shared services document
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NATIONAL LEARNING AND SKILLS COUNCIL
SHARED SERVICES FURTHER EDUCATION-CENTRIC
Undertaken on behalf of the LSCby Kathy Bland
March 2010
CONTENTS
Pages
Foreword 3
Executive Summary 4 - 5
A Introduction 6 - 7
B Background 8
C Research Context 9 - 10
D Definitions of Shared Services and Related Forms or Structures 11 - 20
E Scope of Possible Shared Services Activity 21 - 23
F Barriers 24 - 31
G Critical Success Factors 32
H Review of LSC Collaboration Fund projects 33 – 36
J Shared Services Development and Implementation Requirements 37 – 39
K Risk Analysis 40
L Conclusions 41 – 44
M Recommendations and Next Steps 45 – 46
N Postscript 51
Appendices
Appendix 1 Semi-structured questionnaire 47
Appendix 2 Letter to HMRC 48 – 50
Postscript 51
Appendix 3 Stakeholder Groups 52 - 53
Appendix 4 Emerging Models Delegate Exercise 54 - 55
Appendix 5 Business Case Starting Point 56 - 58
Appendix 6 Models – Plus and Minus Exercise 61 - 63
Appendix 7 References 64 - 65
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FOREWORD
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Shared Services is an exciting concept. It holds out the possibility of savings for the
Further Education sector, but we must avoid the dangers of not having the resource and
commitment to drive this. Neither should we duplicate Shared Services projects. This
would create waste and limit, rather than maximise, the efficiencies we all seek.
Angela O’DonoghuePrincipal and Chief ExecutiveCity of Sunderland College
EXECUTIVE SUMMARY
Purpose
To identify the support required by the Further Education sector to take forward Shared Services.
Methodology
Secondary research of existing developments and semi structured interviews with significant Shared Services stakeholders.
Definition
A support service carried out by one organisation on behalf of one or more client organisations or on behalf of different parts of the same organisation.
Findings
Much and increasing levels of interest dating back several years Several projects supported by the Learning and Skills Council (LSC) with the main
focus on procurement Likely that big savings could be made on procurement and IT especially
Barriers to further developments include:
Perceived threat to independence which prevents necessary collaboration Lack of money for capital and revenue investment (or paying back large loans on new
college builds) Imposition of VAT which reduces savings Competition legislation TUPE arrangements Change management
Risks
Not delivering on savings through too many Shared Services projects being started, meaning further duplication and economies of scale not being realised
Conclusions
Time is right to develop Shared Services as Colleges need to make savings Colleges cannot afford set up costs even though potential for savings is great Organisational arrangements must not threaten independence of Colleges.
Therefore, best undertaken by a separate Private Limited Company that is also a registered charity
Should cover HR, IT, Finance and Procurement Savings best realised by a large organisation that can achieve economies of scale Critical success factors include;
o Reduction in cost of at least 10-20%; o an improvement in service standards in all areas; o flexibility to provide the required data to the front line in a timely manner; o flexibility to respond quickly to changes in requirements from the college or
funders;
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o the removal of the overhead required in the management of support staff; o release of space to provide opportunities for teaching and possible growth.
Recommendations
External funding should be secured for a broad based Shared Services project incorporating HR, Finance, Procurement, MIS.
Project established where costs are lowest, but where there is a likelihood of being able to recruit appropriately skilled staff
Initially number of colleges limited to 5 or 6 Colleges to provide accurate baseline of current costs of potential shared services Shared Services Project to work with Colleges to:
o Map key processes in procurement, human resources and finance, as well as I.T. including Management Information Services
o Develop supporting software, including an overarching relational database that would link processes
o Identify other projects, such as the joint procurement of human resources advertising, with which collaboration would produce savings and give a high priority to such collaboration
o Roll out the project across participating colleges Invite other colleges to contract and thereby grow sub-regional to a regional service Have this project develop an MIS system to be offered at cost to the entire sector
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A INTRODUCTION
A.1 Purpose
The purpose of this research is to identify the support required by the Further Education sector to take forward a Shared Services model (or models) and to identify gaps in current support arrangements.
A.2 Objectives
The specific objectives of this research were agreed with Ray Poxon, then with the Learning Skills Council, in January 2010. These objectives were agreed:
To describe possible Shared Services organisational models that will include scope in relation to work streams, sector and geographical locations
To describe what is currently happening in the further and higher education sector in relation to Shared Services
Summarise the current Shared Services plans and ambitions of stakeholders active, specifically in the further education sector, and describe the key issues and solutions
Review the project reports from the Learning and Skills Council Collaboration Fund Projects and describe the successes/barriers
To provide recommendations about the support required by the further education sector in the short (March 2011) and longer terms (next 3 years) for the implementation of Shared Services
The fieldwork and secondary research was conducted from 25 February 2010 to 31 March 2010. Writing up was completed in time for a conference to be held in Sheffield on 21 April 2010.
A.3 Research Scope
Resource availability limits all research. To make this particular project manageable in the tight timeframe adopted, it was agreed that the scope and coverage of this FE focused research would be:
The collation of views of a selection of key Government stakeholders, senior management of two colleges in North East England and interviews with members of the Collaboration Fund Initiative sponsored by the Learning and Skills Council (LSC).
A description of relevant collaborative projects in England and Northern Ireland.
Description and analysis of Shared Services in Further Education, whilst also touching upon higher education.
Description and analysis of various collaborative models
The research would therefore cover a period from the inception of the National Advisory Group for Shared Services in 2006 through to developments up to the spring of 2010.
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Key stakeholders known to be active in Shared Services in the Further and Higher education sectors and therefore included in the scope of this research are:
The Learning and Skills Network (LSN)
The Joint Information Systems Committee (JISC)
The Department for Business Innovation and Skills (BIS)
The Department for Children Schools and Families (DCSF)
The Association of Colleges (AoC)
The 157 Group
The Association of Northern Ireland Colleges (ANIC)
South Eastern Regional College (Northern Ireland)
FE Sussex
The Association of Colleges in the Eastern Region (ACER)
The Higher Education Funding Council for England (HEFCE)
Shared Service Architects
The Learning and Skills Improvement Service (LSIS)
The Lakes College (small GFE)
Leicester College (very large GFE)
Cardinal Newman College (small 6th Form)
A.4 Research Methodology
The approach taken in carrying out this research has been to:
a) Carry out in-depth, semi structured interviews with key stakeholders. (Appendix 1)
b) Undertake desktop research in particular in relation to the Learning and Skills Council Collaboration Fund Projects as well as a range of other available information
c) Look in particular at a case study of two further education colleges working collaboratively to try and take a Shared Services model forward
The author of this report has also been involved in further work that has in effect become action based research. This has centred on work that has been carried out between City of Sunderland College and South Tyneside College in relation to developing a business case for Shared Services between the two colleges, but which could quickly be scaled up to a sub-regional and or even possibly regional level.
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B BACKGROUND
B.1 In part this work stems from and attempts to build on work undertaken by the Learning and Skills Shared Services programme during 2006 to 2007. An advisory group developed a vision for a model of Shared Services and a strategic business case. They also provided advice on a proposed Shared Services Capability that would deliver transactional, administrative and advisory services to colleges and providers across the Learning and Skills sector.
B.2 This model for Shared Services in the Learning and Skills sector was intended to provide a basis for discussion with key stakeholders. Several key challenges emerged from the meetings of the National Advisory Group. VAT implications, Information Technology platforms and Governance were major issues together with the proposed size of an ideal Shared Services business solution. The Cabinet Office representative of the Advisory Group said that there would need to be 20,000 staff to begin to establish a Shared Services capability and over 50,000 staff before the realisation of significant cost reductions. They based this judgement on other Shared Services projects that they had led on in Australia.
B.3 The strategic business case indicated that there was around an annual £100m of in-scope (Finance, HRM, MIS) activity that could be transferred to a Shared Services project.
B.4 Post 2007, neither the Shared Services Blueprint, nor the Strategic Business Case, was taken forward. No reasons have been provided for this. All involved in steering the project have since moved on. The project may have been too ambitious. The aspiration of 25% of the sector being involved initially and quickly rising to 100%, may have been unrealistic particularly when bearing in mind the considerable issues mentioned in B.2 above. Another possibility was that the efficiencies that Shared Services could bring did not get high enough up the agenda of individuals and organisations. It may also have been the case that collaboration between colleges was simply too complex and difficult for such a project to be successfully implemented, given that colleges guard their independence jealously. Whatever the reason the initiative failed to reach the implementation phase and therefore never tested the considerable challenges that would have been encountered therein.
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C RESEARCH CONTEXT
C.1 In trying to understand the breadth and scope of opportunity that exists for the deployment of models of Shared Services, it is necessary to understand the range of college sizes and numbers of colleges that fall within each category. Table A provides a breakdown of the current (2010) total number of colleges in England according to the National Audit Office (2006) categorisation:
Table A
C.2 Almost three quarters of the sector is categorised as small to medium. There are 165 colleges, including 6th form colleges, which have a turnover less than £15m (LSC college accounts 2007-2008).
C.3 Government cuts in funding for Further Education could be in the region of 20 per cent over the next three years and this may turn out to be a causal factor in reducing the number of colleges, especially in the small to medium sized categories. A report produced by KPMG for the LSC stated that around 50 general further education (GFE) colleges are “currently designated as struggling”, and a further 50 colleges were classed as “breaking even” but are “financially vulnerable” over the next three years. The report goes on to say that 100 GFE colleges are described as “sound”, a further 45 categorised as being good or outstanding. Of the 45 in this classification, 15 had significant cash reserves and a “predatory” vision when looking at weaker providers.
C.4 In a report commissioned by the 157 Group, ‘Preparing Colleges for the Future’, Eversheds LLP (an international law firm) envisage that collaborations by way of joint ventures, cost-sharing vehicles, outsourcing and the like will become common features of the sector.
C.5 The report also states that FE colleges need to prepare for the future in radical new ways to ensure sustainability and continued excellence of the vital services provided to employers, local communities and students (Frank McLoughlin, Chairman 157 Group).
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NATIONAL AUDIT OFFICE CATEGORIES
Very Large Turnover more than £35m 37 Colleges 10% of the sector
Large Turnover between £25m - £35m 60 Colleges 17% of the sector
Medium Turnover between £15m - £25m 96 Colleges 27% of the sector
Small Turnover less than £15m 165 Colleges 46% of the sector
C.6 This research is also carried out against a backdrop of a widespread belief that the public sector in general can make huge efficiency savings without impacting frontline services.
The Institute of Directors reinforced their belief in this respect when they issued a report (March 2010) criticising public sector spend asserting that at least £25bn of annual efficiencies can be made in the public sector within three years through a radical restructuring of public sector procurement (£15bn saving) and greater use of Shared Services and outsourcing (£10bn saving).
The report, ‘Towards Tesco – improving public sector procurement’ has much in common with other articles on the same subject matter. It is something of a surprise that the paper uses banks as examples of operational efficiency but the author’s point that many functions being designed over and over again by public sector organisations largely carrying out the same job is an important one.
Such duplication in systems development is undoubtedly costly. Policies have to be written, processes mapped and procedures, guidance and work instructions drafted. Supporting IT systems then need to be put in place. To do this over and over again across the country and in different colleges does seem wasteful in the extreme. Whether or not this would happen in the private sector is, in some ways, irrelevant. The fact remains that it is an example of an inefficiency and one that models of Shared Services would set out to address to a greater or lesser degree depending on the size of the project.
C.7 This paper will go on to explore how further education colleges can collaborate to make efficiencies and, as important, be sustainable and retain their independence so that they can continue to do what the Chair of the 157 Group stated in paragraph C.5 of this paper.
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D DEFINITIONS OF SHARED SERVICES AND RELATED FORMS OR STRUCTURES
D.1 The term ‘Shared Services’ has become widely used in the public sector during the past 12 to 18 months. Numerous Government circulars, White Papers as well as press reports mention Shared Services possibilities. For example, Delivering 14-19 Reform talks about a ten year programme that aims to transform the services and the pooling of resources and facilities to deliver a more responsive service and economies of scale over time (DCSF, 2009).
D.2 The Head of the Government’s education technology body, BECTA, reported to The Times Educational Supplement that there are few examples of FE colleges and providers working to share services, but formally there is very little readily available evidence of Shared Services in FE.
D.3 There would therefore appear to be opportunities here and, whilst there may be barriers to overcome, the current funding constraints in the FE sector mean that it is essential that a way forward can be found if the contribution of savings from Shared Services is not to be lost.
