Train Routes

As far as job titles go, ‘Historian of the Future’ is an absolutely doozy. However, as one of the leading practitioners of this fascinating trade, Dr James Bellini, can testify, the description can lead to a few misunderstandings: he is most definitely not, for instance, a magician.

“Let me be clear: I don’t have a cloak, a pointy hat and a magic wand,” Bellini jokes – and he absolutely can’t tell you who’s going to win the 3.30 at Ascot. What he can do, however, is draw upon a career spanning decades of research and analysis, networking and award-winning creative endeavours to produce assessments of the likely state of the future which are as informed, and as entertaining, as any you’ll encounter.

When SSON meets Bellini, the good doctor – whose PhD “in military stuff” came from the London School of Economics – has just finished presenting to the 8th Annual Shared Services Week in Sitges, near Barcelona. His talk – the first plenary of the event – has ranged from early corporate history, via demographic change in modern Europe, through ‘Gutenberg 2.0’, to the rise of a new wave of consumers and the hiring challenges posed by the emergence of ‘Generation C’– and he’s scattered some pretty brain-bending statistics along the way.

For example, those of us in the audience now know that by 2040, if current trends are maintained, Italy will have 20 million fewer inhabitants; that “in 1965 there were 10,000 people for every computer, but by 2015 there will be 10,000 connected devices for every person”; that “over 50 per cent of people on the planet have never made a phone call”; that by 2020 Japan will be the oldest society in the developed world, and the USA will be the youngest.

It’s from a vast archive of such data, analysed through methods many years in the perfecting, that Bellini is able to create the “works of informed imagination” that make up his futurological output. Facts and figures, he says, are the currency of futurology and he declares that, magpie-like, he “will steal anything without remorse” which will contribute to his understanding of the myriad forces shaping the times to come.

This understanding has developed over the course of a distinguished and varied career which has seen Bellini finding success as an academic, a think-tank analyst, a reporter and TV presenter, an author, a narrator and, of course, a public speaker. If, however, this suggests chameleonic professional tendencies to accompany his corvine approach to data, Bellini’s wry grin, penetrating stare and uncompromising wit mark him out as resolutely human – as does his unwillingness to pander to social niceties: his latest book, tackling corporate deceit and the pervasiveness of misrepresentation in the business world, is appropriately titled The Bullshit Factor.

Bellini moved from university (St John’s College, Cambridge) into advertising, among other roles – but it was in Paris as the first British member of the highly regarded Hudson Institute (co-founded by Bellini’s early mentor, nuclear strategist Herman Kahn) where he won his spurs, and plaudits, with a series of predictions for major European economies, starting with France. He and his colleagues were a long way ahead of the curve in foreseeing the French economic revival of the 1970s and ‘80s, and their success did not go unnoticed; brought in by the BBC as a consultant on a similar predictive piece about the British economy, Bellini ended up fronting the program as lead reporter. Perhaps unpredictably – even for this most promising of seers – television, and a modicum of fame, had come knocking.

Although he discusses his successes with disarming humility, Bellini’s career in television left him much to crow about: seven years as a studio presenter with Sky News and Financial Times Television; stints presenting Panorama, Newsnight and The Money Programme; and a host of awards including the Prince Rainier II Prize at the Monte Carlo International TV festival and a special award given by the United Nations for his work on the epic documentary series The Nuclear Age – as well as rather less glittering roles such as presenting a TV version of Cluedo. Meanwhile he continued to predict, to analyse – and to publish, with a series of well-received tomes reaching the shelves from the 1980s onwards.

By now Bellini had established a reputation as one of the most perceptive and intuitive pundits on the current affairs circuit, and the step to public speaking to compliment his flourishing literary career was a logical one. His natural flair for business (he has served in executive positions for numerous companies) and for communications, combined with his specific spheres of interest, mean that – although he’s just as happy to present to the likes of Greenpeace “for a cup of tea”- his natural constituency consists of relatively high-powered businessfolk with a vested interest in understanding the foundations of the future (exactly the kind of people attending Shared Services Week, in fact).

And some future it’ll be. Bellini paints a fascinating picture of societies, businesses and economies on the brink of truly fundamental change; while he maintains that in general “nothing is ever really new – it might be different, but it’s not new”, at the same time he posits developments which, in terms of the way organisations are structured and run, are as new as anything which has preceded them since the Stone Age.

“Shared services is not the sexiest area of management, but it’s one of the most important. It is about creating things which haven’t been seen before in business history: internally profit-driven services. This is not, however, truly revolutionary: yet in the next 10-15 years I do see a revolution, a period comparable with the beginning of corporate history,” he says. “We’ll see as much change [in organisational structure] in the next 15 years as we saw in the last 5,000.”

A major facilitator for this restructuring is, of course, the globalising information revolution, which is occurring at a mind-boggling rate.

“The pace of change is becoming a lot more compressed… Moore’s Law is probably already out of date. We have to generate new words to deal with the rate at which information is growing,” he says, citing as an example the rise of the “exabyte” – one billion billion bytes or, in more antique terms, one trillion big books full of data.

The implications for business of this staggering acceleration of development are, of course, manifold; but Bellini sees one of the most crucial impacts taking place in the field of recruitment and HR, and beyond that in the way business itself is conducted on a personal level.

“The people you employ in future will be very different from those you’ve employed in the past,” he cautions. “Your future talent comes from what some people call Generation Y but I prefer to call Generation C” – the connected, communicating, completely digital creator-generators currently en route to adulthood.

“They are digital natives, very different individuals, living, educated and working in digital spaces. Sharing is instinctive among them… It’s not about being selfish but about cooperating in effective, efficient ways.”

Bellini believes that the arrival of this generation will force employers to reassess age-old practices such as recruitment, interview techniques and training. After all, this is a generation with a decreasing attention span but a marked increase in the ability to multitask and shift from one task to another very quickly; if a trainer begins to lose the attention of his or her trainees, Bellini asks, who will be to blame – the trainees, who have developed in a fast-changing, rapid-fire digital environment, or the trainer, who has not? The answer is implicit in the question, and Bellini warns that companies expecting their new recruits to bend to an established, ‘old’ modus operandi will find themselves left behind: “the talent war will become more acute,” he says, and it’s a war no company will be able to afford to lose.

The nature of employment itself will also change, the doctor reckons. Long-term contracts in fixed locations will become increasingly obsolete; the future will be made up of task-based employment of “clusters” of employees coming together to address specific needs, offering complementary skills for comparatively short, intense bursts of productivity – often working at distance from homes around the world.

For older employees such a shift might represent a vast challenge and perhaps an assault on traditional comforts such as job security; for the digital natives of Generation C, however, such practices will be second nature – and Bellini uses the example of Hollywood film production, which has been from the off a task-based environment, as how businesses and entire industries can work on a different, and potentially formidable, model.

The future will also bring us a very different consumer class, Bellini promises. Societies are getting older, and the old are becoming more affluent: in the UK, for example, in this “New Age of consumers” over-50s already own over 80 per cent of the nation’s assets, and the country has reached a tipping point when there are more retirees than there are children. Meanwhile family sizes are decreasing, creating a growing deficit in the workforce of the future: we are approaching the “post-kids future”, Bellini says somewhat ominously.

