October 2016 is set to be the start of a new shared-services agreement between the local authorities of Haringey, Islington and Camden, a partnership that has broadly promised to save them a total of £6m a year. And while the Chancellor’s Budget announcement of plans to shave a further £3.5bn off public spending will no doubt give these London boroughs good reason to investigate more innovative ways of saving money, it should be remembered that all that glitters is not gold when it comes to shared-service partnerships.
The example set by Southwest One gives us plenty of reason to be wary of the risks involved in such shared-services relationships. This is not to say that savings cannot be made through economies of scale when local authorities pool their resources and/or needs. It just means that when you bring together different entities into a collaborative arrangement it is more important than ever to ensure that every aspect of that relationship is considered, agreed and documented for all to see and refer back to.
In September 2015, Camden and Islington announced their plans to share their digital and ICT staff with a view of enhancing services and reducing costs. And, while much has been done within each of these public bodies to improve efficiencies through the use of websites, apps, mobile platforms and assistive technology, they believe that further savings are possible.
Optimism is high for the partnership, with Haringey Council’s Cabinet Member for Resources and Culture Jason Arthur reported as calling it an “exciting partnership” with potential for “saving money and protecting more of our budget for other key areas”. Islington Council’s Executive Member for Finance and Performance Andy Hull is reported as saying: “Government funding cuts are hitting councils across the capital, and the country, so it makes sense that we work together to deliver services that local people need in a way that they want.” And Theo Blackwell, Camden Council’s Cabinet Member for Finance and Technology, is reported to have said: “We already have a long history of successful collaboration with Islington and all three authorities share similar objectives, so it makes perfect sense to come together.”
So with all this positivity in the air what could possibly go wrong?
What Haringey can learn from Southwest One?
A familiar amount of optimism was in evidence in 2007 when IBM, Somerset County Council, Taunton Deane Borough Council, and Avon and Somerset Police came together to form Southwest One. The potential of this 10-year relationship was widely reported at the time, and the hundreds of jobs it was supposed to create on top of savings that were expected to be in the region of £192m certainly sounded temping. Unfortunately, persistently poor community and stakeholder relations, accusations of excessive secrecy, an unwieldy 3,000 page agreement, and legal action by both sides resulting in a £5.6m out of course settlement, impacted on what was possible within the relationship.
Jill Shortland, who was leader of the council when Somerset outsourced these services to Southwest One, summed up the feeling on the ground as the relationship neared its end “They’ve not actually tried to make it work… If you are going to drive out the savings, it’s not just the company – the council have to be doing it as well. You’ve both got to be working on it together.”
By 2013 it was recognised that the £400m project (reduced from £535m at its outset) that was Southwest One had not achieved the outcomes expected of it, and in the process, due to legal proceedings, the whole relationship had cost a considerable amount more than expected.
On top of the savings that Somerset County Council, Taunton Deane Borough Council, and Avon and Somerset Police were expecting to make through their shared use of Southwest One, others were predicted to join the shared-services relationship via a framework agreement that would allow other public bodies to join the relationship without the cost and time required for separate procurement processes. Unfortunately, after initial interest, others did not join and this led to disagreements as to whether Southwest One’s unsustainable budget was formed due to an overestimation of the amount of shared-services members there would be, something they actively denied.
In January 2016, Somerset Council decided to discontinue their contract with Southwest One, with council leader John Osman saying: “Having carefully weighed up the benefits and costs of letting the contract run its course or leaving it early, we have concluded that an early exit is in the best interests of the County Council and its taxpayers.”
So what have we learned from the Southwest One experience, and what can Camden, Islington and Haringey do to improve their chances of creating a successful shared-services relationship?