D.4 Colin Cram, a public sector procurement specialist, has said that the case for Shared Services is self-evident. There is widespread support for the view that a Shared Services solution would bring huge savings, and yet only a small proportion of front and back office services are delivered this way. Before going on to examine why this is the case it is essential that a working definition of the term ‘Shared Services’ should be arrived at, one that is wide enough in scope to allow all models to be included.
D.5 The Joint Information Systems Committee (JISC) commissioned Duke & Jordan to carry out a Study of Shared Services in UK Further and Higher Education, which was published during 2008. JISC’s understanding of the term Shared Services was summarised as “institutions co-operating in the development and delivery of services, so sharing skills and knowledge, perhaps with commercial participation”.
D.6 PricewaterhouseCoopers define Shared Services as “The concentration of company resources performing like activities, typically spread across the organisation, in order to service multiple internal partners at lower cost and with higher service levels, with the common goal of delighting external customers and enhancing corporate value”.
D.7 The National Advisory Group put forward the definition, “Shared Services is a business model whereby multiple organisations converge and streamline some of their business functions in order to deliver services as effectively and efficiently as possible. It often involves creating a stand-alone organisation whose sole objective is to process the high volumes of administrative ‘back office’ transactions that are common to each organisation” (LSC, 2006).
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D.8 However, definitions of Shared Services vary and it is perhaps useful to see the various models placed along a continuum of collaboration. BuyIT Best Practice Network began to identify types of shared service arrangements that have been adapted by early adopters of Shared Services in Government. The Shared Services Advisory Group identified several basic forms or structures that can be applied to shared service operations in the public sector:
“Unitary – a single organisation consolidating and centralising a business service.
Lead department – an organisation consolidating and centralising a business service that will be shared by other organisations.
Joint Initiative (internal) – an agreement between two or more organisations to set up and operate Shared Services.
Strategic partnership (external) – contractual arrangement with a third party provider for a range of services which may include Shared Services.
Joint venture – joint venture legal entity between ‘Authority’ and third party provider.
Outsourcing – third party provider takes full responsibility for managing and operating the service.”
D.9 There are three further structures that could be applicable to the further education sector that need to be added, namely:
Merger – this is where one organisation acquires another organisation (also referred to as a ‘take over’).
Federation – this is where member organisations unite forming a central governance, but each member organisation still retaining control of its own internal affairs.
Commissioning – this is the joint procurement of services (and goods) based on a shared strategy.
D.10 These structures have been put on a continuum (see Chart A) that shows possible levels of collaboration together with issues of control and risk/barriers. Collaboration will be most apparent with the Lead Department, Joint Initiative, Commissioning, Strategic Partner, Federation and less likely with Unitary, Merger and Outsource:
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13
Strategic partnerStrategic partner
OutsourceOutsource
Commissioning Commissioning
Joint Initiative Joint Initiative
MergerMerger
Federal StructureFederal Structure
Lead DepartmentLead Department
UnitaryUnitaryA single organisation centralising business services (157 Group Colleges would generally do this)
Member organisations operate within a shared governance umbrella. Each organisation retains independent legal status, but are fully accountable via local boards to federal governance structures.
Joint procurement of services based on a shared strategy and harmonised business processes and designed to provide shared service provisions to its members (eg, the LSC Collaboration Fund projects were mainly focused on this model)
Centralising a business service that will be shared by other organisations (eg, College A shares Finance with College B; College B shares HRM with College A)
A contractual arrangement with a third party provider to provide Shared Services (eg, College A and a Private Company)
Third party provider takes full responsibility for managing and operating services.
An agreement between two or more organisations to set up and operate Shared Services (eg, College A and College B establish a separate Shared Services department)
The acquisition of one college by another (eg, Newcastle College acquiring Skelmersdale College)
Significantly less control more risk/barrier
Chart A
Continuum of Collaboration and Control
Greater control less risk/barrier
D.11 This continuum illustrates the degree of control a college would have over a type of shared service operation and the degree of risk and/or barrier in relation to VAT implications, competitions legislation, TUPE and pensions.
D.12 Most of the definitions put forward for Shared Services have tended to focus on the aim. For the purposes of this work the definition of Shared Services will be very simple but will encompass a description, aim and characteristics, as is shown below:
D.13 Each of the 8 structures outlined in Chart A will be sketched out more fully below and some of the advantages and disadvantages explored.
UNITARY MODEL
D.14 The Unitary model is a single organisation that centralises its back office services. There are numerous examples of this model in both the private and public sectors. The model is much more likely to be adopted in larger and/or geographically more dispersed organisations.
There are examples of the Unitary model in the 157 Group of colleges. Newcastle College which has formulated a ‘Group’ entity comprising Newcastle College, Skelmersdale College and Carter and Carter, has a specific unit in their City Centre Campus called ‘Shared Services’ which centralises the College’s Group finances and HRM functions. City of Sunderland College has 5 centres across the four quarters of the City with each centre separated by several miles. Services such as HRM, MIS (students), Finance and Estates are centralised at one of the major campuses.
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Shared Service definition
A support service carried out by one organisation on behalf of one or more client organisations or on behalf of the various parts of a single organisation.
The aim of Shared Services is:
To improve service quality and to reduce costs.
Characteristics of Shared Services initiatives can include:
Shared technological platformsShared and common processesRoutine, though not necessarily simple, tasksTasks carried out remotelyHigh degree of automationShared need for service from all partner organisationsVariable transactional volume from each member organisation but high transactional volume overallCapable of being replicatedGreater or lesser degrees of collaboration
This model looks to avoid duplication. Obviously, the organisations retain complete independence and thus avoids issues such as VAT, TUPE and competitions law because it is one single organisation that has moved to a centralised model.
The major disadvantage with this model is the ‘corporate take it or leave it’ mentality towards the business unit partners that can develop as they are, in effect, captive customers. It is fairly common practice in these types of organisations for corporate management to insist that business unit management use the shared service. Business unit managers can feel powerless to influence the quality of services provided especially where the organisation is geographically widely distributed. The scale of operation when applied to the further education sector is likely to be limited in relation to generating efficiencies.
MERGERS
D.15 Mergers occur when one organisation acquires another. Again, there are numerous examples of mergers (also referred to as take-overs) in both the private and public sectors. An example in the public sector is Hull College acquiring Harrogate College.
This model operates under a single governance or group structure. It offers the opportunity to reduce the potential for duplication and avoids complex issues such as VAT and competitions law, just as in the Unitary Model described above. Independence of the acquired organisation is normally ‘subsumed’ over a period of time into the parent organisation. The merging of organisational structures and processes is fairly straightforward with such a model.
However, the culture changes can take many years and will be very complex, especially where the mergers are between more than two organisations. An example of this is the merger of 16 colleges down to 6 in Northern Ireland, a process which began in 2007. One of the colleges involved and which was visited by the author of this report in both 2007 and 2010 (North Ards and Downs) had merged with Bangor College and Lisbon College. The 3 colleges were re-named ‘South Eastern Regional College’. However, each of the 3 colleges are still ‘known’ by their original name. The 16 College Principals and strategic management for Finance, HRM and IT rationalised down to 6. Opportunities for further rationalisation do not appear to have been taken despite all being moved onto the same technological platform.
Mergers tend to happen between two or three organisations and can be very complex and time consuming to manage especially if the organisations are geographically dispersed. Whilst there are efficiencies to be gained, they are likely to be fairly small scale.
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LEAD DEPARTMENT
D.16 The Lead Department is where one college may specialise in, for example, finance, and this is then shared by other colleges. Unsurprisingly, there are not many examples of this model in the public sector as there is an immediate VAT levy, not to mention a loss of ‘control’ from the receiving organisations perspective. There are also issues of the providing organisation’s personnel having a natural bias and affinity in favour of their employers. Other issues arise in relation to memorandum of understanding, charges and exit arrangements. It does mean that each organisation can retain its independence. The scale of operation is likely to be small, perhaps involving only a handful of colleges, and therefore efficiencies and associated savings limited.
JOINT INITIATIVES
D.17 Joint initiatives are where an agreement between two or more organisations is established to set up and operate Shared Services. This is what City of Sunderland College and South Tyneside College are attempting to establish.
Again, the author has found few examples of this type of arrangement in the further education sector primarily because of VAT implications, but perhaps also because of the competitive nature of further education colleges. This model also requires a greater degree of collaboration between organisations and trust must be established, but it does mean that each organisation retains full independence. Issues of governance, memoranda of understanding, charges and exit arrangements also need to be addressed.
It may be easier to begin to formulate this agreement when the respective organisations are geographically closer to each other. As with other models, this is not likely to realise significant efficiencies until a critical mass is established.
COMMISSIONING
D.18 Commissioning, as in the joint procurement of services, is something that featured strongly in section H in the research carried out on the LSC Collaboration Fund Projects. There are numerous highly successful collaboration arrangements across the country that have benefited from the project funding.
The majority of projects focused on the ‘joint’ appointment of a procurement professional who worked for several colleges in a geographical area. Each ‘bidding’ organisation directly employed the procurement manager who then works ‘across’ each of the collaboration organisations. Obviously, all organisations in this collaborative model retain their independence.
Whilst under the project specification, there are no VAT implications because the funding has gone to one nominated college. Once the funding is exhausted, each organisation will be expected to pay a proportion of the procurement manager salary and if the contract of employment is retained by the ‘host’ organisation then VAT levies will apply. There is a further option whereby the appointment is ‘shared’ though this could result in significant bureaucracy and difficulties with ‘accountability/performance management’.
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A further proposition is being ‘tested’ out in connection with providing the services through ‘membership’ fees through a charitable organisation such as ACER. This model does seem appropriate to be scaled up to sub-regional, regional and even supra-regional levels and, therefore, greater efficiencies can be realised.
STRATEGIC PARTNER
D.19 Strategic partner can be illustrated by the National Health Services (NHS) model for Shared Services in finance and payroll. This is where there is a public/private partnership for the delivery of Shared Services. The partnership can be equal (50/50) or some other permutation of this. The NHS model was first established by the Department of Health (DoH) to try and persuade Trusts to share services, though with modest success. The DoH decided that a public/private partnership would encourage more Trusts to join and therefore went through EJEU to secure private investment in a 50/50 joint venture.
It has taken several years to firstly get more Trusts to join the scheme and secondly make a financial return. In the case of the NHS, VAT on business services can be recovered in certain instances and this scheme is a case in point.
Being able to recover the VAT has certainly helped this scheme.
FEDERATION
D.20 The Federation model is where member organisations operate within a shared governance umbrella. The Federation of Education Business Link Consortia is an example where the responsibility for providing strategic coherence across an area in the support of links between schools/colleges and local employers rests with the 47 Education Business Links Consortia. Organisations retain independent legal status and local discretion on business opportunities, but are accountable via local boards to federal governance structures. This model may offer greatest appeal to those organisations that are small to medium in size.
An example could be the Cumbrian Colleges that have established collaborative examples such as the Limited Company that they formed as a Joint Venture several years ago for employer engagement provision. Perhaps more importantly the colleges are a similar size and geographically far enough away from each other for them not to be in direct competition, but close enough, to share services. Nevertheless, the total income of the four Cumbrian Colleges at circa £35m is not likely to realise significant efficiencies in absolute terms, unless other colleges can be persuaded to take part. In addition, whilst each College will retain operational independence, there may be tensions with strategic direction being derived from the federation board. Decision making at board level could also prove problematic with Principals not being able to agree strategy.
As with the other models, the memorandum of understanding, VAT levy, TUPE/pensions, entry and exit arrangements will be issues that have to be dealt with.
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OUTSOURCING
D.21 Outsourcing to a third party provider who takes full responsibility for the management and operation of services. There are many private and public examples of outsourcing. Across England, there are a significant number of colleges who have outsourced payroll, refectories, cleaning, security and information technology.
It would appear that to date, no college has outsourced management information of students, finance, human resources, estates or health and safety management. Though outside the scope of this research, the author has come across some evidence of using outsourcing to ‘offload’ staff that are thought of as being problematic. However, outsourcing does not necessarily fit with Shared Services needs. The sharing of technological platforms and processes necessary for Shared Services is not an integral feature of outsourcing and, therefore, will not be explored in any further detail for the purposes of this report.
D.22 A seminar event was held in April 2010 to disseminate the findings of this report to the stakeholders identified in Section A.3 (page 7).