“This has huge consequences for everyone,” he says. “Take R&D: the reason cars are the way they are, with four seats, is because the nuclear family model was the dominant one when car design was at its most dynamic. Four family members required four seats. Now the nuclear family is not the dominant model: what will the layout be of the car of the future? Or take cereal packets: they were sized for a nuclear family. Now that size is no longer appropriate.”

Different needs require different provisions and Bellini urges today’s companies to plan properly for a very different breed of consumer. The older generation – which will live longer than any in human history – will have different high-value requirements which will need to be met; meanwhile, the younger generation will be comparatively less affluent but will have very different needs and will expect those needs to be met in very different ways. Marketing, design, sales: all will have to undergo their own revolutions.

“There is a conversation going on, a huge worldwide conversation. You will not control this conversation, though it will be about you and will impact upon you,” he cautions. Of course, this lack of control might terrify many businesses and practitioners – especially those in shared services for whom maintaining the right level of control over processes is such a fundamental aspect of the job – but it also represents a unique opportunity.

If, as Bellini assures us, the next few years will see us having to “revisit the idea of how to think”, such reengagement with processes and the reasons behind them – driven in no small way by the digital natives making up the next generation of employees – will surely lead to sweeping changes in almost every aspect of doing business. The cost and efficiency savings currently held up as world-class by leading shared service practitioners could pale into insignificance against the benefits – tangible and intangible – brought by new approaches to the very raison d’etre of business and the economy, and by the technological revolution whose ultimate consequences even this most esteemed of futurologists can only ponder from afar.

As the financial crisis continues to grip markets and businesses worldwide, is there any clarity as to the consequences for the sourcing sector? The Shared Services & Outsourcing Network hosted a roundtable debate looking at the short- and long-term impact of the turmoil on the sourcing space; online editor Jamie Liddell was joined by some of the keenest minds in sourcing to analyse the possible repercussions, the potential winners and losers – and steps industry players can take to minimise the impact on their businesses.

Attending were:

Charles Aird Senior Managing Director of Outsourcing/Shared Services & OffshoringPricewaterhouseCoopers

Phil FershtResearch Director, BPO, Offshoring & IT ServicesAMR Research

Katherine Kawamoto VP Research & Advisory ServicesIACCM

Tony Rawlinson Managing Director, Financial ServicesEquaTerra

Brian D Smith Partner & Managing Director, Financial ServicesTPI

Dr. Thomas Tunstall Advisory LiaisonACS

SSON: Let’s kick off with the immediate future: how do you see the short-term impact of the financial crisis playing out across the outsourcing sector?

Brian Smith: I think we’ve seen we’ve seen some impact here already; people are starting to think carefully about discretionary projects, particularly in the application development space. But we’ve seen less impact on day-to-day BPO-type activity which is outsourced and offshored, I think largely because the financial crisis has had more of an impact on credit and the capital structure of organizations, and less impact at this point on operating volumes.

I think what we’re seeing is a slowdown in discretionary activity – but that will pick up again at some point as people get back to realizing their projects to execute against – and then the string of mergers that are taking place particularly here in the US as well as in Europe is obviously going to spawn a degree of activity in restructuring. I think that will impact the captive side of life; I think we’ll see more activity there. So my thought would be that we’re going to see a lull followed by a large amount of activity.

SSON: To what extent do you think the mergers that have taken place have been driven directly by the crisis rather than having already been in the works?

Brian Smith: I would say most of the big mergers that have taken place here are directly related to the financial crisis. I suspect very few, if any, were even on the cards three months ago.

Tony Rawlinson: Picking up on that, I think we see the economics at the moment both disrupting and driving outsourcing. On the one hand there’s certainly a disruption in the short term, an impact on project budgets, a deferral of capital expenditure, a deferral of all but mission-critical projects especially in financial services. Conversely our view is that the credit crunch and economic downturn mean that structurally outsourcing and offshoring are even more useful strategic tools going forward.

I’d share Brian’s view that there’s going to be a short pause before the true implications of the market crystallise, and then a forceful push for cost-reduction – but also a recognition that the winners now in recessionary times are going to turn their service delivery model into something that’s a lot more flexible. I think the winners in recessionary times will already be thinking about their sourcing strategy for what comes after the recession; the flipside of flexibility in a downturn is a need to switch on as the upcurve starts again.

SSON: You said a short pause: how long do you think that short pause is going to be?

Tony Rawlinson: I think it’s going to be market-specific; my sense is that the US is further through that process than the UK and continental Europe. Some institutions are still, frankly, focused on survival – I’m going to meetings with institutions that are clearly worried about their continued existence – but over the next month or so we should have a lot more clarity. The other interesting flavour of course in the US, the UK and increasingly in continental Europe is the impact of the virtual nationalization or semi-nationalization of some institutions; we see that potentially impacting the political attitude to offshoring at a time when offshoring is clearly going to help address the short-term cost objectives of some of these players. So there are some interesting forces at work here, some of them pulling in different directions, and I think all will become a lot clearer over the next few weeks.

Phil Fersht: There are some interesting discussion points here and I’m inclined to agree with them. We went out of our way to speak with 44 of the major US financial institutions over the last two or three weeks to really gauge what their short- and medium-term plans are with regards to embracing outsourcing, and naturally the short-term focus is very much on stability and understanding how the hell this is going to play out for them. Taking 20 or 30 per cent off the bottom line is a nice-to-have, but at this moment just knowing you’re going to be around is taking precedence. However, the way things seem to be moving, I think people are going to have a pretty strong idea in the next month about stability, about M&A – I think we’ll see a lot of the M&A start to happen in the next few weeks as this thing starts to settle down a bit – and then the process is going to move on towards further optimization in the back office, further means to find cost-containment and broader–scale strategies.

In addition to that, there’s definitely a change in mindset amongst the finance operations leaders in terms of embracing outsourcing as a strategic vehicle for longer-term plans to cut costs – and being perceived to do so. When we spoke to these institutions, 40 per cent of them said they were going to increase their spend and their impetus towards outsourcing in the next 6 months and only 15 per cent said they were going to decrease that. And when we break that down further, it’s the banking sector that has the strongest impetus to increase outsourcing; nearly half the banks – all the usual suspects going through this meltdown right now – said they were increasing their impetus towards outsourcing, and only 10 per cent were decreasing. When we get into other areas like insurance it’s a much more neutral effect; it’s definitely the banking sector that’s driving this.

When we get a bit deeper into the actual specific areas they’re looking to get quick hits from, it’s the bread-and-butter areas of outsourcing which don’t require massive amounts of upfront transformation, where they’ve already done some educational exploration and some evaluation, and it’s areas like banking BPO, application outsourcing, and F&A BPO that are clearly those that are going to offer the lower-hanging fruit opportunities. Taking the areas like core financials, core HR, bringing them out into third-party models quickly and effectively, is where we see a lot of activity in probably the middle of Q1, Q2, Q3 next year; we’re expecting to see a big spike in contracts being signed, but we don’t think they’re going to be very large contracts, we’re expecting to see a lot of small-to-medium-size contracts as companies try and move quickly into engagements that are more workable.

