Have shared services reached the tipping point?

Three significant factors may have pushed public sector shared services into real viability?

Over the next 12 months we will be able to judge whether 2011 was the 'tipping point' year for public sector shared services. If it is, then three significant factors will have contributed to it.

First, the publication of the shared services map by the Local Government Association. It shows that 219 councils areengaged in 143 partnerships and evidenced that more than 80 of them are up and running, and have made cashable savings of over £80m to date.

This case study of public sector success was added to by the Universities UK report, Efficiency and effectiveness in higher education, which gives examples of over £100m cashable savings in shared service projects over the past five years. For many this evidence of success and 'banked savings' has been the missing element which has heldsome bodies back from exploring partnership working as an option.

The second event was that shared service project management became a profession. During the year more than 400 leaders and senior managers in local government, fire, police, higher education and further education stepped onto the shared service architect's programme, the first module in the postgraduate certificate in shared services at Canterbury Christ Church University. Those who complete the programme can request to be recognised as shared service practitioners. A number of those have gone on to undertake the full, six-month, postgraduate certificate and will become recognised as shared service architects.

Sir Merrick Cockell, LGA chair and leader of Kensington and Chelsea council, presented the first postgraduate cohort with their graduation certificates in July. Talking to the group, Cockell stressed the importance of training and developing the shared service skills and knowledge of both members and senior managers so that they can deliver the benefits of shared service activity effectively and rapidly. In December, the second cohort received their certificates from Baroness Hanham, Parliamentary Under Secretary of State at the Department for Communities and Local Government. Baroness Hanham echoedCockell, emphasising that shared services can be complex to develop and deliver, and that building public sector shared service skills and knowledge is very important to the success, and rapid delivery, of partnership projects.

The third change has been the announcement by the chancellor in his autumn statement that the government will introduce a VAT exemption for shared services, between organisations in further and higher Education and charities. The inability of these sectors to reclaim VAT on partnership activity has been perceived as a major stumbling block. The chancellor's statement came on the back of more than £16m in partnership seed-corn grants being released into partnership projects during the year by the Higher Education Funding Council for England, the Association of Colleges, the 157 Group and the Learning and Skills Improvement Service. Full story see http://www.guardian.co.uk/public-leaders-network/blog/2012/jan/06/public-sector-shared-services-tipping-point?newsfeed=true 

National map of shared services

The  Local Government Association (LGA)  has launched the updated national shared services compendium and map showing that 219 councils across the country are engaged in 143 shared service arrangements resulting in £156.5 million of efficiency savings. http://www.local.gov.uk/better-for-less-po-map 

Shared savings plan to halve admin costs

By Jack Grove of THES

London Metropolitan University is set to cut its administration costs by up to 50 per cent by sharing services with other institutions, bringing "some staff losses and some staff gains".

The university announced the transformation after governors agreed on 21 December to redesign support services.
It has identified more than 70 different areas, such as payroll, procurement and careers, that could be made more efficient over the next five years by collaborating with other London-based institutions.
The proposed changes follow chancellor George Osborne's Autumn Statement on 29 November, which announced the removal of the 20 per cent VAT surcharge on shared services between VAT-exempt bodies.
This tax made it prohibitive for universities to share back-office functions, vice-chancellors had argued.
Malcolm Gillies, vice-chancellor of London Met, said that the university "aims to reduce its support-service costs over the coming five years by up to 40 to 50 per cent".
Professor Gillies, who is chairman of London Higher, which represents more than 40 London-based higher education institutions, added: "If every university tendered together for insurance, payroll or careers, you can see that would drive lower unit costs."

He said that "a lot of universities" are asking how they can do the same.
"There may be some staff losses and some staff gains, but if you run it into shared services, you grow a business."
Administrative support services cost the UK higher education sector £10 billion a year, Professor Gillies said, and the bill for London institutions is close to £2 billion.
The administrative shake-up follows radical action by London Met in response to the government's changes to undergraduate tuition fees and funding.
It reduced its course offering by 70 per cent to focus on high-demand areas such as business, while setting some undergraduate tuition fees for 2012 as low as £4,500.
jack.grove@tsleducation.com.