D.23 Delegates at the event were asked to work in groups to discuss the collaboration and control models described in Section D and to complete a scoring table to rank each of the models in relation to critical success factors (see page 32 for definition of critical success factors) such as low risk, high level of control, ease of collaboration, low cost, high quality and flexibility. The higher the score for each of the models in accordance with critical success factors, the more desirable the Shared Services model. (Appendix 4).
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There are numerous Shared Services definitions available, but
typically they all seem to point to models of providing services that
share the same technological interface and processes for identified
work streams. Outwith Unitary and Merger, the rest of the models
all have the same issues and barriers to address in the form of
Constitution, VAT levy, TUPE/pensions, entry and exit
arrangements. It is important to take account of developmental and
transitional change, which is a necessary part of Shared Services
implementation.
Each of the Shared Services model structures offers a different
approach. In deciding on the best model, the desired level of
control and collaboration have to be determined.
D.24 Total scores were collected from each group and placed in the following table in ascending order:
Table BGROUP A
GROUP B GROUP C TOTAL SCORE
UNITARY 49 50 49 148MERGER 50 50 45 145JOINT INITIATIVE 42 43 45 130STRATEGIC PARTNER 49 38 41 128COMMISSIONING 42 33 39 121LEAD DEPARTMENT 45 21 48 114OUTSOURCE 49 29 26 104FEDERAL 11 47 35 93
D.25 The above results were presented to the seminar for general discussion. Unitary, Merger and Joint Initiative, came out with the highest scores. The last three models (Lead Department, Outsource, Federal) had widely varying scores between the groups. One of the explanations provided for this was in relation to interpretation. For example, the Outsource model for Group A where the score was very high assumed good contract specification with flexibility and lead people that would manage the process. The other groups did not make these assumptions.
D.26 Delegates were asked how easy they found the exercise. Most people found the definitions too narrow in supporting their ability to complete the scoring template and also confusing in relation to the titles (eg, Joint Initiative internal and Strategic Partner external). As a result of this, the ‘internal’ and ‘external’ tags have been removed to eliminate confusion.
D.27 To further build on this exercise, delegates were asked to focus on the plus and minus factors of each of the models and to use post-it slips on flipcharts to provide qualitative input (Appendix 6)
D.28 Interestingly, whilst delegates reported that they found the definitions too narrow in relation to the scoring exercise, it would appear from the qualitative exercise that followed and the results in Appendix 6 that they have a good understanding of the potential plus and minus points for each respective model.
D.29 Where the Unitary, Merger and Joint Initiative models scored highly in the quantitative exercise, the qualitative statements clearly identify them as least ‘threatening’ and minimal efficiency returns. The Commissioning model also seemed to be a more ‘acceptable’ way forward.
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D.30 Lead Department, Outsource and Federal seemed to be the least popular both in terms of quantitative and qualitative outcomes.
D.31 Whilst Strategic Partner ranked in the middle of the scoring exercise, the qualitative statements reveal interesting points such as “innovation, increase capacity of technological knowledge, whole greater than sum of parts”.
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When this work on preferred models is cross-tabulated with the work on critical
success factors (see page 32), the Joint Initiative model is probably the highest
ranking. This model seemed to have the highest preference rating coupled with
a high probability of delivery savings.
E SCOPE OF POSSIBLE SHARED SERVICE ACTIVITY
E.1 During November 2009, a workshop was held between a private Shared Services organisation, a change management organisation and the City of Sunderland College to identify and scope the areas that would be most appropriate for a Shared Services solution. The starting point for the scoping exercise was to identify the attributes that make a process a good candidate to transfer. The three main attributes that the workshop arrived at were:
Is it repeatable? Can it be rules based and automated? Can it be done remotely?
E.2 The areas of service provision that were identified that had a ‘best fit’ with these attributes were:
Human Resource ManagementFinanceStudent Services (Educational Maintenance Allowance processes)Safeguard (Trip Management processes)Safeguarding Checks and Data Management
E.3 The areas of service provision that could be considered in the future were thought to be:
Parts of Academic RegistryContinuous Professional DevelopmentData UnitQuality Assurance AdministrationReprographics procurementArchiving (Electronic Document Management)ExaminationsGovernanceCustomer Relationship Management
E.4 In carrying out this research the areas identified above have been linked to the specific processes. Table C shows major work streams and shows some of the processes that could be in a Shared Services model:
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Table C – Possible work streams and processes
FINANCE HUMAN RESOURCES INFORMATION TECHNOLOGY
PROCUREMENT
Accounts Payable Accounts Receivable Sales Invoicing General Ledger
Accounting and Financial Reporting
Fixed Assets/Asset Accounting
Tax Treasury Management Financial Planning (budget setting, monitoring) Internal Audit Management of
Finance Team IT Operations
Recruitment Administration: Candidate Applications Interviews Offers CRB Acceptances
Training Administration: Course offers Delegate attendance
Exits: Voluntary Involuntary
Payroll and Benefits: Payslips Employee records Updates Benefits and Pension Admin Pay Reviews
Employee Relations: Maternity/Paternity Disciplinary Grievance Domestic relocation Expatriation / Repatriation General HR Advisory Absence
Performance Management and Appraisal: Reporting and Analysis
IT Operations System
HR Vendor Management and Procurement
Server Support Desktop Support Network Support Application Support Project Management
Examinations Administration: Registrations Timetables Candidate notifications (examination dates and
results) Results data input
Single procurement system
Preferred supplier list E-procurement Tendering framework
agreements dev and operation
P card administration Efficiency
Measurement Model monitoring
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E.5 There is generally a feeling amongst those participating in this research that:
Each of the major work streams within a Shared Services project need to have a strong professional in each field providing leadership and direction to the people charged with delivering the processes.
The processes themselves need to be ‘world class’ and the culture one of continuous improvement.
Clear accountabilities need to be drawn up together with service level agreements for each participating organisation.
There needs to be regular contact and accountability meetings between deliverer and service user to help ensure the highest quality service provision at all times. Output from these meetings should include improvement actions that need to be taken.
Colleges need to retain high level strategic leadership and expertise within each of the work streams.
E.6 Again, in relation to adding further validity to the findings in this research, delegates at the Seminar event in April 2010 were asked to individually list what they would include in the scope for shared services. The same kind of generic areas such as HR, Finance, Procurement, ICT. One respondent wrote, “anything/everything”. Another included, “Defined software that all use 1 finance system, invoice processing, management accounts, recruitment, HR advice/Legal advice/marketing support/Project Management – bulk buying – fewer suppliers! Across sector – paper is paper”.
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F BARRIERS
F.1 Very similar issues and barriers emerged from a wide range of respondents in relation to Shared Services plans and aspirations. The main areas highlighted from respondents were VAT, TUPE/Pensions, Competitions Law, Management of Information Systems (MIS), Transition-Related Human Resources management and collaboration. The findings are summarised as follows:
VAT
F.2 All respondents said that the imposition of VAT would be a major barrier, if not a project killer. One Government respondent reported that he had thought the issue was resolved during 2007 when, new to his position, he had been asked to take up the issue of VAT with Her Majesty’s Revenue and Customs (HMRC) who had then taken the matter to Treasury. However, the Treasury stated that VAT would apply to Shared Services in both Higher and Further Education.
F.3 The Association of Colleges in the Eastern Region (ACER) believe that there is a solution to the VAT imposition in relation to the way the Company is formulated (eg, Charitable, non-profit making organisation). Whilst this would perhaps help meet the requirements of competition law, it is not clear how this would meet VAT requirements. ACER have commissioned a VAT expert who has suggested that a way to avoid the VAT levy would be to offer Shared Services through membership fees. It is not clear why this would work. Clubs pay VAT if they cross the threshold. This needs to be tested and clarified with HMRC.
F.4 Both the Learning and Skills Network (LSN) and the 157 Group reported that Eversheds had been commissioned to explore the VAT and competitions law issues. The 157 Group report, Preparing Colleges for the Future (January 2010) talks of collaborative models for further education colleges, short of merger as referenced in the Department for Innovation, Universities and Skills (2008) document, Further Education Colleges – Models for Success. However, it would appear that there is limited evidence that this has been widely adopted or that VAT can be avoided in this way.
F.5 The 157 Group report goes on to talk about section 166 Education and Inspections Act 2006 whereby colleges have the power to delegate parts of their core functions to a joint committee with another institution. There are examples, albeit on a small scale, developed by the establishment of both the ACER and FE Sussex who have focused on procurement of goods and services. Section H (below) also talks about Collaboration Projects illustrating how colleges have worked together that have been financially supported by the LSC.
F.6 In relation to VAT, the report goes on to specify that the current tax rules do not help the further education sector when considering either outsourcing or sharing of services; both create an irrecoverable VAT cost to the recipient of the service. It goes on to give an example in the NHS sector and the barriers experienced resulted in the creation of “contracted out services provisions to allow for VAT recovery on certain defined outsourced services traditionally performed in-house”. Section 6.2.4 of the report goes on to state that, “As regards the sharing of services in isolation, the European VAT Directive provides for exemption in respect of service sharing at cost between entities carrying VAT exempt activities”, but this seems to be a ‘what ought’ to happen. This, therefore, still leaves the VAT issue unresolved. However, Eversheds believe that they have a
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strong case to present to HMRC in relation to the European VAT Directive and the outcome of this work is awaited with interest.
F.7 LSN did not feel able to share their findings due to commercial constraints.
F.8 From both desktop research and interviews into the inhibitors of Shared Services, it would appear that funding bodies and Government officials have made extensive representations to both HMRC and the Treasury about the issue of a VAT levy for joint venture shared service business solutions over a timescale spanning several years. The conclusion appears to be that there will be no concessions and that VAT will be levied. KPMG have also tested out this proposition specifically for this project and their findings are:
KPMG Findings on VAT
F.9 The Higher Education Funding Council, together with KPMG, have been looking at ways to remove the VAT burden so as to facilitate a move to a Shared Services solution. Examples have been provided of Universities and Colleges working together by forming regional purchasing consortia to help drive down procurement costs across a range of expenditure categories including stationery, catering goods and computing. A recent announcement in Revenue and Customs Brief 09/10 HMRC has revised its policy on the VAT treatment of companies owned or
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“Under UK VAT legislation and HMRC’s current interpretation of European VAT
legislation, the structure (ie, a new entity providing ‘Shared Services’ to the
Colleges in relation to Finance, HR, IT and MIS) would create additional VAT
costs for the Colleges. The supplies of these Shared Services to the Colleges
would be subject to VAT, which would be largely irrecoverable. Currently these
services are operated in house, and therefore, the taxable supply from the new
entity is generating additional irrecoverable VAT for the Colleges which would
obviously diminish any cost savings to be derived from sharing these costs.
KPMG has been in discussions with HMRC and the Treasury in relation to the
potential for VAT exemption to be applied to cost sharing arrangements, as scope
exists within EU law for certain cost-sharing activities between not-for-profit
bodies to be treated as exempt. In last week’s budget the Government made the
following announcement confirming that it will work with charities and other
affected sectors to consider the potential for introducing such an exemption into
UK law:
“The Government recognises the efficiencies that can be achieved by
organisations such as charities sharing services and the potential VAT barrier
that exists. The Government will work with charities and other affected sectors to
consider options for implementing the EU cost sharing exemption.”
controlled by universities that are engaged in the delivery of university level education leading to a qualification. The policy change is being introduced as, “A review of the VAT treatments of supplies of university level education delivered by companies owned or controlled by universities has highlighted inconsistencies between previous policy and VAT case law. This policy change is being introduced to address this, and to ensure that similar supplies are treated in the same way by all universities”.
F.10 The following is a case study of a University and College collaborating from 2001. It demonstrates the importance of not entering into agreements until VAT implications, Exit arrangements and other important factors have been thought through:
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During 2001, a meeting was held between a very large North East further education College and a nearby University to explore opportunities for collaboration which would be of mutual benefit of both organisations. Strategically, the University needed to respond to its recently publicised financial difficulties which involved the potential redundancy of over 100 staff and the possibility of a ‘middle ground’ community education delivery in an (undefined) partnership was explored. Progress was not likely to be made, however, until the University’s new strategic direction had been determined. In the short term, the emphasis was on direct collaboration where either duplication of facilities or specialist expertise resided within the institutions. Initial possibilities and the first areas for exploration of potential mutual benefit were as follows:
1. Reprographics – savings in premises, equipment and delivery costs appear possible
2. Staff/student surveys – availability of a contracted University service in the short term.
3. Refectory management – availability of a contracted University service.4. IT procurement, consultancy and network provision – access to University
services to reduce costs5. Blue Square Recruitment – University interest in the provision of agency staff.6. Conference/seminar facilities – availability of alternative off-site facilities at
University.7. Advice, guidance, counselling, careers – exploration of video links to specialist
services.