The short-term areas that we’re seeing a drop-off include areas like IT infrastructure. Any IT staff augmentation projects seem to be a negative right now; anything discretionary is definitely being put on the back burner; things like HR outsourcing are definitely being put on the back burner in the near-term as companies look to have quicker, more impacting areas to move into. Then when we look at the sort of 6-to-12-month timeframe, we see a much stronger bend towards things like mortgage BPO, or even HRO coming back, and areas like staff augmentation have to come into play. When you think about Wells Fargo and Wachovia merging, that’s a ton of systems integration that has to go on. Wachovia had a very broad, well-documented BPO and ITO strategy, Wells Fargo is not traditionally a big adopter of broad outsourcing, so how are these companies going to align? Which road are they going to go down? We think outsourcing is going to be one of them.

SSON: Charles, is this reflected in how your clients are approaching the crisis at the moment?

Charles Aird: I would say yes and no. I think for the traditional back office that everybody’s been talking about, the answer is yes, short-term; there’s definitely a pause, people are trying to figure out what their existence is going to be and it’s taking longer for them to make decisions. However, having said that, we do a lot of work around sourcing with clients in manufacturing, R&D, and other areas both for captive and outsourcing – and we’re not seeing a significant change for those organizations, because, as you’ll find, research shows that the US just isn’t turning out science and technology people anymore – well, I shouldn’t say that, universities are, but people are going back to India and China, to their home countries – and so we don’t have the skills in the US to do a lot of the work that needs to be done for the US economy. So outsourcing’s now embedded in organizations.

Plus we see a lot of organizations that we work with are using outsourcing as a means to penetrate markets that they haven’t been in before, particularly in developing countries; we see those things continuing. But definitely in the BPO, ITO environments – particularly over the last month or six weeks – organizations are loath to spend, so they’re looking for ways – creative ways, which I think probably helps the outsourcing service providers – to finance some of these deals, particularly the upfront part of them that deals with transition costs and may be involved with severance, consulting fees, legal fees, whatever it may be. And interestingly enough we’re seeing some private equity firms with interest in providing some of the finance for doing this transformational kind of thing. So it’s becoming a much more interesting –  remembering the Chinese proverb “may you live in interesting times” – environment to work in and it probably is going to stretch a number of organizations like ours in the consultancy and advisory markets in helping our clients get over the issues that they may be having.

Tom Tunstall: I would agree with that. One thing I do want to comment on, with regard to when we would see things getting clearer, and settling out, I think a month may be too optimistic – particularly considering the fairly massive government interventions taking place right now. I think it’s more likely it’ll be a full quarter before we see clients deciding upon, or being able to strategise around, increased use of outsourcing. The analogy I’ve heard used recently is the deer in the headlights – a lot of companies, particularly financial service firms have been caught off-guard by the depth of the financial turmoil.

I think it’s likely that’s the first-order effect. The second-order effect, we’re starting to see apart from banking is a cascade into insurance as well as other types of organizations. Automotive manufacturers are under stress, and other industries are likely to be affected as well. Probably consumer non-discretionary items are going to be least impacted, and if they are it’ll take the longest to occur. Unfortunately, financial services are probably just the first-order effect. As all of you know this often creates opportunities for outsourcing suppliers.

SSON: So at least a quarter of uncertainty?

Tom Tunstall: I think so. If the markets had been allowed to correct, and to assign prices to the assets, then I think we might have had a sharper downturn but it would have occurred more quickly and we would have started to see some clarity. The government involvement creates more uncertainty and will stretch the timeline out for any sort of recovery.

Charles Aird: Until the credit crisis sorts itself out a lot of clients just aren’t able to get financing for operating capital, so we see clients just hanging onto their cash because of that kind of issue.

Phil Fersht: I think the election plays into this a little as well, in terms of who gets in; are there going to be any immediate strategies on bringing work back onshore? I think that’s another factor.

Katherine Kawamoto: I think what we’re seeing is that some decisions are starting to stall, particularly in areas related to outsourcing, and if companies are going to go forward with an outsourcing operation they’re proceeding very cautiously and are really waiting for the dust to settle. We’re hearing that budgets are starting to be looked at with more scrutiny and are starting to be reduced for the coming year, so some of the projects that people had anticipated rolling out in the first quarter are now on hold; that could be problematic for a number of the companies that we work with.

SSON: Looking a bit further ahead, what do you think will be the impact on the sourcing industry over the next few years? Do we think this is going to lead to a general reorganization of sourcing providers?

Phil Fersht: I think for some of the up-and-coming Indian providers I think this might have come a little bit sooner than they’d wished. Yes, it’s creating a ton of opportunity, but the bigger question is: when the world’s in crisis, and companies are looking to find relationships that can take them to the next level – or that can get them out of this mess – are they willing to take a risk on a provider that doesn’t have a lot of experience. So I think that this might have come a little sooner than some of the providers may have wanted, whereas it may create an opportunity for some of the incumbents to cement their positions so they can ride out the storm and consolidate further. I think we’ll see some really step up and be successful; I think others will drop away quite quickly.

We’ll also see a move towards the ability to augment application development work with BPO, for example. Providers who can really prove that they’ve got their act together bringing together systems architects, business process analysts and application development people to work across broader business goals are really going to be more successful in the long term; those providers that are pure-play process or pure-play IT need to think very seriously about how they’re going to develop their solutions in the coming years.

Tony Rawlinson: I think it’s going to be quite situational. On the one hand firms like TCS – who’ve recently done what I take to be a very attractive deal to buy Citi’s BPO banking operations in India – clearly have a strategy to acquire service lines and scale up, and I think they’ll be successful. There’re clearly signs at the moment that it’s a buyer’s market, and some of the activity we will see will be more selective sales of captive operations – or if not that, certainly selective outsourcing of captive back office processes. I think conversely what we’ll also see emerging will be providers that continue to specialize. Some of the big Indian KPO players will not want to scale up. They won’t want to be reliant on having to make large capital investments. They’ll stick to their knitting. I think service providers with a clear strategy will be those that are successful.

To pick up on the point a minute ago, I think I’d agree too that actually it’s not so much the new deal activity that’s pivotal for a lot of these providers: it’s going to be extending, restructuring, realigning their existing outsourcing relationships with clients, in order to grow revenue for them but also to address client needs. We see a continuation – certainly in financial services – of center-led strategies to outsourcing being successful but conversely there are still a lot of institutions out there that are behaving quite dysfunctionally, at business-unit level or geography level, and those sort of buyers are still a real headache for providers to deal with.

Brian Smith: One observation I would make is that we’ve seen a lot of people looking at moving away from India over the last few months, and starting to look at different locations, and I suspect that this will cause some reconsideration of that because there will be – at least in the sort term – some capability in India that may not have been there previously as things slow down a bit, and this may cause people to stop looking elsewhere. In that sense, for the Indian provider community, this may not be as bad a thing as maybe could be construed.

Charles Aird: I agree with that. I think that the Indian market is not as attractive as it was before, but then I don’t consider a TCS or an Infosys to be an Indian company any more; they’re just as global as IBM as Accenture, and they’ve diversified very successfully into Eastern Europe and China and South America and places like that. But one of the things we’ve seen, just before this hit – and I wonder what the impact is going to be – is that we’ve found clients more comfortable with setting up captives in remote areas, in Eastern Europe, in China, in India, wherever, because of some perceived dissatisfaction with service providers. Service providers are getting spread really thin in their delivery teams. We’re all going for similar skill-sets, whether it’s a major service provider, one of the advisory firms like us and our competitors, or a client with its performance management and governance – and so the thing with service providers is that clients think they’re not getting out of the deals what they expected to, and start to think about going more into the captive environment. So it’ll be interesting to see over the next few months if that continues as a trend – and some of our research has shown that a lot of people are going to more captive – or if they will leverage the financing that I mentioned earlier through service providers to go the outsourcing route.