VAT shift could open back door to mergers

By Simon Baker, THES 

But as tax rules ease, institutional unions still face cultural hurdles, say experts. Simon Baker writes

Credit: Kobal

Want to do business? A VAT reprieve for institutions and their shared-service providers will encourage joint ventures

Mergers between universities may become more likely once they see the benefits of sharing services under new rules that remove a crucial tax barrier, it has been suggested.
It follows the announcement by chancellor George Osborne in his Autumn Statement that institutions will be able to work together to provide services without incurring a VAT cost.
University leaders have long argued that current rules deter them from sharing "back office" provision because they must save at least 20 per cent to make the project worthwhile.
But under the new proposals, which could come into effect next year, higher education institutions can provide a service together without imposing a tax burden.
Under the detailed plans set out in draft legislation by the Treasury last week, universities would run services via separate "entities" that are wholly owned by the institutions involved.
Although there had been some concern that this in itself could create a large administrative burden, the British Universities Finance Directors Group (BUFDG) has said that the proposed rules appear to be a user-friendly solution that would keep such costs down.
Andrew McConnell, finance director at the University of Huddersfield and chair of the BUFDG, said that even before the announcement had been made, there had been "active" discussions between institutions about potential sharing of services, particularly in the area of ICT.

But he added that it remains to be seen whether the Treasury's announcement would finally lead to an explosion in shared services or "whether it's just that people have been using the VAT obstacle as an excuse".
Jon Wakeford, director of strategy and communications at University Partnerships Programme, a firm that has long argued that the sector could save billions through sharing services even with the VAT barrier, said long-standing cultural barriers had always been a "key hurdle".
"The stumbling block tends to be the notion that somehow institutions will lose what is essential about them, that they will lose part of their character," he said.
He added that he did not see the sense of this argument with respect to sharing purely non-core services such as day-to-day procurement, accommodation and facilities management.
Meanwhile, Damian Shirley, partner and head of indirect tax at legal firm Eversheds, said that once institutions went down the road of clubbing together in certain areas, it could open the door to more full mergers as leaders came to realise the potential to make savings by working together.
"If universities begin to find efficiencies in sharing some of their back-office services, it could raise the question, 'Why aren't we going further and merging our core operations?'" he said. "One can already see those kinds of conclusions starting to emerge."
Mr Shirley also suggested that other factors, such as the threat to jobs among middle management, could come to the fore.
"It will be an interesting time to see if what were seen as incidental issues in the background are now thrown into the foreground and become the reasons why universities are not sharing services," he said.
simon.baker@tsleducation.com.

Removal of VAT barrier to encourage shared services

29 November 2011

By Simon Baker

A major barrier to universities saving money by sharing services is set to be removed by the government.

In his autumn statement today, the chancellor George Osborne said that the government would introduce a VAT exemption for services shared between organisations that are already exempt from the tax, such as universities.
In the past, universities have been deterred from saving money by sharing services such as payroll and procurement because any new operation would have to charge VAT back to the partner institutions.
This would mean that a shared operation would need to save at least the cost of VAT – currently 20 per cent – to be worthwhile.
However, the new arrangements – which had already been consulted on following the 2011 Budget – suggest universities could set up a new joint organisation to run services without facing an extra tax bill.
Nicola Dandridge, chief executive of Universities UK, said the move was “good news” for the sector and met a key recommendation from the recent Diamond Review of efficiency in higher education.

