Why don’t we share more often?

Posted: 29th April 2011

Why don’t we share more often?

The housing sector has never before been under such pressure for greater efficiency and to realise true value for money. The need to drive more cost out, to be able to do ‘more for less’ or even ‘more for the same’ is now an imperative.

Many have been pushing for changes to VAT and though nothing has come forward in the current budget, recognising the true cost of services is crucial to driving efficiency.

Is the solution outsourcing or sharing services?

When we think of outsourcing most of us think of call centres in other parts of the world. Everyone knows a disaster story where an outsourcing has not worked, those who had agreements with Rok and Connaught will be acutely aware. Yet for each one of these there are plenty of examples where the processes are more efficient and the service provided is great and better value for money.

The sector has a fair degree of experience and success of outsourcing. The most common examples are maintenance contracts and housing management agreements.

So why, if there is a degree of confidence to outsource core functions will organisations not think of saving money by outsourcing functions which are not ‘core’ – the transactional side of finance and HR, recruitment administration, IT are all prime examples. Why has the sector been so slow to investigate or take up outsourcing of its own corporate services? Why do we have a sector that is largely comprised of many hundred smaller and medium sized organisations that still deliver their own corporate services? And there are opportunities for larger organisations and local authorities to exploit. For all there will be savings.

The easy answer is to go ‘lean’. Organisations should be challenging their processes, cutting out waste and driving efficiency. The brave will be looking at all possible ways they can remove cost by focussing on the services that are not core or where there are ‘excellent’ alternative providers.

What might this look like?

It could take several different forms;

  • from the extreme and radical – all internal corporate functions are outsourced,
  • to the more subtle, building on the centres of excellence principle. One organisation which has an excellent track record can offer services
  • to other organisations or a group of organisations ‘clustering’ to share services.

The principle of outsourcing or shared services will only work if the board and executive teams are willing to cede control, there will be a few!

The prize? The sector currently spends around £1.15bn on corporate / back office functions , with a minimum of a 25% saving the potential sector wide prize could be as much as £380m per annum. If the sector just shared IT services, the saving could be around £75m per annum.

To put this into some context, with that saving the sector could:

  • build an additional 3,000 new homes each year
  • employ an extra 9,500 frontline officers
  • invest in green technology – for example 36,000 photovoltaic panels could generate nearly £33m of electricity each year

Possible savings of this quantum must be taken seriously. Even if outsourcing or shared services isn’t the answer for all, at the very least organisations need to market test their services to ensure they are delivering value for money.

Fiona Underwood is a Partner at Altair

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