Tony Rawlinson: From an EquaTerra research perspective we’ve certainly seen signs of a slowdown in the trend to captives. I think we’re beginning to see now – depending on the market and the proposition of the provider – certainly a growing maturity and range of some service provider offerings, and I think I’d expect to see the credit crunch at least make financial institutions and other organizations reassess whether they want to be in the captive game, and certainly in some circumstances – as the Citi example has shown – to focus on core businesses and leverage the growing capability of some of these providers to pick up commodity services, whilst at the same time assessing which of the processes that are in their captives right now give them competitive differentiation, and making sure they hold onto those.

Brian Smith: Tony raises some good points there; we just did some benchmarking of captives in India and observed that the smaller captives – even the medium-sized captives – are not as efficient as third parties; it’s only the bigger ones that can achieve that degree of efficiency, and it tends to be the bigger ones which get sold, as we’ve seen happening twice recently. My sense is that I do agree that people do want to have captives, but sometimes the economics don’t support that decision and sometimes it’s more a politically or risk-driven decision.

Phil Fersht: We definitely don’t see a move back towards captives at all at AMR; it’s been much more of a shift away from that strategy, particularly for captives smaller than 150, 200 staff that are very challenging to run, very costly, and where in many cases the cost per transaction or the cost of managing staff has spiralled out of control. The other issue is finding providers that actually want to invest and buy them. You look at the financial services space right now and the cost per transaction or trade is through the roof at the moment – because you can’t lay off staff very easily in India, it’s very complex to do that – and at the same time these companies want to be more flexible. They want to have a more flexible infrastructure that can allow for future divestitures, and the common thinking is that an outsourced model allows for more flexibility in the future. We’ll see a few selective strategic acquisitions like TCS-Citi, and we may see Lehman and a few of the other captives get snapped up, but I don’t think this is going to be a broad trend. I just don’t think there’s enough appetite to buy all these captive centers. We’re going to see a lot of them being slowly phased out and merged into outsourcing operations. That’s the way we see things right now.

SSON: Are you saying that – without wishing to be too melodramatic – we might witness the slow death of the captive?

Phil Fersht: I think unless you’re a big-brand, well-resourced organization where you want to invest in having high-quality processes running offshore – and a lot of the captives now are very high-quality, they do very good work, they’re just expensive – in a down-market or volatile market it goes against the model of being predictive and being nimble. I think we’ll always have specialist areas remaining within certain captive operations, but I think it’s going to be more in areas like engineering than in back-office, data-analytics, areas like that where we’re getting a proven model. Offshore companies are very good at doing this stuff: it doesn’t make sense to keep it all in-house.

Charles Aird: I would agree with that. When I say “captive” I go back to my definition of sourcing which includes manufacturing, engineering, R&D, and so on, and a lot of the time we see our clients going as captives into China, India, etc, in manufacturing and R&D because again they’re not able to find resources in the US, whereas they’re not as likely to do that in IT or accounting or the F&A processes that are not core to their operations.

Phil Fersht: We were talking with some clients the other day, and a lot of them have reduced budgets for next year in things like IT, and now have no choice but to look at outsourcing models that work for them; anything that is bread-and-butter like core HR, core financials, they’re looking at moving out now, and actually taking industry-specific areas that give them the value-add, that are client-facing, and consolidating that stuff in-house. That’s really where things are moving and I think we’ll see a heavy move towards non-core, non-mission-critical support operations being moved into the outsourced model; I think this economic crisis is just going to accelerate and expedite that process.

Tom Tunstall: I would agree with that. Captives represent something of an opportunity, either as an acquisition candidate, or as a way to put together a creative deal to help clients move to more of a variable cost model.

Tony Rawlinson: The only other thing I’d add – and it’s been a thread running through our conversation anyway – is that a lot of clients have very complex sourcing maps, multi-sourcing, multi-provider landscapes. Some of them have not traditionally been very good at managing these landscapes. So in an era when we’re all agreeing there’s going to be greater pace to selectively offshore and selectively outsource more, the skills that are going to be fundamental to success are going to be around governance and managing these multi-source landscapes. So there’s certainly going to be a need for us in the advisory community to play our part in equipping clients to successfully make that trip.

SSON: Let’s talk a little about locations. We were discussing India a minute ago, and the idea that it might benefit a little from the downturn in terms of people postponing their decisions to move out of the country. Is it too early to pinpoint the winners in terms of locations that might come best out of the crisis?

Katherine Kawamoto: I think it depends on what you’re sourcing. If you’re talking about services, then I’d say whatever country has the largest talent-pool and the lowest wage inflation. From a wage standpoint you could look at the US and claim we would be one of the better countries as far as sourcing goes.

Charles Aird: I think India has a lot of issues that may cause them even greater pain during the crisis. I’ve lived in India, set up centers there, and am very acquainted with the environment there; but over the last few years the retention issues they have, the escalation in wages, and the perceived drop in quality in both IT and BPO, have caused a lot of frustrations with clients. So I don’t see clients knocking on our doors to say “let’s go to India”. More and more they’re looking at alternatives: China, Eastern Europe, South America, those countries that started making inroads into what India has been doing. I think the current crisis may cause even more of that to occur.

Brian Smith: I do think however that this will maybe cause a reduction in the attrition rate in India, which will be a good thing and one that will make people feel more comfortable. We may also see some change in the underlying economics of offshoring particularly from some of the less expensive regions within the US, and making the business case for doing this may get more difficult.

Tony Rawlinson: I think it’s got to be looked at through the lens of what the requirement is, where the point of service delivery is, where the point of service receipt is, and against that backdrop EquaTerra feels that India will continue to be the dominant market for these services. I think they’re going to be helped clearly by the move we’ve already talked about from captive to outsourced; I think some of the weakness in the global economy is going to feed through to lower wage inflation in India which might address some of the frustration that was mentioned a minute ago. We see China maturing but frankly not rapidly enough to be a universal service delivery response, and clearly Eastern Europe has its supporters mainly around continental European customers who take a more conservative approach to risk.

This is very much an Anglophone discussion and we’re seeing the emergence of places like Morocco serving the French market, for instance, and we’ve talked already about Brazil serving the US market. I think overall our view would be that India will continue to be the big player but we’d also see a “horses for courses” approach being taken by clients and a recognition that risk needs to be managed on a global basis: it doesn’t make sense to have all your services running out of one country.

Phil Fersht: I can add a little additional perspective on that: let’s look at the types of services that are being outsourced to different locations. When you look at IT, I think India has developed a very strong position now delivering high-quality programming, application development services, at labor costs often a quarter of what you’d find in places like the US or UK. I think that’s just going to go from strength to strength as that model matures. They have a real industry developing, with strong training programs and very strong footprints. I think a broader area where it’s still an open game is BPO, and when you look at the fact that you can hire BPO staff for $25-30,000 a year in rural areas of the USA, the arbitrage trade-off with India and other countries isn’t that great – and if Obama takes power and gives even further tax breaks to incent countries to onshore, I do think that nations like the US – and even the UK – are still in the game. And I think that that’s going to be the area where we’re going to see some change globally.