The reprographics proposal was taken forward. The College and University consolidated reprographics on an industrial estate within geographical proximity of each organisation. A lease agreement was taken out by the University. Equipment was rationalised.
During 2006 the University decided to terminate the agreement. It would appear that neither party “did not know what they did not know”, entering into a collaborative arrangement without, it seems, going through due diligence in relation to competitions law, VAT and exit arrangements. Part way through the partnership, the College sought the advice of KPMG in relation to VAT charges for reprographics. It appears that the University had not charged the College appropriate VAT leading to an accumulated cost in excess of six figures.
The University decided to terminate the partnership and take the reprographics back in-house. There does not appear to be any available rationale for this decision.
F.11 One of the options looked at in relation to overcoming the issue of VAT was in relation to secondment of staff to a Shared Services model. A senior LSC Director reported that secondments made from LSC to outside organisations incurred a VAT levy. This was further tested out by a further education college secondment to the LSC with the Finance Department confirming that VAT was applicable. Furthermore, there would have been added complexities with a secondment model in relation to employee conditions of service varying across organisations.
F.12 What became very clear as a result of researching the VAT issue, was that there are several leading legal organisations that have been commissioned by different public and private organisations to look at this major barrier. Indeed, it would appear that one leading legal firm has been commissioned by several organisations to look at the self same subject.
F.13 There is one remaining option to be tested in relation to VAT. It may be that where a club is formed and membership fees and subscriptions are charged that there could be VAT exemption. Professional advice is being commissioned to test this proposition out formally with HMRC, but it would seem that there are few grounds for optimism on the part of those seeking exemption. (Appendix 2)
F.14 For the purposes of this paper the assumption is that VAT will continue to be levied for any form of Shared Services outside of mergers and certain types of federations.
F.15 Outsourcing and Shared Services organisations such as NHS/Steria will state that anything between 25% and 35% can be realised as efficiency savings. The Treasury Operational Efficiency Programme Report (2009) has indicated cost savings between 25% and 30% by process re-engineering back office transactional activity into a Shared Services unit. Colin Cram has stated that having created and managed several Shared Services operations that he can confirm that cost savings of at least 20-30% are not unreasonable. If we extrapolate these figures, on the worst case scenario of VAT being uplifted to 20% in the next 12 months, this will mean that organisations can still hope to achieve between zero and 10% through a Shared Services model. As public sector cuts begin to roll out in the next few years, these savings could prove to be much more attractive in the medium to longer term. It will be essential though to ensure that achieved savings are at the higher end of the spectrum.
TUPE/Pensions
F.16 Perhaps the biggest issue for colleges to consider when looking to make efficiencies in transactional operations and consolidate support activities will be the laws surrounding employees. The majority of Shared Services research indicates that there should be the opportunity to TUPE staff into the new Shared Services organisations.
F.17 Colleges may not want to negotiate the complexities of TUPE. Even so, some are looking at ways to mitigate against existing generous terms and conditions of employment which are very different in the private sector. Regulations such as the Financial Reporting Standard 17 Retirement Benefits (FR17) are very complex. Standard FR17 is based on the principle that organisations should account for retirement benefits when it is committed to give them, even if the actual giving will be many years into the future. This standard covers support staff
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contributions to the Local Government Pension Scheme (LGPS). It does not apply to the Teachers’ Pension Scheme (Accounts Direction Handbook 2008-09).
F.18 A respondent reported that one way of mitigating against the VAT levy was to eventually have back office staff moved to private sector type contracts and conditions of service that would reduce costs in the medium term to long term.
Competitions Law
F.19 It would appear that both ACER and FE Sussex have models that can be emulated in other areas of England in relation to meeting the requirements of competitions law. Both organisations are managed through a Board of Principals that direct the Chief Executive and management of each organisation.
F.20 Principles have been established by the European Court of Justice (ECJ) as demonstrated by the “Teckal” exemption. The Teckal exemption was set out by the European Court of Justice in 1999 in the case Teckal SrL v Cornune di Viano and Azienda Gas – Acqua Consorziale di Reggio Emilia (C107/98). The exemption provides that where two conditions are met the procurement can be treated as in-house and therefore the procurement rules do not apply. These conditions are as follows:
i. The contracting authority exercises over the entity supplying it a control which is similar to that which it exercises over its own departments;
and
ii. That entity carries out the essential part of its activities with the controlling contracting authority or authorities.
F.21 Both of these requirements appear to be met by ACER and FE Sussex. The Government has been actively encouraging the public sector to explore collaborations and partnerships to deliver services more efficiently and effectively following the Gershon efficiency review (2004). However, legal advice needs to be taken to ensure that organisations like ACER and FE Sussex meet the full requirements of the ‘Teckal’ principles.
F.22 In Guidance for Collaborative Options Evaluation and Appraisal of Service Delivery Models (2008), they concluded that it is very important to take account and act upon the new developments which have taken place in the public procurement environment. Assumptions which may have been made in the past about the necessity to submit particular opportunities to advertisement need to be challenged and tested with legal advisers.
F.23 The Learning and Skills Network (LSN) described a model of Shared Services that appeared to be a subsidiary arm of LSN as a “not for profit” organisation delivering Shared Services initially focusing on a cluster in London/South East and then extending geographically further. It was not clear if the intention was to be regional or national though one respondent did say that they thought that some aspects of Shared Services could be better delivered regionally and some nationally, but no work stream was specifically mentioned for each of the geographical/size criteria. It was not clear from the discussion that the formulation of the ‘not for profit’ organisation would pass the ‘Teckal’ principles.
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F.24 Several respondents seemed to confuse the competitions law issues with VAT believing that they were intrinsically one and the same. Where they thought the competitions law issue was resolved, they immediately assumed a resolution of the VAT issue.
Information Technology F.25 In relation to any model of Shared Services, it is essential to have good
information technology systems. For Shared Services in FE, two requirements were highlighted by participants in the research. Firstly there is a need for the shared service itself to have a well-developed Management Information System so that it can robustly manage its own activities. Secondly, there is a need to ensure that the services provided into colleges are supported by Management Information Systems from within the colleges themselves.
F.26 There are approximately four leading management information for students software houses in England (namely, Aggresso, Tribal, Compass and Capita). A similar picture emerges for software houses in relation to Human Resource Management and Finance. The research showed that the likelihood of colleges who wish to come together in a Shared Services model, even at a sub-regional level, having the same software licences for the major work streams is remote. Moving colleges to the same information technology platform would involve a significant management of change and take some time depending on the software licence agreement terms entered into by each organisation.
F.27 Notwithstanding this, it is the case that there are initiatives that are underway and which seek to improve information technology in the FE sector. The Learning and Skills Network (LSN) reported that they have got a team of 6 dedicated staff driving processes and technological developments and that the business case they had developed for a Shared Services project necessitated there being 5 colleges willing to be part of a Shared Services business solution with 10 colleges beginning to realise benefits.
F.28 JISC are not certain as to whether they will continue to be funded post July 2010. In the meantime, the focus of JISC Shared Services seems to be in congruence with their definition of Shared Services (quoted in Section D2) and they have held events to look at collaboration in higher education in the procurement of a virtual learning environment (VLE) that will also have a commercial return. However, at the event in February 2010, JISC reported that all project bids had been ‘frozen’ for the immediate future due to constraints placed on funds.
F.29 The ACER are formulating a business case to enable its member colleges to have a Shared Services business solution for human resources. Research carried out by ACER indicates that half of their member colleges are on the same HR software with the other half on a variety of different software solutions. However, whilst this meets the competitions law requirements as mentioned above, it is not clear that this model meets the requirements of VAT exemption.
F.30 The DCSF have led on a Shared Schools Recruitment Project for the delivery of e-recruitment into the 24,000 schools in England. The project cost £350,000 to set up. DCSF have linked in with ACER to replicate this approach and encourage a wider take up so that it can be used Nationally by any further education college.
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F.31 During the early part of 2007, a small working party made up from the National Advisory Group for Shared Services membership visited Northern Ireland. Since this visit took place 16 further education colleges in Northern Ireland have reduced to 6. The lead organisations for this change were the Department for Education and Learning (DEL) and the Association of Northern Ireland Colleges (ANIC).
F.32 The ANIC project management team developed the Northern Ireland College Systems Project (NICIS) during 2002. This project was established to replace the then College Information System in each of the 16 further education colleges. The scope of the project included student management, human resources, payroll and estates management. The finance system was implemented in August 2006.
F.33 Student management software and human resources/payroll was provided by Distinction Systems Limited based in Swansea and the contract was managed locally by British Telecom. This was a significant procurement exercise for ANIC/DEL. It was decided that a single central database would provide centrally held data to both colleges and DEL in real time, together with unlimited flexibility in the content and format of what users said. The NICIS project team developed reporting systems for student and personnel management that fully addressed all statutory returns required by DEL for funding and monitoring purposes.
F.34 The visit to Northern Ireland included seeing the development of the management of student data from the user’s perspective. North Down and Ards Institute of Further and Higher Education College showed us the bespoke reporting developments that a team of 5 software technical staff working with both students and College staff had developed. This was very impressive, showcasing some excellent reporting tools that had been developed through Sharepoint and pivot tables that enabled students, staff and management to easily extract data to support decision making processes.
F.35 Some three years on, delegates from BIS, LSC, City of Sunderland College and South Tyneside College visited Northern Ireland during the early part of 2010 to see the progress that had been made since the first visit.
F.36 The first part of the visit was to explore with ANIC the NICIS project from its inception in 2002. Specific questions centred on the funding of the project and the selection of software licences. ANIC reported that DEL had fully funded the first 5 years of the project (both capital and revenue costs). The NICIS project management and small team of 5 software and hardware specialists were from ANIC. From around 2007, the project became a joint venture between DEL and ANIC both contributing 50% funding.
F.37 It was decided during the time of merger (16 colleges becoming 6) that NICIS would be a managed service and that pay and conditions of service would be centralised for the 6 colleges.
F.38 As part of the efficiency drive, ANIC are being asked by their member colleges to explore Shared Services, particularly for legal services (ANIC respondents referred to the FE Sussex model). They were also interested in the findings of this report particularly in relation to management of information of students procurement and associated costs (ANIC are currently using Aggresso software licence for student management). ANIC reported that they currently pay around £81,000 per college for student software (approximately £486,000 for the 6 colleges). Other related costs included data centre and support costs of £212,000 per year and additional software licence costs for finance. When questioned as
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to the reason for going with an ‘off the shelf’ software licence solution, the project manager responded that he did not know although he felt it made sense to have thought of developing a fully integrated management information system and that the current software solution was not fully interoperable.
F.39 There does not appear to be a comprehensive spend analysis to be able to accurately interrogate the costs of software licences in England, though the Northern Ireland costs do seem similar to both City of Sunderland and South Tyneside Colleges payments. If we extrapolate the figures in F.38 above and apply them to the 358 English colleges, the costs for student management software licences would be around £29m per annum.
F.40 The idea of the sector developing a fully interoperable management information system specific to its needs has been explored with most of the stakeholders listed in Section A above. Several respondents suggested approaching the existing software companies to take forward this idea. However, this would place a provider in a monopoly position and such a solution is, therefore, unlikely to maximise savings.
F.41 Obviously, this is a suggestion only in response to paying for a product that does not fully deliver the required outcomes and is also very costly, both from a non-pay software licence perspective and staff costs in relation to software specialists to try and get the software to do what is required. One respondent said, “whenever you ask the software licence company to effect a change, it costs £70k and how many times do we have to do this in response to funding changes?”
Transition-Related Human Resources Management
F.42 Change management and cultural effects were only raised by two respondents when discussing the issues and barriers. However, during the reviews of the Collaboration Fund Projects (in Section ‘I’), college culture figured prominently during discussions on barriers to the projects.
Collaboration
F.43 Reference has already been made to the way in which colleges guard their independence and to the way in which some colleges behave in a very bullish way, seeking to take-over those they perceive as being financially weaker.
Quality and Performance
F.44 The view was expressed that there was an absence of a wide-ranging, consistent and reliable database from which performance indicators could be developed or results for existing indicators drawn easily. This meant that comparisons were compromised. If a Shared Services solution could help rectify this then it should.
