Sustainable shared services – one tool in the box

I spoke at a conference on shared services last week. There was a familiar feel to the programme with a number of us having presented at similar events before (and we have been talking about shared services since 2006!) but there were still a few pertinent points raised during the day.

Firstly, it is a year since the Chancellor announced the introduction of an exemption from VAT for shared services for several sectors. This was trumpeted at the time as heralding a new wave of shared services for the sector, coming as it did so soon after the Diamond report on efficiencies and modernisation in universities. I’ve never been convinced that the exemption will open the floodgates to many more shared services. The basis for my scepticism is the low figure set against the cost of the exemption included in the budget statement at the time (£125million a year after five years) and that this cost is for application of the exemption across all the relevant sectors, which includes the banking and insurance world. Nevertheless I do expect it to enable some new services to be developed and that some institutions will be well placed to take advantage of the exemption. Guidelines on establishing cost sharing groups (CSGs), which are key to participants being able to benefit from the exemption, are being prepared.

The discussion that followed perhaps echoed my scepticism. There was consensus that a shared service that was dependent on the exemption to be sustainable probably wasn’t financially viable in the long term. In other words, the basis for the shared service did not really exist. It was also pointed out that setting up a cost sharing group was a business decision – it may be more advantageous to deliver services within current structures as the benefits from other tax breaks (such as the ability to claim back VAT paid) outweigh the those gained from the exemption.

For all the debate about CSGs, new shared services will continue to emerge from the sector. Some will develop bottom up, starting with collaboration between a number of institutions and building to a commercially sustainable service. These services are driven by operational challenges and business need. They will take time to become established but will grow, perhaps with financial assistance, until they achieve sustainability. Others will develop from a top down approach. These may be more innovative and may well be in areas where the need is not yet widely known or understood. There is, of course, risk in the top down approach. Some may succeed but others, where the assessment of the business need proves to be incorrect, may fail. It is rare for such services to be an overnight success and they will almost certainly need financial support for the first few years of operation until they achieve sustainability (or fail). There needs to be a medium term commitment to such support. It will not help the service achieve sustainability if there are doubts about its viability going forward. There is, of course, a risk in providing such support – some potential services may fail and the investment lost. The concern is that the current economic climate might deter the sort of commitment required.

Finally, for all the hype about shared services, IT Directors have blended internal and externally provided services to deliver their overall service for some years. To some extent we are fortunate in IT that there is a wide range of commercial and free services that can be deployed for aspects of our operations. Shared services are one option but they are not the only tool in the box.

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