Don’t rule out the Latin American countries for providing voice services and employee services and things like that. But I think on the IT side it’s almost a done deal now: I think India has cemented their footholds, they’re moving into the European markets, they’ll develop intelligent resources in the US and the UK and other places to service their clients. It’s more in the BPO area where we’re going to see more variety, and different countries offering different unique characteristics.

Katherine Kawamoto: It seems to me that wage inflation is such a key factor in these decisions; a couple of people have mentioned Brazil, but if you look at the inflation there that seems to be on the rise – or at least is trending in an upward direction. Globally these are really tough decisions to make because the economies themselves are so unpredictable at this point. We really can’t predict with any certainty what to predict in the way of wage increases. As to the point about Obama: I think it will have an impact; I don’t know how soon it will have an impact, however. I’m not as certain that these things will turn around as quickly as some of the panel have indicated. I really think this is a much longer-term issue that we’re faced with.

Tom Tunstall: I think there are some things that – no matter who’s in office – will preclude an easy repatriation of jobs, if you will. With the electronic mechanisms available, some of that stuff is going to be fairly difficult, and frankly a lot of the jobs that do get outsourced are on the lower end whereas jobs created through outsourcing often are managed in the US and tend to be higher up the value-chain. The idea that whoever happens to be in the White House will affect these things greatly is likely oversimplifying things a bit. Global macro effects override a lot of that.

Charles Aird: I think I’d agree with that. I’m pretty cynical about election campaigns – and we went through a lot of this same rhetoric in the last campaign; some of you may remember Lou Dobbs and all of those things. And then we didn’t see a great deal of change. Obama will more than likely win the election – I can’t imagine him not, given the way things are going these days – and I think the issues he will have to face when he becomes president are much larger than what’s happening in outsourcing around the world.

Tony Rawlinson: I think it’s maybe worth looking at this more holistically as well as from a service provider perspective. The Indian players are becoming global players, the MNCs have deepened their investment in India and other low-cost economies. I think the successful service providers are going to be able to load-balance their client requirements across multiple geographies – so actually it’s probably going to be smart in many cases for clients to let the service providers take those decisions and let the economics of the deals drive where the requirements are placed.

SSON: That sounds like another reason to be concerned about the future of the captive model.

Tony Rawlinson: I think so, overall – although we shouldn’t be too black and white. Yet another driver here that we need to look at – and I’m not sure I know the answer to this one – is there have been signs in recent months, until the credit crunch, of wage price arbitrage not being the only driver of offshoring. It was increasingly coming to be seen as an acquisition of capability. So I think potentially what we’re going to see at least in the short term is a reawakening of the wage price arbitrage driver and I do think to your last point that that’s going to be associated predominantly with outsourcing.

SSON: OK, let’s move on. How can people in the industry best mitigate against the worst effects of the crisis in the short-term – what are the easy wins which can at least lessen the impact of what we know is going to be a pretty lengthy downturn?

Charles Aird: Somebody mentioned this earlier: for a lot of clients maybe it’s time to take stock of the relationships they already have, and improve their governance and performance management. We see a lot of organizations that get through the honeymoon period – whether it’s captive or whether it’s a service provider relationship – and they’re not getting out of the deals what they expected to get. And quite often it is those two areas: the governance is poor, the training on both sides between the client and the service provider is really bad, and the performance management is just not up to speed. In the short term, trying to improve the performance of the deals that are currently in place would be an excellent way for a client to go forward.

Brian Smith: I would agree with that. I think that there are many smallish transactions that have been done – small numbers, moved either domestically or offshore – that have never truly been leveraged across organizations because they belong to one business unit or one particular function within an organization, and I think this may prompt people to realise that looking for that enterprise-level direction is something that is going to add value at this point in time, and to get more strategic in how they manage these relationships.

Tony Rawlinson: We see the value-leakage in outsourcing at the front end of the sourcing lifecycle: ie where a client’s got the wrong strategy or the strategy is too distributed across business units. So there needs to be some focus there to ensure that some of the short-termism that will inevitably be around doesn’t lose sight of the need to have a sustainable target operating model. I think the other area, as Brian covered there, is that value-leakage often is most rife around sourcing and management, so I see a continuation of the multisourcing approach. I think there’s an interest in clients to go to best-of-breed providers, but I think as more stuff is outsourced I think that that governance challenge has to be met head-on, and we need to help our clients invest in the right skills to manage these multi-provider landscapes successfully.

Tom Tunstall: One of the things from ACS’ perspective that we intend to do is continue to focus on client intimacy – which to Charlie’s point should help us better understand the landscape and client requirements. The other thing we intend to do is make greater use of business process utility, delivering the same standardized process to multiple clients, our own technology and best practices; those types of approaches in the short term should allow our clients to save money and we think certainly in the near term that’s going to be top of the list: minimizing investment and saving costs.

Katherine Kawamoto: One of the things that we recommend is that now is really the time to benchmark current processes, and redesign if necessary. Certainly if you’re not already outsourcing but it’s something you might want to look at, it’s better to have a good process that you throw over the fence, versus what we’ve seen in the past where people have just given whatever processes existed at the time to someone else to go and sort it out. We are recommending that people do some self-assessments, do some benchmarking, and proceed with a little more knowledge.

Phil Fersht: All really good points here. We spend a lot of time talking with a lot of business leaders about this and the key issue now is for providers and leading sourcing executives to sit down and work out how to create some innovation within an engagement. Innovation doesn’t just mean operationally effective; it means actually finding new ways of doing things, finding ways of bringing together things like application design with business process design more effectively, and building business-level metrics that can achieve that. So how can you incent vendors to deliver business performance, and not penalise vendors for missing their metrics one quarter, that sort of thing.

We’ve seen that penalising vendors doesn’t really work; there needs to be more collaboration, there need to be better ways of managing vendor relationships, and I think it’s up to the intermediaries, the third parties, the consultants, the analysts of this world, to really help drive this conversation to the next level, to really help create more innovative contracts. It doesn’t help when vendors sell deals that are literally just providing bodies to the client, and the client doesn’t really know how to manage them. There needs to be a greater focus from companies on how to do this more effectively.

Look at the Big Four consulting firms; they need to build practices that are specialized in governing outsourcing contracts. I think too many of those companies are too focused at this point on old-style business models, on shared services and things like that. The vendors need to step up, the buyers need to step up, everybody needs to step up and start being more innovative and thoughtful about how this industry is changing and how we can design a curriculum to reflect that.

Charles Aird: One of my concerns is that our clients use consultants too much! And everybody may be appalled at that but: we find that they’re too dependent on us for helping them set up the governance or the deal or the shared service environment or whatever, and then when we go away they’re not able to maintain it, so more and more we’re encouraging them to embed a center of excellence, or a sourcing team – call it whatever you want – into their organizations so that they can take tools and templates that come from us, or others, and then extend them through their organizations over a period of time to be able to do the deals themselves. So that’s a hope. It may even be a dream. Some organizations obviously have been able to carry it off very well in the world, but I think most of them are still struggling around that and, as I say, I think most organizations use consultants too much, and depend upon them too much.

