Shared Services And Outsourcing As The Route To CSR Budget Cuts

Besides being a rather unusual date, 20/10/2010 represents something of a watershed moment for public sector organisations around the UK. It is the date of the coalition government’s first Comprehensive Spending Review (CSR).

On Wednesday, Chancellor George Osborne will reveal the ‘austerity measures’ that he hopes will cut the public spending deficit. That end point is likely to require a prolonged journey with many pain points along the way.

Osborne wants to cut the structural deficit to zero by 2015-16, which will require spending cuts or tax rises of about £86bn (see further reading, below). The majority is likely to come from spending cuts and while spending on the NHS and overseas aid is protected, remaining departments have been asked to demonstrate how they would make between 25% and 40% cuts.

So, how will public sector organisations make such dramatic cuts? Expect to hear watchwords like consolidation, centralisation, collaboration and combination with public sector bodies expected to find smarter ways to make joint use of existing resources.

Evidence of such thinking comes in the form of already-made administrative cuts. The commonly cited ‘Bonfire of the Quangos’ has resulted in the abolishment of 192 public bodies and the merger of 118 organisations.

Evidence also comes from the political stage: “Councils must fundamentally re-think their finances” by merging services with neighbouring authorities, said communities secretary Eric Pickles at the recent Conservative Party conference.

For public sector managers, especially those responsible for ICT, outsourcing and shared services will be crucial to achieving CSR cuts. Shared services represent a model for the efficient use of IT services, where public sector departments and organisations collaborate, thereby sharing resources and the associated costs.

Shared services avoid replication across various departments and organisations. Public sector organisations should also consider external outsourcing as a cost-effective alternative to in-house capability.

Research by consultant PwC suggests that hard-hit public sector organisations will reduce IT operations through outsourcing. In addition, researcher BMI states such external provision will produce growth in the service sector as more organisations outsource their business processes and application functions.

Organisations that decide to outsource need to take a systematic approach and ensure that cuts in one area do not produce cost increases elsewhere. Whether sharing or externalising service provision, the approach must reduce complexity, increase efficiency and ultimately cut costs.

Dean Dickinson is Managing Director of Advanced Business Solutions, formerly COA Solutions. Dean has been in the finance software business since 1990. He was part of the senior management team at QSP/Arelon prior to the acquisition by COA Solutions at which time he became Deputy Managing Director for the business as a whole. Since the acquisition of COA Solutions by Advanced Computer Software Group in February 2010, Dean has become Managing Director for Advanced Business Solutions. He is a specialist in consultancy and has a strong knowledge of business processes within a high volume/high value environment.