By: Daniel Jones, Partner, EMEA
After a year of investigation the Operational Efficiency Programme report appeared. The first paragraph states:
“In the current economic circumstances businesses are facing up to real challenges of cutting costs in order to stay in business and emerge stronger from the downturn. The public sector needs to do likewise, looking for savings in addition to the routine savings departments are expected to make each year, so that the Government can continue to invest in excellent public services while maintaining sustainable public finances.” (Operational Efficiency Programme Final Report April 2009 – © Crown copyright 2009)
Those delivering public services, whether they are in-house operations or outsourcing suppliers, will no doubt be wondering if this is an opportunity or a threat. In the areas of back office and information and communication technologies (ICT), the report points to an estimated annual savings of around £4bn and £3.2bn respectively. It also recommends that these amounts be taken into account when determining future funding settlements.
External service suppliers can expect to come under pressure to reduce costs in some way. This may not be a straightforward task for the customer to achieve, since the supply side is experiencing hard times. Suppliers, particularly those who might be struggling to deal with the downturn, are unlikely to accept lower revenues and margins without a compelling set of reasons. Our experience shows that a robust approach is vital to ensure the right outcome is achieved.
For in-house operations, one possible future is to be merged into some form of shared service operation, either with other public sector bodies or with a commercial partner. If this is not the path chosen, then transformation will be the order of the day. Whatever the approach adopted, change needs to happen.
Will the programme drive new outsourcing contracts? Interestingly, there is only passing mention of a potential increase in outsourcing as a means of achieving the estimated 20% savings. In the ICT area, the mechanisms for cost reduction, defined in the report, are to:
· Improve the collection, reporting, benchmarking and review of data on IT spend across the public sector;
· Strengthen the governance of IT- enabled change projects;
· Strengthen Gateway assurance processes for all IT- enabled change projects;
· Implement portfolio management processes to prioritize projects and resources and to reduce overlap and duplication in IT- enabled change projects;
· Promote greater standardization and simplification of IT systems, desktops, infrastructure and applications across the public sector; and
· Develop the internal IT capability within the public sector and continue to professionalize the IT function.
The key to success is to remember that the end goal is to achieve the savings. The best public sector organizations will find ways to minimize the pain by engaging with their staff and with suppliers to find innovative solutions. Shared services, outsourcing and standardization are all possible routes to the end result; they aren’t mutually exclusive and should be evaluated as part of a smart sourcing strategy that delivers improved front line services and lower costs at the earliest possible date.
So are the conclusions from the report an opportunity or a threat? Well, change has to happen, and for those who see change as opportunity, it is now knocking loudly.
The full report is available at: www.hm-treasury.gov.uk/vfm_operational_efficiency.htm
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