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G CRITICAL SUCCESS FACTORS
G.1 At various times throughout the carrying out of the research respondents were asked what they felt the critical success factors would be from their organisational perspective in relation to a Shared Services solution. The vast majority of respondents cited cash savings and high quality as being critical success factors. One of the more detailed and well thought out responses came from a Principal who commented that they included:
G.2 Perhaps it is most important to note a theme that seems to run through much of the thinking on Shared Services critical success factors. This is that costs should be reduced and savings made through the elimination of waste and reduced bureaucracy.
G.3 No one mentioned any further critical success factors. The need to deliver these has to be kept in mind. They will guide base line information requirements and performance monitoring.
G.4 Delegates at the Seminar event in Sheffield were asked to individually describe the critical success factors from both their own and particular organisations perspective. Responses to add to those mentioned above were “less duplication; transformation of how things are done; responsiveness; impartiality; documented and benchmarked so that improvements can be monitored/managed; shared services becomes the ‘norm’ way of working (embedded); reduce bureaucracy; dependency and control not an issue; enables front-line staff to focus on delivery (ie, Teaching)”. All of these factors add further value to the initial responses in G.1 above to inform the base line information requirements and performance monitoring.
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Critical Success Factors
“Reduction in cost of at least 10-20%;
an improvement in service standards in all areas;
flexibility to provide the required data to the front line in a timely manner;
flexibility to respond quickly to changes in requirements from the college or
funders;
the removal of the overhead required in the management of support staff;
release of space to provide opportunities for teaching and possible growth”.
H REVIEW OF LSC COLLABORATION FUND PROJECTS
H.1 This section reviews the project reports from the Learning and Skills Council Collaboration Fund Projects and describes the successes and barriers from each project leads perspective.
H.2 The Collaboration and Sharing Fund was established by the LSC to help colleges to develop and test collaboration practices. The funding set out to support projects that:
Prove the concept of collaboration and sharing Demonstrate the value of collaboration and sharing to the sector Define collaboration and sharing potential in the context of college
operations Develop knowledge and expertise in collaboration and sharing, producing
reusable tools and techniques.
H.3 A total of ten projects were supported mostly centred on a shared procurement service between colleges in a close geographical area (sub-regional or regional) to each other.
H.4 One project set out to establish regional procurement services. The Project Lead reported several key successes such as the development and implementation of a Regional Procurement Strategy; the delivery of procurement officers training; raising awareness of OGC frameworks and consortium purchasing; the implementation of Government purchasing cards (p.card) to member colleges; consolidated supplier list; member colleges’ commitment to sustaining the Procurement Manager’s salary funded through the project monies. The critical success factor referred to by the respondent was the need to save money.
In particular, reference was made to the work done by the Procurement Manager with one of the member colleges that may result in significant cashable savings. The major barriers experienced were in relation to colleges continuing to fund the Procurement Manager salary post collaboration fund project. Whilst colleges have been extremely positive about the services provided, the respondent reported that there is some reluctance to pay.
H.5 The same organisation had another project supported by LSC for the provision of HR and Financial services. This is where a senior manager of an independent charity limited by guarantee is seconded to member colleges of the organisation. The role was to share HR resources and policies starting with four member colleges. This has extended and now includes 7 member colleges. Colleges pay for the HR services through ‘membership’ fees.
A similar scenario was provided for the financial services whereby 2 member colleges were working collaboratively. Clearly this ties into Section F.3 in relation to testing out the VAT issue concerning membership fees. Again, the same kinds of issues emerge when exploring the barriers and that is the member colleges’ willingness to pay for the services once the project funding finishes.
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H.6 The Pan-Sussex Joint Procurement collaboration engaged Exor (Exor is a software tool that enables non-pay spend to be captured and categorised). Respondents who have used the system liken it to a ‘Thomsons Directory’. It would be relatively simple to roll this out to other colleges This information has enabled the Pan-Sussex group to tackle the major spend areas (examinations, telecommunications, insurances) and have joint procurement negotiations. This has already had a direct positive outcome in connection with examination fees already saving more than £250,000 and as reported by the Chief Executive Officer in the Times Educational Supplement, “… we are ahead of our target for a 10% reduction by the end of 2011” (April 2010). It would appear that the Sussex model is at the forefront of improving value for money from examination fees and work with awarding bodies.
The joint procurement of HR/Payroll and Health and Safety is still being implemented. However, the respondent said there were barriers. There seemed to be a college culture that prevailed described as “we know best”. Issues such as college staff being overworked, relying on good will to provide information and inertia were some of the problems experienced by the respondent, together with translation of strategic leadership into operational management.
H.7 There are nine colleges in the Leicestershire county boundary, six General Further Education and three 6th Form Colleges. The Vice Principal for Finance was involved in the National Advisory Group for Shared Services in further education in 2007 with the major work stream for finance and would be a keen advocate, but for the issues of VAT and Competitions Law requirements.
Before the start of the Shared Procurement Services Project, a Steering Group of mainly finance people from each of the nine colleges was formed that subsequently sought agreement from all Principals to put forward the bid to the Collaboration Fund. Leicestershire College then took the lead in relation to appointing a professional Procurement Manager and getting the right person with the required skill mix proved to be challenging. EXOR was used initially to profile the spend in each of the nine colleges. However, this proved difficult to implement because of categorisation of data issues. The newly appointed Procurement Manager, therefore, developed a procurement register to capture the relevant data for analysis.
There are several projects that the Procurement Manager is working on, namely, IT Hardware, Examination Board Cost Reductions, Insurance, Recruitment Advertising, Temporary Staff Recruitment, Legal Services, Human Resources Services and Finance Systems. One of the major barriers in getting the group (of nine colleges) to work together was a perception that “Leicester College is taking over”. One way round this has been for the Procurement Manager to take a lead on, for example, Examination Board Cost Reductions, work up the business case and then bring the Steering Group of colleges together to present the findings.
However, it was felt that just over a year down the line the other partner colleges still behave with suspicion in relation to Leicester College. This may be because Leicester is much larger than the other eight colleges, but also because the Procurement Manager is on the Leicester College payroll. It will be interesting to see how the Procurement Manager role evolves when all nine colleges are responsible for paying the salary and how the contract of employment and VAT issues will be tackled.
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H.8 The Cumbrian Colleges Collaborative Procurement Project is very similar to the ones discussed above. However, it would seem that integration of the Procurement Manager’s role was much smoother. This may be because the Cumbrian Colleges formulated a Joint Venture entity several years ago and had well established collaborative groups each focusing on key areas of work such as human resources, quality and finance and were used to sharing practices.
The Procurement Manager has been in post for just over a year and reported that his biggest challenge was ‘winning hearts and minds’. All four Cumbrian Colleges now use the procurement services and, though the Procurement Manager is on the Lakes College payroll, he is based at one of the other colleges and works with budget holders in each of the colleges.
The Procurement Manager has analysed non-pay spend for each of the colleges and reported that £1.2m is spent on examinations between all four Cumbrian colleges. He has also demonstrated the high volume of low-level transactions resulting in copious invoices and now three of the four Cumbrian colleges use the Government’s Purchasing Card (p.card) thereby streamlining the whole process.
The Finance Director reported that the colleges are using the Efficiency Measurement Model (EMM), but only for procurement. Work is under way to begin to capture EMM non-pay and capital efficiencies. The Procurement Manager reported that the biggest success of the collaboration fund project has been the relationship building which has been very productive developed over a period of time. Again, it remains to be seen when the project ends how the four Cumbrian colleges will address funding the Procurement Manager role.
H.9 The project between Cardinal Newman College and Blackpool Sixth Form College is an example where two similar sized sixth form colleges have worked together to look at short term collaboration around areas of procurement. The respondent said that both colleges are extremely keen to look at shared services in the longer term, but said that there not ‘examples out there’. In the early days of the project it became apparent that an understanding of collaboration was not very well developed. Therefore, a ‘Collaboration’ Work Day event was held with senior managers starting with a presentation of aims and goals of what collaboration is in terms of procurement and the perceived potential drawbacks. The outcome of the event was an action plan for both short and long term goals.
One of the barriers experienced whilst working through the short term goals was the two colleges getting to ‘contract alignment’. Most contracts tend to be on three year timescales and the respondent reported that to achieve standardisation would be costly and take several years to achieve. The use of Exor was reported as being an invaluable and very insightful process to go through. The respondent said that all colleges found it easy to pull together the data to analyse which is a stark contrast to the Leicester College experience.
Collaboration between the two sixth form colleges departments was reported as being widely different. The respondent said that the 2 Estates Managers had a “fantastic working relationship that was leading to fantastic outcomes and really was demonstrating more for less”. Joint Continuous Professional Development (CPD) for Manual Handling courses had halved the costs. The Estates Departments are also looking to reduce revenue by looking at more sustainable measures to reduce energy requirements.
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The respondent reported that although both Colleges have identified a number of key functions that could be organised between Finance, MIS, Library and HR, one of the major challenges encountered is how they could legally demonstrate their ability to deliver in accordance with the Instrument and Articles of Governance.
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Overview of LSC Collaboration Fund Projects
The overall emphasis has been on procurement, though not exclusively so. All projects
have demonstrated significant successes in efficiencies. Most respondents reported a lack
of trust, suspicion and operational difficulties experienced at the outset of the projects.
Over a period of time the dynamics changed as a result of building up relationships and
demonstrating procurement successes.
The National Audit Office (2006) published Improving Procurement in Further Education
Colleges in England and stated that, “Whilst colleges’ procurement systems are largely
well established in terms of internal controls, most colleges’ systems, processes and
procedures have not kept up with modern procurement practice. Savings are clearly
achievable”. The LSC projects would seem to confirm this.
The Collaboration Fund initiative has undoubtedly impacted in a positive way on some of
the more proactive colleges, but there are still a considerable number within the sector that
have not begun the journey.
Colin Cram has asserted that, “The structure of public sector procurement remains too
much the legacy of past fragmentation and the independence from the ‘Crown’ of much of
the public sector, eg, local authorities (whose procurement spend is £40bn pa), NHS trusts,
higher and further education institutions and the myriad of ‘non-departmental public
bodies’. Arguably there are several thousand public sector procurement organisations and
40,000 procurement points. There are 40 buying agencies/consortia, some regional, others
national or semi-national; some co-exist, others compete. There is a great deal of product
overlap”.
The Collaboration Fund has enabled, albeit on a very small scale, colleges to group
together non-pay costs and items such as I.T. hardware, staff development, examinations
and software licences and to collectively procure. In so doing they have been able to
make substantial savings.
J SHARED SERVICES DEVELOPMENT AND IMPLEMENTATION REQUIREMEMTS
J.1 This section will describe the support requirements of the Further Education Sector if the implementation of Shared Services is to be a success.
J.2 These recommendations are based on knowledge and experience built up by the author in carrying out the research, starting from the time when the Government published Sir Peter Gershon’s Review of Public Sector Efficiency (2004) and the Transformational Government Strategy (2005). The strategy had three key transformations, one of which cited Government moving to a Shared Services culture. Since then, and believing that Shared Services had a great deal to offer the FE sector, the author has been involved in work aimed at trying to move forward this agenda. The following case study illustrates this and points up some of the support that would be required.
J.3 CASE STUDY: Shared Services in Sunderland and South Tyneside Colleges
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The City of Sunderland College and South Tyneside College agreed to explore the feasibility of establishing a Shared Services solution. The 2 colleges had previously collaborated on the procurement of financial software licence resulting in a cashable saving of over 40% of single licence agreements.
Senior managers agreed on the scope of work to be considered for Shared Services (Finance, HRM, MIS and the associated processes under these major work streams) developing the business case for each respective college. The Chartered Institute of Public Finance and Accountancy (CIPFA), Sharing the Gain (2010), business case templates were used to capture this information (Appendix 3).
However, having arrived at a position statement, other external events took over. As a result of significant income reductions affecting most of the further education sector, both City of Sunderland College and South Tyneside College needed to review their respective organisational structures. This has temporarily slowed the development process and the building of a strong business case. Nonetheless, it is clear that a Shared Services solution may offer several efficiencies, such creating a secure, managed data centre that could be scaled up to bring in other local colleges who have not benefited from capital grants. This would further support the movement of transactional type activities into such an environment. Both colleges are now on the same financial software platform and have been working together to develop joint processes. IT software compatibility is not yet in place for the other major work streams.
Senior management teams in both colleges have a real desire to collaborate in relation to a Shared Services solution. Both colleges had applied and been unsuccessful in their bids for capital grants
J.4 The Sunderland and South Tyneside case study shows that events can overtake individual colleges even where there is a firm commitment to move progress. This highlights that it is important to have an independent organisation, with sector knowledge and understanding, but with the sole focus of driving forward the Shared Services agenda. Working with a number of college partners would mean that such an organisation could, when some are busy with, say, restructures or inspections, link with other partner colleges who at that time would be able to participate in the necessary development work.
