Headlines: April 27th, 2009

Sharing back office systems to produce efficiency savings has been on the agenda for many years. But there has been little progress with limited take-up, despite encouragement such as the Audit Commission’s check list to help councils find out where they are on the move towards shared systems, published in autumn 2008. Ministers have now decided that the time for encouragement is over and that arm twisting is both needed and justified given the state of public finances. The pain for failure to respond will be publicity for poor performers and a financial penalty.

The ‘back office’ includes the full range of operations that provide support to the frontline delivery of services, including finance, HR, estates management, procurement, legal services, travel services and marketing and communications. Where services have been shared in both the public and private sectors, efficiency savings of 20-30 per cent have been achieved. Despite the attraction of savings of this order, few shared systems have emerged. The reasons are thought to be a lack of resources, workforce opposition and risk-averse organisational cultures.

The new strategy is based on the principle: ‘what is not measured well, will not be managed well’. The lever of change will be transparency rather than micro-management. Currently there is very little information about the efficiency of a back office system in a council, police force or health trust and consequently limited independent scrutiny and cross questioning. Research revealed that some organisations in the public sector are already operating at a level equivalent to best practice in the private sector, whereas others achieve far inferior performance. The strategy will result in the publication and benchmarking of performance data about the efficiency of back office systems and the results will be taken into account in spending settlements. There is no detail about how this will be done, but one possibility is that organisations that do not join a sharing group and have higher costs than the benchmark average, will suffer a financial penalty.

The strategy will be put into action by requiring all public sector organisations employing more than 250 people to collect and publish data for back office operations with effect from December 2009. A three year timescale has been set for making substantial efficiency savings. The data will be benchmarked with other similar organizations and different mechanisms for benchmarking will be used in different sectors. For local government, the Regional Improvement and Efficiency Partnerships will peer review back office data in their areas.

The Audit Commission will be required to examine back office costs in local government and other local public bodies within its remit, as part of its “use of resources” assessment. It will encourage organisations with poorly performing back office operations to improve.