5 Lessons learned
1. Contract complexity
Relationship agreements should be malleable, flexible to the needs of the project and the parties that service it. However, Southwest One’s contract was apparently an overly complicated and restrictive document, as its 3,000 page size would suggest. Stories have emerged that suggest it was so restrictive that council members were often faced with the choice of terminating relationships rather than paying excessive alteration costs when this was certainly not the commercially preferable solution. The nature of the contract led to a costly restructuring exercise in 2012/13 and – potentially – to the relationship’s expensive legal issues. Needs change, technology changes, solutions need to adapt to the world around them, so contracts should also be given the scope to change. This is why we always recommend that every relationship agreement should have a biannual review built into its very fabric, and that at this review, if opportunities arise for realignment – to steer a project back on course or to achieve even better outcomes – then this should be allowed to happen.
We regularly discuss the inadvisability of interfering in how a vendor or strategic partner goes about achieving your expected outcomes on a project, but this does not release you from the very real responsibility for understanding both these outcomes and the solution your partner will be employing to get you there. Extensive research and due diligence is needed to develop a complete and convincing business case for the project, but it’s equally important to undertake your own thorough due diligence on the commercial sustainability of your vendor or partner’s model, identifying what they aim to do and why. Do they have the skills, the knowledge and the resources to see the project through, and do you? This helps you to not only assess the solutions on offer, but also to understand your strategic partner, their motivations and strategies a little better – useful information for managing the relationship.
3. Quality and quantity in your ICF team
Intelligent Client Function (ICF) teams need to be equipped with the right skills and resources to handle not only an end-to-end relationship management role, but also to react to anything that the project throws at them. As the constant on a project that is likely, by its very nature and term, to see much staff turnover, your ICF team needs to be the steadfast rudder that steers the relationship. After the breakdown of Somerset Council’s association with Southwest One they wrote a ‘lessons learned’ report, and within this they suggested that one of the key issues faced was that the client function team they built was not equipped to handle the challenges of the project. While it is a difficult job to assess the potential demands made on such a team and, therefore, the expertise and resources it will need, in our experience an overestimation is rarely a bad choice to make.
4. Cultural alignment
It seems that Southwest One suffered from a terminal case of cultural misalignment, with its private entity looking to prioritise profits for its shareholders and the public entity looking to make savings and improve services. This fundamental difference in priorities created a chasm between the two and led to many tug-o-wars over budget and ultimately a loss of trust between the partners. It is vitally important that cultural differences, or potential for them, are identified, acknowledged and addressed at the outset of any new relationship, whether between public and private entities or between two or more public entities. It should never be assumed that just because you have shared theoretical goals that the reality will be smooth sailing. A more complete understanding of your partner’s culture and aspirations will give you the information you need to better manage the relationship. Cultural alignment is important to each party’s understanding of one another and to the creation of a workable collaborative relationship.
5. Business objective led KPIs
It is, of course, essential in any partnership relationship to identify and quantify your KPIs, they are, after all, the mechanism you will use to track progress on the project, and for rewarding or reprimanding your partner to keep things running smoothly. These should be milestones, not millstones. They may be agreed at the outset of a relationship, but they should also be flexible enough to adapt to changes on the project, reviewed every six months, much like the contract should be, or you run the risk of them becoming out of step with the reality of the project. It seems, though, that the Southwest One and Somerset County Council teams spent so long thrashing out what the KPIs should be and how they should be measured, that vital time was wasted, commercial trust was stretched, and sight of the ultimate goals of the project was lost. When KPIs become more an obsession of legal teams and contract play rather than a means to a shared outcome orientated end, it is time to reassess their validity in the process.
So what’s next for Haringey, Camden and Islington?
When Camden, Islington and Haringey sit down to decide how they will structure their shared-services relationship to achieve the £6m of savings that they are reportedly aiming to split between them, I hope that they too come to similar conclusions as to the five cornerstones of their new relationship.
ICT partnerships are fraught with complexities and much time and effort needs to be put into establishing clarity and alignment.
If you would like to find out more about a collaborative approach to partnership responsibilities, you can read our latest eBook on the subject 8 Steps to Improve Outsourcing Performance.