J.5 Undoubtedly there is much work that colleges have to undertake for themselves. It is important, for instance, that each college captures its starting point in relation to the costs of the major work streams that are to transfer to a Shared Services project. These need to be agreed and signed off by both the colleges concerned and the Shared Services project. This will provide a clear benchmark and audit trail and help show whether the Shared Services project is indeed providing a more efficient service.
J.6 The case study showed that there is a need to align software for Information Management for Student Data and HRM between City of Sunderland College and South Tyneside College. This will mean some costs in relation to the purchase of new licences and negotiating release from existing contracts.
J.7 There will undoubtedly also be legal costs. Solutions will need to be decided upon for major issues such as TUPE/Pensions, VAT, Heads of Terms/Service Level Agreements and so on and advice will need to be sought. However this advice will be most cost effectively provided where a Shared Services solution is for a number of colleges and not just a small partnership.
J.8 Recent research carried out by LSN on a viable business case has indicated that there needs to be a minimum of between 5 and 10 colleges entering into a Shared Services solution to begin to make the efficiency savings required. This was further reinforced by Steria who have also carried out a similar business case based on the City of Sunderland College that indicates a critical mass of 120 back office staff is a minimum requirement.
J.9 Shared Services will maximise savings where provision is sought from parts of the country where salary pressures are lowest and rents are relatively inexpensive.
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Support requirement A: Funding to support the establishment of a Shared Services project. Such funding to cover set up and development phase costs and even to extend into implementation and to the point at which the new agency is able to be self sufficient by selling its services. In addition, there may be a need for some capital spend to set up a secure data centre for instance.
Support Requirement B: An understanding from external funders that colleges will have additional work requirements in setting up Shared Services and that this will stretch capacity, leaving little left by way of a contribution to a new Shared Services project.
J.10 The development of procurement as a major work stream would begin to realise the ‘joined up’ approach advocated by NAO and OCF. More importantly, it would elevate the importance of professional procurement and the vast savings that are achievable through collective and intelligent purchasing. Colin Cram points out that, nationally collaborative procurement between independent bodies arguably represents fewer than 10 per cent of total public sector procurement spending and its impact is blunted by the lack of a formal supporting structure, good quality data and frequent lack of commitment by public sector bodies to collaboration, which often pay lip service only. The public sector continues to create high costs for itself and suppliers.
J.11 There is a significant duplication in IT systems in the further education sector. These are generally procured independently according to different specifications to do the same kinds of work. There is a real opportunity to significantly reduce the cost of IT for the further education sector that will result in tens of millions of pounds annually recurring saving. A separate feasibility and business case report would be needed to arrive at more precise figures. However it is safe to say that a sector owned MIS solution would have several significant advantages such as:
A cost reduction in one of the highest non-pay budget expenditures that a college incurs
Fully integrated and interoperable management information system that provides all the back end reporting functionality for funding and legislative requirements
Front end user interface designed specifically to meet FE user needs (students, teaching staff, support staff, management, parents)
Building IT software around process maps based on best practice
Significant reduction in software technical staff that each college currently employ to adapt off the shelf systems (approximately 3 FTE staff on average for each college).
K RISK ANALYSIS
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Support Requirement C: In order to maximise savings, funding should be for a significant FE Shared Services Project and based where costs are comparable with the lowest available anywhere in the country.
Support Requirement D: Funding should be for a wide-ranging Shared Services project. This will help in the production of a Management Information System database that will meet the needs of all college work streams. In turn, this will produce consistency across participating colleges as well as maximising savings. Where possible funding agencies should encourage collaboration between Shared Services projects.
K.1 There are undoubtedly risks that need to be addressed if a Shared Services project is to be successful. These are highlighted below:
Table DRisk Consequence Mitigating actionColleges unable or unwilling to fund set-up costs
Project does not get off the ground
Seek funding to cover first three years project costs in order to reduce and share the risk
Colleges want to cherry pick and only take particular services
Difficult to sustain an integrated service in this way and get commitment and buy-in to on-going development
Only take those colleges as customers if they take the integrated package in order to avoid the risk
VAT levied on transactions between the Shared Services Project and colleges
No savings Reduce the risk by: Developing services such as
Procurement where the savings are potentially greater than the VAT levy.
Lobbying the Treasury for a change to the VAT rules.
Adopting the organisational structure that reduces the possibility of VAT being levied.
TUPE arrangements mean that savings are compromised at least initially
Savings reduced in first year of contracts with individual Colleges
Accept the risk and build into budgets.
Competition law may mean that provision of Shared Services will have to go out to tender
Implementation delayed.
Avoid the risk by complying with Teckal requirements.
Reduce the risk by seeking legal opinion as to whether Teckal avoids competition law requirements
Project does not deliver savings
No long term future for the project
Reduce the risk by: Ensuring that an integrated
approach covers areas such as procurement and IT which hold out the greatest possibilities for savings
Appointing experienced and well qualified staff
Adopting a project management approach
Project does not deliver the quality of services that are required
No long term future for the project
Reduce the risk by: Keeping number of projects to a
minimum Giving one broad-based project the
lead in MIS development Developing a quality and
performance management system and approach for the project
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L CONCLUSIONS
L.1 Conclusion I – Stakeholder Requirements
This work has highlighted four major variables in relation to Shared Services. These are as follows:
Stakeholder requirements Size and geographical location and coverage Structure Functions
L.2 Conclusion II – Timeliness of Efficiency Savings
Perhaps the next question that needs to be answered by this research is whether setting up Shared Services is worth the effort. Should the answer to this be a resounding ‘No’ then there would be no point in continuing with this work. However, the research largely uncovered widespread support for a Shared Services solution and a feeling that such an approach could be easily justified. Furthermore, no one who participated in this project doubted that. In addition, the vast majority of respondents reported that the timing was now right for Shared Services given the current and likely future public sector funding cuts. Respondents reported that there is “an appetite for doing this” coming from discussions around the country with Principals of Colleges and senior management teams.
This is a very different reaction to the Duke & Jordan (2008) research which found that the inhibitor most commonly mentioned by senior management was that Shared Services are just not important enough on the institutional agenda: as one interviewee said, “No vice-chancellor is going to get out of bed for Shared Services”. Times have now changed and the need for efficiency savings tops many institutional agendas.
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Any recommendations drawn from this research must seek to meet stakeholder requirements. In this way collaboration and progress will become easier to achieve.
The evidence is that the Shared Services concept has the potential to make significant savings in the FE sector. Shared Services ought therefore to form part of the solution to funding reductions. To give further support now to the development of a Shared Services approach would therefore appear to be sensible, timely and essential if the maximum amount of funding is to be retained for front-line services.
L.3 Conclusion III – College Independence
Another specifically further education inhibitor reported by Duke & Jordan was that colleges are fiercely independent organisations that have been told by the government to compete. This therefore raises issues of whether an institution can trust its competitors with its vital data and systems. Shared Services may be seen as the start of a slippery slope towards losing independence. Indeed, two years down the line and the headline on the Further Education Focus, January 2010 reads “Colleges face restructure as 25% budget cuts loom – radical shake-up or merger on cards for at least a third of providers as LSC prepares for the worst”.
L.4 Conclusion IV – Functions and Implementation
The case studies and structure models described above indicate that Shared Services can actually be seen as enabling colleges both to retain their independence and to fully focus on their core business of education and training by collaborating to release costs.
The pressing need is for a Shared Services structure model and implementation strategy that gives an opportunity for four major areas of work to be brought together and developed and implemented simultaneously.
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Delay cannot be afforded if savings are to be maximised. Therefore any Shared Services project must not feel like a threat to participating or would-be participating colleges, as this would cause resistance. Care must be taken to adopt structures and an implementation approach that avoids this.
L.5 Conclusion V: Size of pilots/Numbers of partner colleges
Several respondents have suggested that the size and composition of any Shared Services project would be crucial. They suggested that it was likely to be more successful if done on a sub-regional or possibly even regional level. For some work processes, such as the development of management information systems, there is an obvious sense in which the more colleges are involved the better as this would spread out development costs. Also having different sized colleges from rural and urban areas would help ensure that there was little risk of not identifying and addressing the needs of most colleges.
Developing a discrete Shared Services solution between several colleges for the major work streams will allow for piloting, testing and modification until a finely tuned operation can be offered to the sector.
L.6 Conclusion VI: Development and Delivery Twin Tracking
The major processes would need to be mapped and agreed. This work would need to be done in conjuncture with colleges to ensure that there is an agreed and streamlined way to take each process forward. Each identified area of work would have a number of processes and procedures. It would be necessary to have Service Leaders for each major area of work or project work-stream, (IT, HR, Finance, Procurement). They would need to be experts in their own field and have
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There is general support for a Shared Services project that would focus on four major work areas, namely HR, IT (including management information systems) Procurement and Finance. Any Shared Services project would need to move swiftly from development to implementation in order to maximise savings which can be diverted to frontline services.
One initial project should be supported. This pilot project needs to involve several colleges of varying sizes and from both rural and urban areas. This will give a breadth of view, especially important during the development phase. Once finely tuned, the project could then be replicated in other parts of the country
both process development and service delivery expertise. Each would need to be supported by software developers allocated to them but managed by an IT Service Leader.
During the development phase there would be a need to hold regular development meetings. Once the pilot phase of the project is over the software developers would continue to address the development needs of customer colleges. The staff with expertise as project leaders would manage the delivery of services in their area of work.
L.7 Conclusion VII: Barriers
It is absolutely clear that the general view of participants in this research is that levies will not encourage the sector to embark on Shared Services journey. Whilst maybe not a showstopper it remains the most significant barrier to achieving the efficiencies that Shared Services offers.
Another, almost equally important barrier to be overcome concerns collaboration, or rather fear of collaboration. Such fear could result in any Shared Services project failing to get off the ground.
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Each area of work has to be adequately staffed with experienced and well-qualified staff. The CEO and the Service Leaders would have to be able to cope with both service development and service delivery pressures.
The consensus is that the VAT levy remains a real concern and any Shared Services Project would find this difficult to accommodate. Encompassing those service areas where greatest savings can be made (IT and Procurement) would be vital if savings are to be made over and above the level of VAT. Even so, any relief that can be gained would be of definite benefit to the project and help safeguard its future. Ways would need to be found to reduce the fear of collaboration between Colleges.
L.8 Conclusion VIII: Form, structure or model
There are certain criteria suggested by respondents to this research. These include:
8. Simple and quick to establish so as not to impede implementation8. Independent and impartial so that each college feels they can trust the
Shared Services project8. Tax efficient. This applies particularly to VAT8. Simple to wind up8. Flexible and able to adapt to meet customer needs8. Cheap to administer8. Transparent in its operation and functioning8. Unimpeded by being part of a larger organisation8. Able to deliver cost saving services8. Capable of being replicated8. Not-for-profit8. Minimising collaboration issues
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Participants in the research were clear about what they wanted from a Shared Services model or structure. The model that is able to meet all these requirements is a Private Limited Company that is registered as a Charity. A significant factor in putting this model forward is that charity-to-charity trading may soon be exempt from VAT. Colleges are already charities and the attraction of trading with another charity could become very considerable. In addition, exiting the service would be simple as the service would be on a contractual basis. Furthermore, trading with an independent third party would reduce the fear and risk of collaboration.
M RECOMMENDATIONS AND NEXT STEPS
M.1 The following recommendations and next steps are made:
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1. A fully funded, outwith the budgets of individual colleges, three-year Shared Services pilot project should be established at the earliest opportunity. This would avoid unnecessary delay and ensure that the funds were available to take forward this invest to save strategy. Such a project should be fully costed as soon as possible.
2. A Chief Executive Officer should be appointed to form and head up a private limited company registered with the Charities Commission.
