At the recent Housing Technology conference in Birmingham, Sovereign Business Integration Group hosted an interactive seminar to discuss the shared services experiences of a number of companies. This article highlights some of the key points raised in the panel discussion which was hosted by James Threapleton, Sovereign’s director of housing.
While many organisations have explored the concept of shared services over the past decade, the new demand for budget cuts, commonly five to 10 per cent, has re-focused attention on this area. Outsourcing and shared services are now centre stage as housing organisations recognise that the only way to achieve these cost savings while still delivering excellent service to tenants is to embrace new operational processes.
Shared services imperative
Government tax breaks on shared services, combined with unprecedented demands for financial savings, are prompting growing and renewed interest among organisations. However, as Philip Day, resources director for Thrive Homes, said, “We need to look at ways of reducing the cost and improving efficiency, but we must also look at improving the customer experience.” He said that while the main aim of sharing both back-office and front-office services where possible is to reduce costs, it also enables Thrive Homes to be much more focused on business development activities.
Tyron Stalberg, associate director for PML Group, agreed, based on his experience with the South Thames Gateway Building Control Partnership (STG), said, “There are tremendous opportunities for bringing resources together, delivering efficiencies, reducing costs and improving services.”
But moving forward is difficult. How well suited culturally are neighbouring organisations, and what are the options for shared services – IT, legal, HR or finance? And how should the shared services organisation be set up, both physically and legally? Given current pressures, organisations cannot afford to spend years pondering these issues. So what is the way forward?
According to Stalberg, the key is recognising the opportunities around shared services, from sharing offices to procuring new IT systems. And while organisations can get better value by working together across a range of areas, finding both the opportunities and a like-minded organisation is the challenge.
Harneck Chilemba is director of finance at Tower Hamlets Community Housing which is currently in consultation with Eastend Homes regarding shared services opportunities, facilitated by Sovereign as their common IT partner. He stressed the importance of looking beyond the obvious services to exploit the full potential of the shared model.
One example cited by both Chilemba and Peter Gibbs, finance director and company secretary at Eastend Homes, is the introduction of voice over IP telephony. The two organisations want to leverage the benefit of a shared IT provider to gain access to far more sophisticated technology as a shared service than either organisation could possibly have justified alone. The opportunity for server virtualisation has also presented the two organisations with the chance to radically reduce costs by sharing a disaster recovery facility. A third example is the shared procurement of applications support resources supplied by Sovereign in return for preferential rates and availability.
Each shared services organisation will be based on a different set of drivers and opportunities. For STG, one of the key drivers behind its shared services initiative was the need for resilience. Founded in 2007 and originally set up for a five-year term, the partnership, which comprises of the building control services of Gravesham, Medway and Swale councils, has just received unanimous support for a further five-year term because of its success in delivering a high-quality service at lower costs to each council.
The three councils were originally trying to cope with competition from the private sector and the risk of losing both work and resources. Each was small, with no more than 10 staff involved in building control, and hence lacked the capacity required to cope with the demands of, at the time, a strong market.
Tony Van Veghel, director of STG, said, “Coming together as a partnership created a critical mass, enabling the partnership to deliver a better service, with a greater range of skill sets within one organisation.” Furthermore, while the competitive pressures eased significantly in 2008 with the arrival of the recession, the partnership was well placed to mitigate the new pressures facing building control owing to reductions in building work and additional costs.
The results of the partnership have been impressive, with the councils saving 17 per cent in costs – around £250,000 over a five-year period. The next five-year plan has a target to save a further 30 per cent; reducing costs for the councils while also improving revenues through the delivery of a wider range of services.
Van Veghel added, “There are other benefits that can be driven through economies of scale, such as negotiating the terms of HR, IT, legal and financial services agreements that simply can’t be attained as a small organisation.”
Achieving shared services
While these benefits are compelling, the route to shared services delivery is far from straightforward. One of the major barriers is the cultural differences between organisations and a concern that a shared service increases the likelihood of a merger. While this may be the case, the converse is also true; a highly-effective shared service which delivers the objectives of efficiencies and breadth of service many actually remove the need for a merger.
According to Van Veghel, the key to getting the shared services model off the ground is the early engagement of stakeholders. “It is important to demonstrate not only the financial savings but also actual improvements to services. Members want the financial outcome but they also want to improve the services to their constituents.”
He also believed it was vital to bring an independent third party into the process early, not only to assess the viable opportunities for shared services but also to demonstrate to council members that this wasn’t one council taking over the delivery of service to the other two, but a true partnership of the three councils.
There are many shared service models. The right one will be determined by a number of factors, from the number of organisations involved to whether or not the entity will be profit motivated or cost sharing, a decision that will also affect access to the tax advantages.
Van Veghel said, “To take advantage of the tax benefits, it would have to be a purely cost-sharing model, with no profit motive at all. Whereas if you want to expand, and host new services for a number of other organisations to diversify income streams, then you would have to take a different approach and there would be a different ethos.”
The third party was also vital to keep the project on time, with just nine months to deliver the partnership. Van Veghel said, “We had been talking around this for two years but hadn’t actually made the decision. At that point, there were five authorities considering it, which might have been too ambitious. Once two dropped out and we had three councils going forward, we progressed quite quickly.”
One of the key issues that had to be resolved was performance measurement. PML’s Stalberg explained the importance of approaching the measurement of the shared service in the same way a company would approach the commissioning of services from a third party; namely setting service level agreements (SLA), targets and a service baseline, as well as reporting structures for key performance indicators to demonstrates the value being delivered.
It is also important to provide staff with an incentive to support the project. In this case, the partnership has delivered additional training for staff, enabling them to broaden their skills and diversify into other areas. It was also important to assess the changing work arrangements. Stalberg said, “You can’t form a partnership and just carry on running in the same way. You have to look at how you can use that critical mass of people to improve the services to customers.”
In fact, this model has had a two-fold benefit; improving staff commitment and enabling the partnership to add new services, including home surveys and scoping surveys for the housing sector. New working practices now mean that the partnership does a much greater range of inspections from early morning to late evening and weekends – something that simply could not be achieved by the individual, smaller units. Importantly, this has enabled the partnership to weather the recession; as demand for building regulations work declined, the same resources could be deployed in other areas.
Van Veghel said that as a result of the efficiencies and improved services, and the additional staff skills which have led to increased income streams, the partnership is now delivering a balanced budget, in contrast to many building control departments.
It is clear from the experiences of the STG Building Control Partnership and the opportunities being assessed by Tower Hamlets Community Housing and Eastend Homes that taking a broad and flexible approach to shared services has real value.
The reality for housing organisations facing radical demands for cost savings is that it is now time to move beyond assessing whether or not shared services is a viable route forward. It is time to leverage growing market experience to determine how to get the best from a shared services model.