Tony Rawlinson: I’d generally go with that, and I think it’s got to the point now where it’s incumbent on all of us to incorporate skills trends in our advice. I think there’s enough outsourcing that’s going to go on for us not to be too frightened of clients growing their capabilities, and I’ve always been very evangelical about outsourcing only working if it’s properly managed by both provider and client. I think it’s in everyone’s interests at the end of the day.

Brian Smith: A client who’s not doing this and does not embrace the need for them to manage is not going to succeed, and I think we need to help them understand how to embrace that. We need collectively to evolve our way of helping them through that post-deal phase of life and we can do that in many creative ways.

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Sharing services has risen up the agendas of the UK’s national and local governments in recent years, propelled by political and financial trends as well as by more concrete factors such as Sir Peter Gershon’s 2004-5 Efficiency Review and Sir David Varney’s report on transformational government. In an attempt to throw some light on recent developments and to examine where shared services may be headed in future, SSON convened a roundtable debate involving a group of practitioners and advisors at local and national level, chaired by SSON’s online editor Jamie Liddell. The results were, indeed, illuminating…

Attending were:

Tony Isaacs Programme Manager Warwickshire Direct Partnership The Warwickshire Direct Partnership is an alliance comprising all six local authorities in the county of Warwickshire: North Warwickshire Borough Council; Nuneaton & Bedworth Borough Council; Rugby Borough Council; Stratford District Council; Warwick District Council; Warwickshire County Council; and three private-sector partners in Steria, MacFarlane Telesystems and Northgate Information Systems. The partnership includes a shared services programme relating to its CRM [citizen-relationship management] system. For more information see www.thewdp.org.uk

Dominic Swift Head of Shared Services Browne Jacobson Browne Jacobson is one of the largest law firms in the Midlands with offices in Nottingham, Birmingham and London. The firm acts for over 100 local authorities, either directly or through their insurers. It recently published its Shared Services Survey ’08, one of the most comprehensive surveys ever carried out into shared services in the UK. For more information see www.brownejacobson.com

Peter Telford Chief Executive Officer Research Councils UK Shared Services Centre Research Councils UK (RCUK) is a strategic partnership between the seven UK Research Councils. RCUK was established in 2002 to enable the Councils to work together more effectively to enhance the overall impact and effectiveness of their research, training and innovation activities, contributing to the delivery of the Government’s objectives for science and innovation. For more information on the RCUK Shared Services Centre see http://www.rcuk.ac.uk/aboutrcuk/efficiency/sharedservices

Ray Tomkinson Local Government Improvement Specialist and Shared Services Author Ray Tomkinson is the author of Shared Services in Local Government: Improving Service Delivery (Gower, 2007). Ray managed the Welland Partnership shared services project and currently operates as a consultant.

 

SSON: Peter, you’re at the head of one of the more prominent national shared services centres [SSCs]. Can you explain a little about the drivers behind the move in your organisation?

Peter Telford: Behind the Research Council’s business case are benefits focusing on what are seen as financial gains which will be passed back to research and the research community, but probably more importantly in the early stages is the feeling that we can secure better effectiveness in business support to that research community by aggregating the seven Research Councils’ services onto one common platform, and transforming them. The business case started with an outline about two years ago. There was a lot of work done on certain parts of the shared service model even before that, but the activity’s really come together in the last two years. The full business case was accepted by the Research Councils in line with CSR07 [Comprehensive Spending Review 2007] in August last year, and the intention at the moment is that we will go live on the platform at the beginning of next year. We already have some services live in the IT and strategic sourcing areas.

SSON: Tony, your project’s been going for rather longer than that. Would you say that the drivers behind the Warwickshire Direct Partnership are similar?

Tony Isaacs: I think ours were slightly different in that when we started off in 2002/3 the driver behind that was, basically, to capitalise on the money that was available from central government at the time. We made a bid as the Warwickshire Online Partnership, and set up that particular group specifically to bid for that money: a total of £2m. We identified a number of different projects that we would attempt to procure and implement with that money, not least of which was the joint procurement by all six authorities in Warwickshire of a CRM [citizen-relationship management] system and associated telephony systems. We got the full £2m and since then we have actually implemented it; we jointly went to procurement and we’ve ended up with the Northgate front office CRM system.

Now I don’t think the goalposts have changed, but the drivers have. I think the drivers have changed in that there is no money available now; it’s exactly the opposite insofar as before there was money splashing about, if you will, from central government, and now it’s the opposite insofar as with CSR07, with all the efficiencies and demands that there are on local authorities to save, there is an overriding need to make things more effective and more efficient, and shared services is seen as being one key method of doing that – with the consequence that we are in a position now where our chief executives, our leaders, are very keen in looking at what can be done. And based upon that – or around all this – is the whole area of the two-tier structure within Warwickshire, and the drive that the government may want to push – and seems to be pushing – with regards to unitaries. But Warwickshire is very clear that it wants to retain its two-tier organisational structure and will do so by sharing services.

Dominic Swift: Tony, I just want to follow something through on that, because it’s a theme that emerged when we did our research on shared services [Browne Jacobson’s Shared Services Survey ‘08] that certainly efficiency savings and improvements in the way services are delivered are key drivers, but what you’ve identified as a lack of money was one of the real inhibitors, because in order to deliver shared services there is a considerable cost: You’ve already mentioned telephony which was obviously put in as part of the grant, and one of the problems that people seemed to face was the immediate increase in costs to deliver a shared services stream before any efficiency savings could actually be delivered.

Tony Isaacs: You’re absolutely right insofar as there’s a need to spend in order to deliver efficiencies, and what we’re seeking to do is to build up good, strong, powerful business cases that maybe looking over a five-year spread, so that while there is a recognition that to begin with you may need to spend money, over the period following that it’s anticipated that there will be savings. And Warwickshire may be different, but we don’t necessarily regard it just as pounds saved: it could be efficiencies. So it’s non-financial benefits as well as financial ones.

SSON: Ray, do you see many differences between the drivers for local and national shared services?

Ray Tomkinson: Yes I think there’s one big difference, which is the issue of government compulsion, as it were. There’s no doubt about it: central government departments recognise that they really don’t have much alternative at the moment to creating some element of shared services – because the Treasury makes sure that they do, because the Treasury controls the purse strings. It’s less clear that in local government every council is going to have to go down the shared services road.

As was being made abundantly clear a minute or two ago, local authorities have different ways of approaching their financial restrictions or their political considerations, one of which is the unitary agenda – or the two-tier agenda in other councils. So some councils are going to have to go down the shared services route because it’s the only way organisationally that they’re going to function. Other councils don’t have that imperative at the moment and I’m working with one group of four councils which are looking at sharing services but not because of financial pressures. They’re looking at it because they want to make service improvements, to improve resilience of services, and also give opportunities to create new services. So it’s a very different agenda between the two.

SSON: Peter, from a national perspective are you seeing an increased pressure from government to implement?

Peter Telford: Yes. Historically I’ve been in shared services in the private sector, local authority and now central government so I suppose I can absolutely empathise with the previous comments. I think the compulsion from central government is largely fiscal although there is a feeling that the transformational agenda that sits behind it is also very prominent. I think the other difference in central government is it is easier to identify and reach a critical mass where you can actually effect a transformation and deliver efficiency and effectiveness. At the local government level, it is more difficult to create critical mass – which then makes the funding routes and the benefits probably more difficult to determine in the early stages.

