SHARED SERVICES Costs, Benefits, Opportunities

1. SHARED SERVICES Costs, Benefits, Opportunities Presented by DAVID SPEARRITT Director

2. Trends - private sector - public sector - service trends Basic rationale World research Downsides Success stories SSP requirements SHARED SERVICE PROVIDERS

3. PRIVATE SECTOR TRENDS • From - Centralisation • Then - Decentralisation • Now- SSP’s • And – Outsourcing • (selective and whole)

4. PUBLIC SECTOR TRENDS • NSW - State Govt • VIC - State Govt • QLD - Wide use of SSP’s • Local Government

5. SERVICE TRENDS • Transaction processing v value adding • Service Level Agreements (ICC 20% cost reduction) • Outsourcing whole functions • Specialist outsourcing • BPR reduced transaction costs • e-commerce/e-business Continued...

6. SERVICE TRENDS (Continued) • Mega systems development • Application service providers • Policeman v consultant role • Rules / procedures v service

7. SSP RATIONALE • Economy of Scale • Reduced costs • Greater skills set available • Reduced system development costs • Purchaser focus on core business • Facilitate purchaser restructures / volatility

8. WORLD RESEARCH • Joint arrangements between agencies • Best for - simple or technical functions - traditional activities - routine operations • Poor for - - complex policy / political issues - variable/ high change activities (note: many Corp Services deal with complex policy/political issues)

9. Rocky Road to Reform • Article - 1997 CPA Journal • Commercial reforms into PS • Need specification & Contract mgt skills • Lacking in the PS • PS accountants prime role in providing commercial skills • Distracted by external reporting/compliance requirements

10. Australian Developments • Victoria • Was -Compulsory Competitive Tendering • Now - replaced by Best Value • Some States took legislative approach • NSW – Rate Capping/ Amalgamations etc • Qld - greater accountability v regulation • SA – IT/Corp Serv SSP by Local Govt Assn • Breakdown in LG Purchaser/Provider CS • Cost Shifting Inquiry – Amalg/SSP/KPI’s

11. Overseas • Corporatisation very common – larger businesses, esp developing countries • Cash accounting – limits effectiveness • NZ – LA Trading Enterprises (LATE’s) • Recent reforms to increase accountability • Less Corp Serv SLA’s & purchaser/provider • USA – • Widespread market testing/contracting • Cash accounting and no competitive neutrality • Lakewood –virtual organisation

12. Overseas (cont) • UK- CCT initially • Commercialisation plus market testing • Compulsory Competitive Tendering (CCT) • Direct Service/Labour Org’s (DSO/DLO) • Eg 70% of IT, 30% of HR must be tendered

13. UK Best Value • Now replaced by Best Value • 4C’s: Challenge, Compare, Consult, Compete • (CCT still required in specified areas) • Comprehensive Performance Assessment • Audit Commission review • Performance Indicators • Best Value Accounting - Code of Practice • Overall Council assessment (Poor ->Excellent) • Called ‘regulated accountability’ • Replaces/extends ‘regulated competition’ • DLO/DSO’s being disbanded -> integration

14. UK Best Value (cont) • What is the council trying to achieve? • Ambition/ Focus/ Prioritisation • Delivery of priorities • Capacity/ Performance management • What has the council achieved / not achieved • Achievements/ Investments • Future Directions • Learning/ Future plans

15. LG Efficiency Drivers

16. Worldwide trends • More emphasis on Accountability • Use of regulatory drivers & inspections • Convergence on comparative performance indicators (but no theory behind it) • Outsourcing service deliv/specialist CS functiions • Corporatisation of larger businesses • Accrual Accounting worldwide (IFRS, etc)

17. Queensland LG trends • ABC-MAP Trilogy by LGAQ • A = Accountability and Governance • (LGAct Councillor responsibilities poorly implemented –> focus on strategic/policy) • B = Business Management (BMAP) • C = Community Consultation/ Corp Planning • Similar to Best Value 4C’s, without inspections

18. CONDITIONS OF SUCCESSFUL JOINT ACTION • Joint action dominated by officers is likely to be less problematic than joint action dominated by politicians. • Formal machinery is often less effective a channel of joint action than informal networks. • The more likely it is that financial benefit will come from joint action to a particular agency(or the less likely that significant costs results) the more likely it is that joint action will be successful. Continued….

19. CONDITIONS OFSUCCESSFUL JOINT ACTION (Continued) • Joint action is easier to achieve over joint studies and the joint operation of an already established operation than over joint planning, policy-making or resource allocation. • Joint action is easier the smaller the number of interests there are involved, and the more compatible the interests of the participants are. • Joint action is easier to initiate in non competitive viz-a-viz competitive situations. Continued….

20. CONDITIONS OFSUCCESSFUL JOINT ACTION (Continued) • Joint action is more likely to be effective when it is voluntary rather than imposed; and in more general terms invariably reflects the circumstances of its creation. • Joint action is easier over matters of administration and technical detail than it is over matters of high political salience.

21. SUMMARY OF CONDITIONS “Joint action is neither intrinsically difficult or conflictual, nor is it intrinsically straightforward and productive. It all depends on the circumstances surrounding it and, in particular, upon the attitudes and interests of the key participants”.

22. SSP DOWNSIDES • Policy / value added retained by purchaser • Sweatshop SSP • Staff turnover v career development • Relationship management costs • Governance structure arguments Continued….

23. SSP DOWNSIDES (Continued) • Less personalised service • Information ownership / control • Service specification problems • Purchaser over-reactions (us/them) • PS myth of hostile purchaser/provider

24. SUCCESS STORIES • Bottom up SSPs (facilitated purchaser volatility) • Debt mgt(technical - non political issues) • $ Investment(technical, non political) • Major new facilities (eg Ent Centres)

25. CAA CASE STUDY • Arts Portfolio • Professionals, not slaves • Business system strategy • Fit for purpose • Client service standards

26. SSP REQUIREMENTS • Quality systems and processes • Opportunity to improve before reducing costs • Professionalisation / skills • Relationship management • Good Service Specification / SLA Continued ….

27. SSP REQUIREMENTS (Continued) • Decision support • Pricing signals - behavioural issues • Partnership (not abrogation /hostility) • Workable Governance structure • Transparency and accountability

28. COMMON MISTAKES • Capturing savings up front • Costs > Service • Poor client relationships • One size fits all • Priority to “owners” clients

29. ISSUES TO BE RESOLVED • Tied versus voluntary clients • Service Culture • Matching contract term to service needs • Information ownership • Staff location • Cost reduction or dividends

30. CONCLUSIONDoes Size Really Matter? • Service > size • Service > costs • Service is what matters • Size is only one factor • It all depends on how it is used

31. Further Information • See Orion’s website www.orionco.net • Best Value • Australian, and International Comp policies • Queensland documents/ guidelines • Performance Indicators • Accounting • This presentation Or contact David on 1300 767 466 or david@orionco.net