transferred to shared service provider or the service levels that were being provided internally
  • Evidence of rebuilding of internal corporate services capacity to manage the interface or undertake some activities in-house - scale unknown
  • Taking longer (in number of years) to achieve the annual savings expected
  • Implementation delays due to skill shortages and the impact of the movement to International Financial Reporting Standards (unforeseen)
  • Gains from shared services were to come from a reduction in staff number by attrition
  • By deduction, given the tendency for agencies to rebuild internal corporate services capacity it is unclear what the overall savings are or will be
  • Currently an evaluation reported to Queensland parliament this financial year

New South Wales

  • Voluntary participation with encouragement from Premier's department
  • Shared service provider located within existing government department
  • Covers the smaller agencies with encouragement to the larger agencies to rationalise their corporate services
  • Covers a range of services including transactional finance and HR services, IT, research and library services, property management services, and fleet services
  • On their website, they specify some information on service level expectations and outline that they exceed comparator cost benchmarks
  • Low level annual savings achieved - A$3.3 million

Canada

Federal government
  • Mandatory participation announced in 2005 and linked to cost saving initiatives
  • Covers transactional services for HR, financial, material and IT services
  • Number of systems platforms rationalised in mid 1990s from over 100 financial and HR systems to 7 financial systems and 14 HR systems
  • Financial savings from staff reductions through attrition
State governments
  • Three states do shared services - Alberta, Ontario and British Columbia
  • British Columbia covers all government departments for transactional services on a fee-for-service basis
    • Focus on meeting client needs
    • Seeking gains from improving systems and processes
    • Choice over services purchased
  • Alberta shared services covers mail delivery, printing and copying documents, technical support for computers, telephones and faxes, government vehicles
    • Seeks to work with ministries to achieve cost savings in processes and reducing duplication
  • Ontario has limited information available on its arrangements
    • Undertaken within an existing government department
    • Know it covers IT service but unclear what other services
    • There have been privacy issues raised with the improved data sharing across agencies leading to a review

United Kingdom

  • Organised around nine sectors: education, health, home office, defence, revenue and customs, work and pensions, families, rest of central government and local government
  • Significantly larger number of staff covered in all sectors e.g. education 1.2 million employees, health 1.2 million employees, work and pensions 120,000 employees, families 65,000 employees, rest of Central Government 95,000 employees etc
  • Covers transactional HR, Finance and IT infrastructure
  • Increasing scale seen as a key critical factor issue within clusters; 20,000 staff to get gains but main benefits coming after over 50,000 staff covered
  • Mentions benefits coming from embedding consistent systems and controls, consistent and reliable processes and systems, reliable data from a single organisation, using expert capabilities, benefits of transformation
  • Update reports mention technical implementation issues around staffing limits and VAT that appear to have been raised in implementation indicating there will be additional issues to be addressed in implementation beyond those expected

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