Service delivery with savings: averting an outsourcing Groundhog Day

By Paul Bradbury, business development director, Civica Local government chief executives and heads of finance might be forgiven for thinking it is Groundhog Day. Assailed by sweeping efficiency targets and pushed towards sharing resources, senior executives know their workforces still face sky-high public expectations, a mountain of reporting and localism initiatives driven from the centre. Private firms assert that large scale outsourcing is essential to balance local services with vital cost cuts. Shared service plans are drawn up but tensions over who takes control and who gives ground, remain. Is it 2005 all over again? Or 2010? Or could it even be 2015, with finance directors having little choice but to sanction further large scale outsourcing of services to meet the new Governments next stage deficit reduction targets? Is local government history repeating itself when it comes to seeking ways to balance service enhancement with cost efficiencies? Will private sector providers again build service delivery systems that dont quite fulfill communities complex needs? Will finance directors continue to worry that expensive technology innovations still havent delivered the promised transformation of both services and transaction costs? Options for change Aware that local authorities and their public sector partners reviewed their options long before the Coalition set out its plans, Civica wanted to re-examine these questions. Working with public finance accountants body CIPFA, it wanted a snapshot of the likely scope for innovation in the austerity economy of 2011. In particular, it wanted to see if senior management judged that new approaches especially outsourcing and new service delivery mechanisms were becoming a widespread and practical proposition. To test these ideas, the company sponsored a CIPFA survey into 328 finance managers in local government and the wider public sector to gauge their thinking. The study revealed a wide spread of in-house, shared services, partnering and outsourcing strategies in response to the Coalitions radical agenda. Most organisations have adopted the principle of outsourcing or managed services involving different providers. While 61 per cent of public bodies mainly relied on in-house provision of services, nearly one sixth (16 per cent) are mainly or substantially using outsourcing to private sector for service delivery. Public organisations have certainly embraced the sharing of scarce resources to maintain service resilience or reduce their service costs. Over one quarter of respondents (27 per cent) is sharing services with other public bodies. There were also variants on sharing: nearly one in four 38 per cent of interviewees said they were using a range of local partners. The survey showed that public sector managers have not involved charities and social enterprises in service provision to any real extent, despite the Governments promotion of community self-help. Only five per cent of organisations were using social enterprises and only six per cent were relying on outsourcing to the third sector for service provision respectively. Big Society-style provision of local services seems a distant prospect, except for specialist projects such as health care or community action. Reviewing the findings, Ian Carruthers, CIPFA director of policy, emphasised the pragmatism of finance managers in redefining services, noting: New methods of service delivery are important for public

bodies at a time when they have to change the way they do business. But they will not provide easy or quick wins. Further work still needs to be done to overcome the legal, structural and governance problems associated with social enterprise models to make them viable choices. Outsourcing with control For many organisations, the argument doesnt hinge on the principle of outsourcing or ways to combine resources. The key question is how to secure real Government support to embed change in the organisation or ensure that operating new delivery arrangements for the citizen remains viable over time. And following the migration to these new service models, how will executives retain control over and monitor performance? And how will they do it without doubling their reporting workloads as they keep tabs on local services and the partners and outsourcers that will assume responsibility for them? Nearly all the survey panel members strongly agreed or agreed that investment is needed to set up new delivery methods (83 per cent). Similar majorities think the public sector needs to look ahead and change the way it does business with its customers (82 per cent) and critically, that Government needs to provide enabling frameworks to allow new methods of service delivery to succeed (74 per cent). The need for clearer frameworks for delivering services with multiple partners and suppliers is clear. Respondents were asked how will new governance and higher performance targets be maintained as a raft of new service arrangements and partnerships is developed. The great majority of interviewees 94 per cent said that outsourcing bodies should be subject to performance and transparency standards. Even more wanted to apply the same broad controls to operate across central government and different organisations: 95 per cent stated that decentralised bodies should also be subject to the same supervision. These findings highlighted finance teams concern over making transformed services financially viable and sustainable. This will be essential as public organisations size up service redesign, extend sharing agreements and pursue innovations, all required at breakneck pace. Finance professionals think that reforming services needs a stronger governance blueprint, better funding, and more transparency is needed in setting up in outsourcing agreements. IT scope for new service and efficiency strategies? The survey then looked at possible technology breakthroughs in uprating service and driving down costs. Second stage research narrowed the focus to 117 of the finance managers with a particular interest in IT. Researchers asked them if technology systems were now able to deliver the necessary enhanced services and efficiency gains with some surprising results. Asked if IT could make the breakthrough in driving productivity increases in back office or front line operations, nearly half 47 per cent said technology will help a lot, and another 40 per cent comparatively, making 87 per cent overall. However, there was clear scepticism over technologys ability to change services for citizens: nearly one third said IT would help a lot but nearly half 44 per cent said only somewhat. The slow climb from recession is hindering innovation too. The current economic climate is holding back public bodies investment in their IT projects. Over half (56 per cent) were finding it quite or very difficult to justify funds for this type of activity.

Researchers asked the IT-minded finance managers to name their top five priorities for making savings in the next two years. Sadly, staff reductions headed the list of priorities, being the highest cost in the public services (stated by 74 per cent of interviewees), followed by re-engineering their organisation (65 per cent), shared services (44 per cent), asset/property reductions (43 per cent), and more customer online access (24 per cent). The drive towards re-engineered public organisations that provide services with reduced workforces and with a range of different outsourced operations, appears inexorable. The research confirms the view of many that public sector organisations are adopting a range of intelligent responses to rethinking services and saving costs in times of austerity. Many local authorities are well aware of the weakness of previous, large scale outsourcing to the private sector with high profile cases of services going back in-house. The difference this time is that heads of finance and their chiefs will require partnerships and flexible capacity models that are much more adaptable to local service needs. Public bodies want more transparent governance and more imaginative performance agreements. We are starting to see councils working with partners that specialise in tasks such as assessing local populations needs using business intelligence tools. Other suppliers are building dedicated business process hubs to streamline the delivery of discrete service areas such as revenues and benefits, with these innovations complementing existing departmental activities or traditional outsourcing systems they use. Frameworks for innovation Finance managers understand the need for different workforce and outsourcing options to meet heightened public expectations. However, these executives seem agreed that wishful Government Big Society thinking or over-ambitious sharing services plans can be put to one side. The real route to achieving the Coalitions service-efficiency goals lies in public organisations being allowed more effective frameworks with which to re-engineer their services. These new resources in turn have to be backed by practical financial support from Government as well as more streamlined governance and reporting systems. Legislation allowing councils to keep proceeds from services hosted for other authorities would certainly stimulate innovation and the development of hub-style services over time. Moreover, the application of technology systems to transform processes and service costs is critical too, but only when delivered in agreed frameworks and by public and private partners that fully understand public organisations needs. These suppliers must also operate using highly transparent agreements. The ability for councils and other public bodies to embrace change but learn from previous experiences of outsourcing and service partnerships, will be critical to meeting local needs and savings. It will also help avoid another case of local government Groundhog Day. Ends 1491 words