SSON: OK. There’s been a lot of talk about what advantages other than cost savings can be delivered through shared services. And this brings us on to the issue of benchmarking. When it comes to savings you can obviously benchmark against what you’re saving and how much you’ve saved against previous budgets, for example. But when it comes to service-delivery, how can one establish exactly what you’re benchmarking, and against what and against whom? Is there a common thread here in terms of where you go for benchmarking?

Dominic Swift: I think benchmarking’s so different, for different projects, is the long and the short of it. What we’ve seen through our research is that there’s a very wide range of different projects – we’ve already talked about the drivers, and it really depends on what you want out of your project. One of the frustrations that we heard at the national launches that we did of our review, was that there wasn’t enough benchmarking of the actual outcomes. And a lot of people said to me “how do we judge whether this has been a success?”

One of the problems is that if you produce a much more efficient service, which is more attractive to the general public (if it is a front-facing service, which more and more are) is that it will actually be used more. And as a result you’re getting better value, in terms of hits, but the cost of the service may actually go up. So it is quite a complicated job to benchmark and I think it requires some very clear outputs to be identified at the outset, and to look for comparable projects.

SSON: Tony, you’ve got a wide variety of services you need to benchmark…

Tony Isaacs: Yes, that’s right. I can concentrate really around the CRM system, because all the information we’ve got is via customer services, and improvements we’ve made to that around the CRM system. What we’ve done is take benchmarking as a very serious exercise in its own right, and what we’ve sought to do is to get customer insight by using different databases, information from the CRM, information from MacFarlane – the telephony system – and pool all that information among all the partners. And what we’ve done then is to say “ok, concentrate on the areas that we want to concentrate on” and to make sure that we do improve the services that we are seeking to improve. We have got what we call an Improvement Forum, which is a relatively recent creation and which is proving to be very successful as well. And that’s looking at the way in which the CRM in particular can add value to the whole process of improving customer services.

We are concentrating as well on a variety of different access channels, so we’ve got the CRM system, we’ve got telephone contact obviously, face-to-face via our one-stop-shops – we’ve got eight of them at the moment, with another eight planned for next year. We’ve got kiosks as well. But also I think most significantly, in the next few months or so what we’re looking to do is drive ourselves forward with web self-serve, and look to try to move people more towards that means of accessing services. And I think that will be a double win because the customer will benefit greatly from that in terms of speed of service, but also we will, because we’ll drive down the unit costs, and that quite clearly is a key method of making savings.

SSON: In the private sector a great deal of benchmarking goes on between individual companies and organisations, and as a result you have the idea of world-class et cetera. Is it a pipedream to suggest you might be able to get similar systems set up in the public sector, in which every region and every locality has its own pressures?

Peter Telford: I don’t think it is and I think the benefit of the public sector is, by and large we’re not competing with each other, and therefore people are much more willing to share information and the assumptions that sit under that information to try to help each other along. And I’m quite heartened by that kind of culture. I think the difficulty with the private sector is that it’s usually wrapped in commercial connotations and costings as well, which makes it very difficult to unpick to ensure you are comparing like with like. Albeit that said, the difference is that there is much more evidence when you can find it and it’s much more prescriptive in terms of service levels than I would suggest you would find in the public sector.

Dominic Swift: I’m very interested to see whether there can be some sort of worldwide benching or benchmarking which really does define the success of projects. I’d be very interested in understanding more of what Tony’s doing and how the measurement takes place, capture of information and then the dissemination of that, to actually judge how that service is being delivered and where the successes are – and where perhaps the challenges are. And also what sort of services you’re comparing that with. Because as I see it, shared services range across such a vast array of the different public sector areas – we were talking earlier on about this being local authorities but clearly it goes to health and other public sector bodies as well – and from that point of view the real problem you’ll have it seems to me is comparing apples with apples.

Tony Isaacs: I can give you a fairly high-level description of what we’re doing, and that is that we’re using some software you may be familiar with – Mosaic Data – and we’ve populated a lot of databases according to the information that we’ve gleaned from there, and that’s proving to be very much the benchmarking process that we’re going to go through. And there are certain authorities out of the partnership that are leading on this.

For each of the projects that we have, we have lead authorities who volunteer to lead on particular projects. We’ve got Nuneaton for example to lead on one, as well as the county, and the county has information that it uses from its observatory, and there’s a pooling of information, and there’s an agreement via the Improvement Forum for example whereby they do concentrate on specific areas with the data they’ve accumulated – whether it’s county-wide or just individual authority-wide. But basically they work together as best they can to provide these benchmarking criteria. It’s not a quick process by any means. But over time we build up that data and then we can use it from year to year to do comparisons to see how things are improving.

In addition to that I don’t know if you’re familiar with NI14, the latest government key indicator which has just come out, which is to do with avoidable contact with clients – customers – with local authorities. And we’ll be using the CRM to glean quite a lot of information via the CRM system. But it is a corporate-wide key indicator, so you will have other services, other departments, feeding in this information as well. That information is supposed to be started in October of this year and it will be used year-on-year to gauge how we’re doing, in terms of avoiding avoidable contact, and looking to improve that.

Peter Telford: I think it’s fair to say whilst we have not yet built the longevity of data that Tony describes – and I absolutely agree with him that building a profile and a trajectory is invaluable as a benchmark – we haven’t really got to the point yet where we are able to benchmark our service delivery over a period of time; what we are doing is assessing our performance as we transfer services. We’ve got a baseline against some services from the Research Councils and from my own experience and from talking with others in the public sector we will then aggregate what we believe will be appropriate targets for the Research Councils against their baseline. But I’m with Dominic: initially it is very difficult to compare apples with apples and ensure you’ve got a representative benchmark.

Dominic Swift: Peter, it’s very interesting from my point of view. I quite agree with you about the “apples with apples” thing. I think what’s been said about the public sector is very true: it’s much more transparent, there’s much more desire to learn from each other. One of the things I’m doing tomorrow actually is go down to sit in in Kettering where they’ve been running a shared services project for many years – well, well before Gershon and Varney and the rest. And that’s very interesting because people are open about what’s happening in shared services and happy to learn from each other. The difficulty seems to be that they range over such a wide area, the danger is that unless people come to some common terminology about what outputs are going to be defined for particular services it may be possible to benchmark over time as Tony’s doing, but actually benchmarking across different projects will be very difficult.

Ray Tomkinson: I think that’s very valid. One of the issues is that there is no commonality across authorities as to what constitutes a service. So what you tend to find is that people dive for a process – and even when they dive for a process it doesn’t tell you an awful lot about the service that you’re trying to share. And there’s often a real difficulty in stopping trying to find the trees when you’re trying to fight your way through the forest. So from that point of view I think benchmarking has on occasion got a very bad name because people use it as an excuse for not doing anything; and it’s only in the past couple of years where I think people have been much more prepared to be open about the fact they need to consider sharing as an option and sometimes benchmarking isn’t used as a blockage.

SSON: Let’s move on from benchmarking. We were talking a little about the private sector a minute ago – are we of the opinion that the private sector is an absolute necessity within UK public sector shared services, and to what extent is it a foregone conclusion that this is going to result in a degree of privatisation of services?