3. The pilot project should be based in a region with:
a. Relatively low pressure on wage levelsb. Ample available office accommodation to rentc. Colleges that have already expressed a willingness to be involvedd. The likelihood of being able to recruit appropriately skilled staff
4. The pilot project should seek to:
a. Limit the number of participating colleges in the piloting phase. It is suggested that, in order to keep collaboration issues to a minimum, 5 or 6 colleges, preferably which have already expressed an interest, be recruited.
b. Have participating colleges develop accurate baseline information that would clarify precisely how functions are currently carried out as well as the existing related financial spend
c. Map key processes in procurement, human resources and finance, as well as I.T. including Management Information Services
d. Develop supporting software, including an overarching relational database that would link processes
e. Identify other projects, such as the joint procurement of human resources advertising and the ‘in-tend’ e.procurement, with which collaboration would produce savings and give a high priority to such collaboration
f. Roll out the project across participating collegesg. Fine tune the service
5. Invite other colleges to contract for the available services once the project has progressed beyond the development phase, thereby further reducing the need for collaboration which may lead to conflict and project failure
6. Cover a wide range of FE processes. Process leads can then liaise with Colleges as well as with their internal software developer colleagues who would be part of the Shared Services Data Centre. There would be sufficient data available to be able to show the relative performance of colleges on the Common Inspection Framework and Framework for Excellence. An additional set of performance indicators could also be developed to give a richer picture. All of this could be collected on an on-going basis and the database to be configured to be updated automatically. Colleges (and Government Departments) could get early warning of quality and performance issues and could take appropriate and timely remedial action.
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7. The SFA and HEFCE funds for Shared Services development should be allocated as swiftly as possible.
8. A number of seminars should be held to raise the awareness of Shared Services, but that this should be done in such a way that it did not lead to raising expectations for a ‘quick fix’ as the timeframe is likely to be 2 to 3 years development and implementation. Some shorter term gains in collaboration would be the establishment of Regional Procurement Managers as described by the ACER and FE Sussex case studies.
Shared Services Research – January to March 2010
Semi-structured interview questions:
1. Can you describe your experience of shared services and how would you define shared services?
2. What would you put into the scope of shared services (F.E./ H.E. / school 6th forms?)
3. What work streams would you put into shared services? - would the model be the same or different for each work stream?
4. What do you think the barriers are for shared services? Have you had any experience of trying to overcome any of the barriers?
5. What do you think the benefits would be? (efficiency/consistency/accuracy/specialisation?)
6. Size (sub-regional, regional national?)
7. What would your critical success factors be described as for a shared services solution?
7. Any other information
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APPENDIX 1
HM Revenue & CustomsWritten Enquiry SectionAlexander HouseVictoria AvenueSouthend on SeaEssexSS99 1BD
DRAFT
Dear Sir or Madam
Re Correct Liabilities Association of Colleges in the Eastern Region (ACER)
I recently met up with the Deputy CEO and Finance Manager of ACER in order to review the VAT registration status of this charity and to advise on the VAT implications of additional services that are going to be offered. I have no doubt that the majority of the income currently received by ACER does qualify for VAT exemption as it is the provision of education by an eligible body and this is covered by Item 1 of Group 6 of Schedule 9 of the VAT Act. There were, however, a couple of areas where I feel that guidance over and above what is provided by HMRC in its notices and on its website is required. I am enclosing a form 64-8 and would appreciate you responding directly to this office.
ACER is a charity and is established for the public benefit to promote and improve the effectiveness and efficiency of charities in direct furtherance of their objects. It appears that ACER did register for VAT incorrectly some years ago, but was subsequently withdrawn from the register. I believe that your department did accept that the liability of membership subscriptions was VAT exempt and that no VAT registration should have been set up in the first instance.
I believe that membership subscriptions do qualify for VAT exemption and Item 1(c) of Group 9 to Schedule 9, as ACER is a non-profit making body whose primary purpose is the advancement of a particular branch of knowledge or the fostering of professional expertise connected with its members’ activities. I believe that ACER is fostering professional expertise and that these can be provided to bodies rather than to individual members and this does not affect the availability of VAT exemption. I am attaching a description of the services that ACER provides to its member colleges and many of which can immediately be seen to fall within Item 1 of Group 6 Schedule 9 being the provision of education or vocational training by an eligible body.
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APPENDIX 2
My query centres around the potential VAT liability of the provision of the human resource advice to the College members and of joint procurement services provided for those same Colleges. Only member Colleges, as specified in the memorandum of association, would be able to access these additional services. I am reasonably satisfied that where no additional charge is made for the provision of such services that the VAT exempt membership subscription fee would cover everything that the members get in exchange for that fee. I believe it would be incorrect to attempt to apportion the subscription fee into different elements. I believe that the Card Protection Plan case demonstrates where a single fee is paid one should not attempt to artificially split this into its component parts. Where, as now, a single membership fee is paid which is based upon the FE income from the Learning and Skills Council that a college receives, then the VAT liability applicable across the whole membership fee is that of the main components of that supply. In this particular case, that is primarily the aim to foster the professional expertise of college members.
The subscription rate payable by College members is not variable by reference to the services each member chooses to take up but is fixed according to the FE income each college receives. As stated I am reasonably satisfied that the whole of the subscription fee does qualify for VAT exemption but in view of the complex nature of the legislation and its possible interpretation my client would appreciate receiving confirmation from your Department on this point.
I am aware that Item 4 of Group 6 of Schedule 9 of the VAT Act 1994 exempts the supply of any goods or services that are closely related to supplies that qualify for exemption in relation to educational or vocational training and also that Item 4(a) requires “closely related” goods or services to be for the direct use of the pupil, student or trainee as well as being made by another eligible body where the supply is to an eligible body making the supply. It could easily be that some of the goods or services bought via the procurement services being offered to member colleges could involve the goods or services for the direct use of the pupils, students etc, but equally there will be many instances where this is not the case.
I think that the second part of my query can essentially be summed up by the question of what is actually meant by the phrase “closely related”. I do not believe that this is going to present ACER with a problem where services are included within the overall subscription but where some services are separately charged this does require ACER to properly determine the VAT liability to be applied. Whilst the majority of these additional services can readily be seen to qualify as the provision of education some are less clear cut.
The primary EU legislation – Article 132(i) of the Principle Directive – says exemption applies to “the provision of children’s or young people’s education, school or university educational vocational training or retraining, including the supply of services and of goods closely related thereto, by bodies governed by public law having such as their aim or by other organisations recognised by the member states concerned as having similar objects”. I anticipate that the wording within Schedule 9 of the VAT Act is an attempt to mirror the requirements of the EU Primary Law.
The EU legislation does not say anything specifically about the supplies of goods or services being directly for the use of the pupil and it is this area that I wanted clarification
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on. It appears to me that all of ACER’s services are related in their entirety to the provision of education and therefore, under the rules allowing for persons being able to rely on the primary legislation, ACER should be able to VAT exempt all of its supplies, even those of procurement services or the like, if charged for separately, which may not be for the direct use of the pupil nor qualify for exemption in their own right. It is hard to imagine that any of the goods or services supplied by ACER could properly be described as anything other than closely related to the provision of education or training, as their activities could not realistically be described as relating to anything but these.
If you do have any queries on this matter or would like clarification on any point please do not hesitate to let me know.
Yours sincerely
pp ALAN J TAYLORVAT Partnerfor Streets Tax LLP
DM/107304/AJT/glg Encs
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N POSTSCRIPT
A positive response to the Streets Tax LLP letter (Appendix 2) on the VAT issue has been received from HMRC dated 18 May 2010.
STAKEHOLDER GROUPS
The Learning and Skills Network
LSN The LSN is an independent, not-for-profit organisation, delivering consultancy, outsourcing, research, technology and training.
The Joint Information Systems Committee
JISC JISC inspires UK colleges and universities in the innovative use of digital technologies, helping to maintain the UK’s position as a global leader in education.
The Department for Business, Innovation and Skills
DBIS The Department for Business, Innovation and Skills (BIS) is building a dynamic and competitive UK economy by: creating the conditions for business success; promoting innovation, enterprise and science; and giving everyone the skills and opportunities to -succeed. To achieve this it will foster world-class universities and promote an open global economy.
The Department for Children Schools and Families
DCSF The Department for Children, Schools and Families (DCSF) was created in June 2007, aims to make this the best place in the world for children and young people to grow up. The Department’s role can be summed up as leading the whole network of people who work with or form children and young people.
The Association of Colleges AoC The Association of Colleges exists to represent and promote the interests of Colleges and provide members with professional support services.
The 157 Group The 157 Group is a membership organisation that represents 28 large, highly successful and regionally influential further education colleges in England. All members are key strategic leaders in their locality, leading on policy development and improving the quality and reputation of further education
The Association of Northern Ireland Colleges
ANIC The Association of Northern Ireland Colleges (‘sister’ of AoC) represents Northern Ireland’s six new Colleges of Further and Higher Education
FE Sussex FE Sussex is the association of all post-16 colleges in Sussex. It is a limited company jointly owned by the 12 colleges in Sussex. Each college principal is a member of the board of directors.
The Association of Colleges in the Eastern Region
ACER ACER was set up in 1993 to promote and represent the interests of further education colleges and provide quality improvement services to the whole further education sector across the Eastern region. As a sector-managed, not-for-profit organisation, ACER is directed and governed by colleges in the region.
The Higher Education Funding Council For England
HEFCE Working in partnership, the Higher Education Funding Council for England, promotes and funds high quality, cost effective teaching and research, meeting the diverse needs of students, the economy and society.
Shared Service Architects The Shared Service Architect’s Toolbox comprises 40 tools, techniques and templates for building trust and shared vision in public sector shared
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APPENDIX 3
services.
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The Learning and Skills Improvement Service
LSIS The Learning and Skills Improvement Service is the sector-owned body that aims to accelerate the drive for excellence in the learning and skills sector, building the sector’s own capacity to design, commission and delivery improvement and strategic change.
Skills Funding Agency SFA The Skills Funding Agency is an agency of the Department of Business, Innovation and Skills. SFA fund and regulate adult FE and skills training in England.
Leicester College of Technology
A very large college leading on the Collaboration Fund Initiative for 9 colleges in Leicestershire.
The Lakes College A small college leading on the Collaboration Fund Initiative for 4 Cumbrian colleges.
Cardinal Newman 6th and Blackpool 6th form colleges
Small 6th forms colleges sharing Collaboration Fund Initiative
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Critical success factor
Model
Low Risk High level of control
Ease of collaboration Low cost High quality Flexible Total
Outsource
Federal
Strategic Partner External
Commissioning
Joint Initiative Internal
Lead Department
Merger
Unitary
On the table above put a score out of 10 in each empty cell. The higher the score the better the performance.
Use the definitions supplied to help your understanding of each model. Your group or table has 7 minutes to score each model for shared services. As you complete scores for each model we will collect them from your table so we can begin an analysis and feedback to you later in the session.
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AP
PE
ND
IX 4
Strategic partnerExternal
Strategic partnerExternal
OutsourceOutsource
Commissioning Commissioning
Joint Initiative Internal
Joint Initiative Internal
MergerMerger
Federal StructureFederal Structure
Lead DepartmentLead Department
UnitaryUnitaryA single organisation centralising business services (157 Group Colleges would generally do this)
Member organisations operate within a shared governance umbrella. Each organisation retains independent legal status, but are fully accountable via local boards to federal governance structures.
Joint procurement of services based on a shared strategy and harmonised business processes and designed to provide shared service provisions to its members (eg, the LSC Collaboration Fund projects were mainly focused on this model)
Centralising a business service that will be shared by other organisations (eg, College A shares Finance with College B; College B shares HRM with College A)
A contractual arrangement with a third party provider to provide Shared Services (eg, College A and a Private Company)
Third party provider takes full responsibility for managing and operating services.