“Universities have wanted to develop more cost-effective operating models, and more creative collaborations with external partners.
“But to date, the VAT rules have acted to block this. We hope today's announcement will address this issue,” she said.
Meanwhile, the chancellor announced the launch of an online portal called HE Global to provide information and advice to universities on expanding overseas and also a vehicle to help the sector, government and business work together in selling “education offers” abroad.
Paul Marshall, executive director of the 1994 Group of smaller research-intensive universities, said: “Having ready access to insight and advice through a resource like HE Global will help institutions implement their own international strategies.
“We’ve also called for a collaborative approach to promoting cross-sector opportunities overseas. The new vehicle proposed in today’s statement will no doubt play a big part in making this a reality. We look forward to helping to take this forward.”
simon.baker@tsleducation.com

A programme shared is a problem halved

Universities could increasingly use the same degree programmes as they share services to save money, the vice-chancellor of London Metropolitan University has suggested. Malcolm Gillies questioned whether the University of London model, under which several separate institutions offer the same courses devised collectively, could be adopted more widely.
He asked delegates at the Shared Services for HE: Strategies for Results conference on 21 November whether universities could "go even further" than pooling functions such as IT and human resources.
"Could there be selective breaches of academic autonomy, and still have a fully coherent academic institution?" he asked, adding that institutions did not yet "quite have the answer" to this question. "The very qualification I have ... from the University of London, is a classic (example), in that now, if you did the same thing it would probably be awarded by four or five different bodies. In many cases that's very healthy," Professor Gillies said.
He also argued that whereas a year ago universities were looking to improve the quality of their services by sharing them, they now wanted to do so to save money.
"This year there are new cost-saving imperatives," he said. "There's a likely reduced number of higher education students next year, it could be as high as 10 or 12 per cent."

Professor Gillies is also chair of the board of London Higher, the body for higher education institutions in the capital.
He said that within the group there was a "good willingness to talk and some interesting shared approaches emerging" over pooling insurance, treasury management, and recruitment functions.
But he added that there was still a "lack of leadership" and that some institutions remained "wary" of sharing services.
In May it was revealed that the University of Warwick was in talks with the outsourcing company Tribal and five other unnamed universities about sharing "administrative services and IT infrastructures".
Tribal said that the discussions are still continuing and the other institutions remain anonymous.
david.matthews@tsleducation.com

For-profit? Charity? In the market, they'll act the same

24 November 2011

By David Matthews

Competition for 'share' will dissolve institutional difference, Deloitte claims. David Matthews writes

Distinctions between charitable and for-profit universities will disappear as all converge in the pursuit of "gaining or retaining market share", the head of education at consultancy firm Deloitte has claimed.
Julie Mercer said that private investment in universities and for-profit entrants to the sector were not a threat to the academy's mission because institutions would see a "convergence of behaviour, whether they are charitable or for-profit".
"I don't think it matters what kind of institution you are: you need to know your market and...target your marketing and your offer appropriately," she said. "What drives all of them is gaining or retaining market share."
She added: "The reality is that every single one of these institutions will be competing for students...so I think you will start to see some different behaviour from universities.
"Let's not kid ourselves that universities don't see themselves as commercial organisations: they do."
Sally Hunt, general secretary of the University and College Union, said that Deloitte should know that there was "a fundamental difference between a higher education institution whose primary goal is to provide education and a company whose first allegiance is to its shareholders".
"The only colleges being sued for fraud by students and the government in the US are those run for a profit because education can't safely be run to make a fast buck without degrading the product," she added.
Universities UK said in a 2010 report, The Growth of Private and For-Profit Higher Education Providers in the UK, that public institutions "have to operate in a businesslike manner and make 'profits', but their key motive is to promote the public good".

The "key distinction" was that while both types of institution make surpluses, those of the for-profits "flow into the private hands of shareholders" rather than being invested in capital funding and expansion.
Ms Mercer said that private equity companies saw UK higher education as a "beautiful swimming pool that everyone wants to jump into", but no one wants to go first.
She said that investors were looking to fund the expansion of postgraduate and international student numbers because they were not limited by number controls.
This might occur "if, for example, a university had a great brand around postgraduate qualifications, and an investment enabled [it] to grow and attract more students".
Ms Mercer argued that investment had to go to areas "that are not in the regulated system", which could also include areas such as innovation and intellectual property.
With private equity, "what you're starting to see is not [investment] in whole institutions but an aspect of that institution", she said.
Investors were keen to put money into the sector because "the political door is open; the ambition is clearly there".
david.matthews@tsleducation.com.