Taking an M&A approach to public sector cost-saving
As part of his Comprehensive Spending Review George Osborne has asked Whitehall to save £15bn in the next four years.
Civil servants are under no doubt about the scale of the task at hand, but some radical thinking is required if this target is to be achieved. However, the public sector can look to the private sector for some inspiration.
The question I ask is: could a merger and acquisition (M&A) approach be applied to Whitehall, in the context of the shared services agenda?
Let me explain how this could work. If a private sector company was looking to acquire another organisation, it would have a clear view on where the value sat within what it was buying.
When a merger happens, all the ‘lower value functions’ such as finance, HR, payroll and communications, are extracted out and rolled into the larger company. What’s the need for two finance teams when a slightly larger one can perform the same task?
Why not the same for Whitehall? Does each department really require its own HR team, its own payroll team, and its own finance team?
The bottom line isn’t profit; it’s the taxpayer’s pound. As well as stripping out waste, an M&A approach would help distil the real work Government does.
On top of this, sharing base functions across the civil service would free up staff to perform higher value tasks which serve the public need.
From a management perspective, it removes the distraction of running these operational functions. It would allow senior civil servants to focus their time on creating new services and better value for the taxpayer.
And what about technology?
In mergers, IT and technology typically plays a central role in bringing organisations together. It also one of the first things done – email systems merge, companies share wireless networks so employees from the respective organisations can work from each other’s offices.
IT helps extract value immediately in an M&A. And while we’re talking about technology, you could also make the case for all services to be shared and commissioned through a single common platform.
Creating a platform would really fly the flag for intelligent outsourcing. You can then ask the question, is the state the most efficient provider of services for itself?
The role the Government Digital Service (GDS) could (or would) play in this is up for debate. If the responsibility for delivering such a platform fell with GDS it would certainly see it taking on a greater responsibility of IT strategy within Cabinet Office.
What are the other barriers to this happening?
Realistically, I feel there could be a degree of inertia. There are economic arguments to be made for retaining employment, for instance. A number of departments have had to reduce headcount significantly already – down 15 per cent since the 2010 election.
It’s an inherent risk that would need to be addressed if you were to looking at how centralised services can be delivered as a whole.
On way could be altering the focus and roles of senior civil servants are rewarded. By taking away the need to worry about operational issue, it would free up the governments top talent to create new services and deliver more value for taxpyaers.
Alternatively, senior civil servants could become more like commissioning agents within departments – looking to outsource services that are more expensive to run in-house, while pooling resources from other departments where required.
Another way of doing this would be to share a common finance system across a group of organisations, then devolving responsibility across it.
At the heart of this is the principle of learning lessons from the private sector, in order to create higher value public services.
For large organisations, the most cost effective way of doing business is using a common pool of services.
Government departments haven’t had to deal with such a big real-term reductions in budgets until now, compared to their colleagues in local government. If these savings are to be achieved, shared services offers one of the solutions.
Photo credit: Howard Lake
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