An agreement between two or more organisations to set up and operate Shared Services (eg, College A and College B establish a Shared Services department)
The acquisition of one college by another (eg, Newcastle College acquiring Skelmersdale College)
Significantly less control more risk/barrier
Chart A
Continuum of Collaboration and Control
Greater control less risk/barrier
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Allocations 09/10 budget
City of Sunderland College South Tyneside College TotalBudget £ fte Budget £ fte Budget £ fte
PAY
FinanceAccounts payable (creditors) 99,175 4.52 38,849 1.81 138,024 6.33Travel & Subsistence expenses 0 0.00 2,625 0.14Accounts Receivable (Debtors) 31,435 1.15 53,055 2.26 84,490 3.41Sales (Debtor) Invoicing 19,608 0.87 27,934 1.20 47,542 2.07General Ledger Accounting & Financial Reporting 26,892 0.91 24,572 0.58 51,464 1.49Fixed Assets/ Asset Accounting 17,951 0.60 3,209 0.10 21,160 0.70Intercompany 36,463 1.21 1,067 0.02 37,530 1.23Performance improvement 6,179 0.10 2,668 0.05 8,847 0.15Tax 3,285 0.11 2,668 0.05 5,953 0.16Treasury Management 6,179 0.10 8,463 0.40 14,642 0.50
Financial Planning & Analysis/ Control, Compliance/ Decision Support/ Advisory 133,969 3.66 78,448 1.98 212,417 5.64Internal Audit 396 0.01 2,668 0.05 3,064 0.06Management of Finance Team 16,027 0.30 24,018 0.45 40,045 0.75Payroll 76,297 2.87 15,841 0.50 92,138 3.37Procurement 56,392 2.61 53,728 2.10 110,120 4.71Finance IT (Systems Accountants) 1,720 0.06 2,668 0.05 4,388 0.11
Total Finance 531,968 19.08 342,481 11.74 871,824 30.68
MIS/Data 528,058 25.86 510,700 19.35 1,038,758 45.21Exams 232,792 9.30 94,530 4.00 327,322 13.30HRM 357,791 11.00 166,856 5.00 524,647 16.00
AP
PE
ND
IX 5
ICT 684,840 24.42 407,014 14.00 1,091,854 38.42
Total Pay 2,335,449 89.66 1,521,581 54.09 3,854,405 143.61
NON PAY
FinanceHR/Payroll system 27,000 27,000HR/Payroll system - implementation & old system 25,000Payroll - Cintra 22,000 22,000COA finance system (includes some implementation & old system) 22,400 22,400External audit including ILR audit 55,000 70,000 125,000Bank charges (COSC incl. Loan fee) 36,000 30,000 66,000Cash collection 8,500 8,500Debt collection 3,400 3,400Other 37,650 65,000 102,650
Total Finance 214,950 0 187,000 0 376,950 0
MIS/Data 95,000 90,000 185,000Exams 14,000 14,000HRM (systems cost in finance COSC) 90,000 80,000 170,000ICT 304,000 250,000 554,000
Total Non Pay 717,950 607,000 1,299,950
Total expenditure 2,335,449 1,521,581 3,854,405
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iii
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Finance allocations
09/10 budget 10/11 budget SavingBudget £ fte Budget £ fte Budget £ fte
Pay
Accounts payable (creditors) 99,175 4.52 76,675 3.52 -22,500 -1.00Accounts Receivable (Debtors) 31,435 1.15 31,435 1.15 0 0.00Sales (Debtor) Invoicing 19,608 0.87 19,608 0.87 0 0.00General Ledger Accounting & Financial Reporting 26,892 0.91 26,892 0.91 0 0.00Fixed Assets/ Asset Accounting 17,951 0.60 17,951 0.6 0 0.00Intercompany 36,463 1.21 4,338 0.21 -32,125 -1.00Performance improvement 6,179 0.10 6,179 0.1 0 0.00Tax 3,285 0.11 3,285 0.11 0 0.00Treasury Management 6,179 0.10 6,179 0.1 0 0.00
Financial Planning & Analysis/ Control, Compliance/ Decision Support/ Advisory 133,969 3.66 133,969 3.66 0 0.00Internal Audit 396 0.01 396 0.01 0 0.00Management of Finance Team 16,027 0.30 16,027 0.3 0 0.00Payroll 76,297 2.87 65,385 2.37 -10,912 -0.50Procurement 56,392 2.61 51,113 1.61 -5,279 -1.00Finance IT (Systems Accountants) 1,720 0.06 1,720 0.06 0 0.00
Total 531,968 19.08 461,152 15.58 -70,816 -3.50
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Non pay
HR/Payroll system 27,000 33,000 6,000HR/Payroll system - implementation & old system 25,000 -25,000Payroll - Cintra 0COA finance system (includes some implementation & old system) 22,400 22,300 -100External audit including ILR audit 55,000 42,500 -12,500Bank charges (COSC incl. Loan fee) 36,000 16,099 -19,901Cash collection 8,500 8,500 0Debt collection 3,400 4,500 1,100Other 37,650 21,750 -15,900
Total Finance 214,950 148,649 -66,301
Total expenditure 746,918
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59
Allocations 10/11 budgetCity of Sunderland
College South Tyneside College TotalBudget £ fte Budget £ fte Budget £ fte
PAY
FinanceAccounts payable (creditors) 76,675 3.52 38,849 1.81 115,524 5.33Accounts Receivable (Debtors) 31,435 1.15 53,055 2.26 84,490 3.41Sales (Debtor) Invoicing 19,608 0.87 27,934 1.20 47,542 2.07General Ledger Accounting & Financial Reporting 26,892 0.91 24,572 0.58 51,464 1.49Fixed Assets/ Asset Accounting 17,951 0.60 3,209 0.10 21,160 0.70Intercompany 4,338 0.21 1,067 0.02 5,405 0.23Performance improvement 6,179 0.10 2,668 0.05 8,847 0.15Tax 3,285 0.11 2,668 0.05 5,953 0.16Treasury Management 6,179 0.10 8,463 0.40 14,642 0.50
Financial Planning & Analysis/ Control, Compliance/ Decision Support/ Advisory 133,969 3.66 78,448 1.98 212,417 5.64 Internal Audit 396 0.01 2,668 0.05 3,064 0.06Management of Finance Team 16,027 0.30 24,018 0.45 40,045 0.75Payroll 65,385 2.37 15,841 0.50 81,226 2.87Procurement 51,113 1.61 53,728 2.10 104,841 3.71Finance IT (Systems Accountants) 1,720 0.06 2,668 0.05 4,388 0.11
Total 461,152 15.58 339,856 11.60 801,008 27.18
Data Unit 528,058 25.86 510,700 19.35 1,038,758 45.21Exams 232,792 9.30 94,530 4.00 327,322 13.30HRM 357,791 11.00 166,856 5.00 524,647 16.00
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ICT 684,840 24.42 407,014 14.00 1,091,854 38.42
Total Pay 2,264,633 86.16 1,518,956 53.95 3,783,589 140.11
NON PAY
FinanceHR/Payroll system 33,000 33,000Payroll - Cintra 22,000 22,000COA finance system (includes some implementation & old system) 22,300 22,300External audit 42,500 70,000 112,500Bank charges (COSC incl. Loan fee) 16,099 30,000 46,099Cash collection 8,500 8,500Debt collection 4,500 4,500Other 21,750 65,000 86,750
Total Finance 148,649 0 187,000 0 335,649 0
MIS/Data 95,000 90,000 185,000Exams 14,000 14,000HRM (systems cost in finance COSC) 90,000 80,000 170,000ICT 304,000 250,000 554,000
Total Non Pay 651,649 607,000 1,258,649
Total expenditure 2,264,633 1,518,956 3,783,589
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+ COLUMN - COLUMN
UNITARY MODEL
Least ‘threatening’ Limited scale prize to be wonControl What happens when in-house savings run
out?In-house savings then shared RedundanciesGreater savings and no loss of identity
+ COLUMN - COLUMN
MERGER
No VAT issue Efficiencies limited to what can be achieved from doubled scale
In Control Hard to combine culturesStrong sense of ownership Limited savings only available from 2
partiesEconomies of scale Loss of collegeSavings: Great potential for efficiencies
+ COLUMN - COLUMN
JOINT INITIATIVE INTERNAL
Good way to retain independence and control of services
Hard to get agreement
Shared risk of reward Flexibility can be limited as peaks and troughs of the demand for a service will vary between providers
Strong sense of ownership/control Balancing two sets of requirementsMutual learning eg, staff development shared
Potential to compromise institutional values
No one partner in overall control Need legal agreement to ensure ‘equal’ shares
Colleges understand the business and requirements
Annual costs might be greater than annual savings
Collaborative and possibly higher efficiency
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APPENDIX 6
+ COLUMN - COLUMN
STRATEGIC PARTNER EXTERNAL
Innovative – introduce new developments at lower cost
Investment and development costs
Increase capacity of technological knowledge
Partner’s objectives are different from yours
Strategic partner – whole greater than sum of parts
Strategic partner may stop other FE colleges working with you (fear?)
Access to new markets Balance of powerThird party takes risk Requires contract specification and
management skills that may not be present in provider
Uses expertise of specialist, but able to share profits
Higher level of staff resistance – perceived loss of jobs, autonomy etc.College might lack skills to effectively exercise rights
+ COLUMN - COLUMN
COMMISSIONING
Understandable – acceptable Bulk buying seems straightforwardPotential for saving immediately apparent (eg, procurement)
Need to define/agree common requests
Procurement knowledge and expertise can be gained through collaborative aggregated procurement
As defined need to harmonise business processes which may take time/effort that is not worthwhile
Easier(?) to implement if loss of control in operations is an issue
Annual costs might be greater than annual savings
Joint procurement should lead to savings/better dealMight reduce costs through use of larger contracts
+ COLUMN - COLUMN
LEAD DEPARTMENT
All providers will benefit from economies of scale and expertise
Perhaps not able to provide the highest level of cost saving
Great if you are this ‘lead department’, not so great if not
Dominance by the PROVIDING Department over consuming Department
Proven capability in PROVIDING Department
Given responsibility to partner with no real control – can go wrong
May seem an easy way Smaller college loses controlLower costs and retaining expertise in sector
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+ COLUMN - COLUMN
OUTSOURCE
Relatively easy Limited savings based on cheaper costs
Keep control Cost – provider will have to satisfy shareholders and VAT
Can be great, BUT needs skilled people to implement and arrange. You cannot let and forget.
Often goes wrong
Straightforward/In Control TU resistanceBrings expertise – OK if managed properly
Depends on provider skills to effectively manage contracts
Easy to do Bound by contract terms, no flexibilityChoose best supplier offering least cost Requires contract management –
specification skills in order to get benefitsCost saving and control More flexibility will increase costs –
bad resultsThird party takes risk
+ COLUMN - COLUMN
FEDERAL STRUCTURE
May lead to increased co-operation and understanding (unintended consequence)
Collaboration and control is minimal as each provider has individual agenda’s
Share skills eg, technical support Need high degree of trust and consensus
Can offer larger scale with retention of good degree of control
Dominance by the majority
Potential for NOT paying VAT? Eg, FE Sussex, ACER
As defined, the individual organisation have no control. May need legaladvice to set up structure. Could spend more time discussing than doing.
Collaborative, larger purchasing power Total loss of independence
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References
Association of Colleges (2009) Exam fees – improving value for money, AoC Publication
BuyIT Best Practice Network www.buyitnet.org/Best_Practice_Guidelines/SharedServicesPubSect/index.shtml
Cabinet Office (2005) Transformational Government – Enabled by Technology, HMSO Publications
Chartered Institute of Public Finance (2010), Sharing the Gain, Collaborating for cost-effectiveness
Cram, C. (2010) Towards Tesco- Improving Public Sector Procurement, Institute of Directors
Department for Children, Schools and Families (DCSF) (2009) Your child, your schools, our future: building a 21st century schools system, DCSF Publication
Department for Innovation, Universities & Skills (DIUS) (2008) FE and Skills System Reforms, DIUS Publication
Duke & Jordan (2008) JISC Study of Shared Services in UK Further and Higher Education. Accessed at:www.jisc.sharedservices
P. Gershon (2004) Releasing Resources to the Front Line, HMSO Publication
HM Treasury (2009) Operational Efficiency Programme: Final Report, London: HM Treasury Publication
D. Hughes (2010) Viability in doubt for 100 ‘vulnerable’ colleges, Times Educational Supplement
KPMG (2008) Higher Education and the barrier to shared services, Removing the VAT burden
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APPENDIX 7
KPMG (2006) Shared services in the higher education sector, Report to HEFCE by KPMG
Learning and Skills Shared Services Programme (2006) Shared Services Blueprint
D. Macdonald-Wallace & E. J. Gatt, (2009) The Shared Service Architect’s Toolbox
National Audit Office (2006) Improving procurement in further education colleges in England, NAO Publication
PriceWaterhouseCoopers (1999) Shared Services, Adding Value to the Business Units
Public Procurement (2008) Management Partners Ltd v Brent LBC, When do the Regulations Apply? Freshfields Bruckhaus Deringer
Public Private Partnership Programme (2008) Guidance for Collaborative Options Evaluation and Appraisal of Service Delivery Models, 4Ps
G. Stanfield, Eversheds LLP (2010) Preparing colleges for the future, 157 Group policy paper publication
T. Strickland (2010) Can-do on cutting costs of exams and assessments, The Times Educational Supplement
Thomson, A. (March 2010), Can-do attitude will keep FE from cuts crisis, The Times Educational Supplement
Totis, K, (2007) Application of the Teckal exemption to a services concession contract: Coditel (C-324/07), Norton Rose. www.nrtonrose.co.uk
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