Dominic Swift: This is a question we asked in our survey: the sort of view that we had was that of course the private sector is an important potential partner in shared services, but there were just as many opportunities for the public sector to work together without the private sector. So, yes, it’s part of the picture but it certainly isn’t necessarily the whole of it. And I don’t think that privatisation is an inevitability from shared services: where we saw the private sector coming in, and the survey really highlighted this, links back to the funding issues we discussed earlier on.

Where you needed some sort of IT facility and commonality across a number of authorities and participants, quite often the private sector partner was someone who could deliver that in order to relieve some of the initial cost difficulties of setting up a shared service which frankly couldn’t be borne by some of the participating authorities.

SSON: Tony, that’s certainly what you were saying about the initial start-up of Warwickshire, isn’t it?

Tony Isaacs: Yes certainly: and it’s ongoing because we’ve just finished the renewal of the CRM contract and the telephony contract, so from the beginning of next year we will actually be embarking on new five-year contracts replacing the existing ones. And that’s the position of the CRM, the telephony, the ICT systems around it – so yes, it’s inevitable that we have to go down that route. We’ve had good – very good – negotiations with the private sector on this and I’d like to think that all of us have come to a very good, fair new contract.

Ray Tomkinson: I think actually the point that was made about investment is a very good one. There is actually no reason why local authorities can’t do sharing on their own without the private sector, and there are lots of examples around now where groups of councils are trying to do public-public partnerships. But I do agree: where there is a real need for investment – particularly around IT – then that’s where the problems start for local authorities, and that’s why they often do resort to the private sector.

But I do think that it’s worthwhile pointing out that as much as there are needs for investment, particularly in IT, there are lots of services which do not need that investment, and I’m thinking of professional services like planning, or building controls are another good example, or environmental health is another good example, where simply you’re dealing with people. One of the problems though that local authorities do find in that area is the scarcity of professional planners, environmental health officers, building control officers. And often they have to partner with the private sector simply for that reason.

Peter Telford: We need to get back to the point that I think Dominic made earlier which is in analysing what you’re trying to achieve with your SSC you then start to look at how you’re going to do it. And how you’re going to do it may or may not include the private sector. If you do seek investment from the private sector, they will seek a return on that investment; you just have to recognise that. They may indeed want a profit which may erode the efficiency savings you seek to make.

I think another thing that the private sector brings is experience and expertise in the sorts of change and benchmarking data which you may need. That said, I think the blend of public and private sector in trying to get to a shared service centre is the right one and the transfer of risk to the private sector through doing this is always pretty key in terms of what you want to get out against your project.

Tony Isaacs: I was just going to pick up on the point that if you can go for joint procurement as opposed to individual authority procurement, you can really reap the benefits, and the bottom line will be that you do make considerable savings – not so much a profit will result, but it will produce efficiencies in savings. We found that with our negotiations latterly with Northgate and MacFarlane, and also more significantly during the course of the contract that we’ve just had, when we as a partnership stuck together and wanted to get individual things out of Northgate, and/or MacFarlane, by standing firm we could really apply the screws to them, and they were forthcoming; so we could really achieve quite significant savings on different aspects of procurement that we did during the course of the four years we’ve had the system.

In terms of profit, I’m not sure whether profit’s the right word as I just mentioned; what we’re looking for are savings and efficiencies and I choose to use those terms rather than profit. In essence we can justify what we’re doing now: adding value, making sure we are getting the market rate or better, and we can quite happily and justifiably tell our chief officers and members based on the business cases that we’ve produced that we are getting best value, we are making savings and efficiencies on the basis of this joint procurement exercise.

SSON: Moving on: the future form and structure of shared services in the UK is, it appears, going to be determined in large part by competition between authorities, in a lot of areas. How do you see local shared services existing in the UK in, say, two or three governments’ time?

Ray Tomkinson: Two or three governments’ time, that’s interesting. So that’ll be two Conservative and one Labour… I suppose my thinking goes like this: I think that in 15 to 20 years’ time you will see a patchwork quilt across – certainly the local government sector; I’m not quite so sure about the central government sector. And what I mean by that is you will have a group of statutory authorities that are all geographically based – whether that’s a county or a district – there will be differences across the country.

Secondly they will have different types of shared services in different areas. There will be some that will be public-public; some that will be public-private; and some that will be public-public in terms of different sectors: health will have joined in; the police will have joined in. Because the pressures of the CAA regime coming from the Audit Commission mean that all public sector organisations in geographical areas have got to think whether it’s better to work together than to work separately. And as a result of that I think you’ll get a really different appreciation across, and in some areas there will be very heavy private involvement and in other areas probably none.

Dominic Swift: Basically I think it’ll depend a little bit on the nature of the shared service, to be honest. Sorry – I keep coming back to that point really. It struck us during the course of the work we did that there are two different forms of shared service: the ones which perhaps have been more prevalent to date, which have been the sort of back-office, IT function – ICT-reliant functions – and then the front-office function. Now they have very different possibilities in terms of partners. If you look at the front office it is a locally-delivered service and therefore your partners are chosen by geography, and geography alone: they can’t be chosen by much else, other than if you go to some sort of call-centre arrangement. But the other services can actually be amalgamated a lot more and with less sensitivity to geography.

So I think there are going to be some quite different groupings and possibly some legal authorities who particularly drive the delivery of a good service who perhaps sell to a very wide range of local authorities: health, via police, all of these are potential customers for them. And then on the local basis it’s going to be a lot more down to politics and the dynamics between the politicians as to how well their shared services are going to be run, and I think some of the political difficulties we have in Nottinghamshire, where I’m based, may make it quite challenging to get some of those local shared services off the ground.

SSON: Tony, I know this is something you’ve been thinking about, and obviously as quite a successful service provider it must be on the agenda. So let’s put you on the spot: do you think you will be at the forefront of a successful selling of services in the next couple of years?

Tony Isaacs: Yes I think I do in the next couple of years, but if you’re talking longer-term than that I think – and I hasten to add that this is my own personal view – the likelihood is that there will be an increase in unitaries. And there could well be in Warwickshire as well. I can put forward a very rosy picture in some ways – but at the same time you’ve got nagging at the back of your mind all the time the difficulty that there is in actually creating successful shared services – and I think that’s from a political point of view as well as the straightforward business-case point of view.

I think there will be more and more unitary authorities, to be honest. And I wouldn’t be surprised if even Warwickshire eventually ended up with two unitary authorities rather than the six authorities we’ve got now. I think it’s almost inevitable, and I think the government will continue to apply the screws, demand more and more savings year upon year, and the consequences will be that it’ll almost be inevitable that there will be more.

Peter Telford: I think this is too early in our development path to consider and I think building a stable service with reference-ability is key before we could go there. The wider central government agenda is pretty clear in terms of convergence of effort and activity onto some of the core shared services in the bigger departments. That’s already starting to come because of the requirements laid down by the Cabinet Office. And you can see the agenda already moving to: how do you ensure that there’s a commonality of solution and agreement on service levels that are given to customers? How do you allocate customer benefit across a broader-based shared service? How do you prioritise how you would offer services to customers? Those are debates which I think are becoming more prevalent and therefore indicative of activities and departments coming together on shared service platforms.