Whitehall will soon be echoing to the sound of sharp intakes of breath as many belts are tightened – and with all the main parties stressing their wish to retain as much frontline spending as possible, there is an ever-growing focus on making operations more efficient. The government’s latest cost-cutting drive came with the operational efficiency programme (OEP), launched by the Treasury almost exactly a year ago, with its final recommendations published in time for April’s Budget. It calls for £15bn in new savings, with £6bn to be realised in the current spending period and another £9bn in the next one. The multi-themed study explored cost-savings in five separate strands, and delivering on the ambitions in two of these areas – collaborative procurement; and back office and IT – was the topic for discussion at recent roundtable event held by Civil Service World in conjunction with IT services company Atos Origin.

Making the change

There was broad consensus around the table that the OEP – and the broader efficiency agenda – has been given a big boost by the parlous state of public finances. The review led by former Office of Government Commerce head Sir Peter Gershon in 2004 was conducted at a time of relative plenty, and – unlike the current plans – its main method of leverage was by offering departments the prospect of retaining a portion of any money saved. The OEP places less emphasis on such incentives, instead relying on the more robust method of creating a ‘burning platform’: the intended efficiency savings are simply being taken out of departmental budgets. The risk with this approach, said some panellists, is that the most straightforward way to cut costs is simply to axe a few major projects, rather than changing civil service practices to yield efficiency savings. “It’s an awful lot easier to point at a capital project which has clearly defined boundaries than it is to tackle fairly intimately-entwined operational, day-to-day
expenditure,” Atos Origin’s head of procurement Mike Zealley said. “However, the bigger prize is in the day-to-day expenditure, so we need to keep our nerve.”

What’s more, said Barbara Moorhouse – until recently commercial director at the Department for Transport, and before that the Ministry of Justice – if the OEP is dominated by cuts to the back office as opposed to real culture change, then delivery of public services could well suffer.

Moorhouse was in little doubt about the scale of the challenge; it demands a real move towards collaboration, she said – something that’s not easy when “politics as usual” in the civil service can mean representing one of a number of disparate political interests. Officials tend to defend their operational turf and financial autonomy jealously, she added, damaging the prospects for working across silos, fostering shared services and a range of other collaborative activities – and declining budgets could simply lead to greater competition for resources between different parts of the civil service. Things appear to be reaching an “inflection point”, Moorhouse argued, and could go either way. “Will this pressure be enough to create a new model of working, or will it just exacerbate the tensions in a very traditional way? That I think would just make very difficult for everybody, and as stress levels rise, good collaboration is more difficult.”

Procurement

Saving such large quantities of money self-evidently demands that government spend less on procurement. Moreover, it means government buyers getting more value from new and existing deals – and the OEP envisages cuts in the price of current contracts. Being realistic, said Atos Origin’s director of strategy Philip Chalmers, means acknowledging that there are “fairly savage cuts ahead”, while also recognising that the “pain” is not being experienced by government departments alone. “If the response [of departments] is to send out a letter to suppliers that says: ‘Thank you very much but we’d like you to take a 15 per cent cut in your service charges,’ we won’t get anywhere,” Chalmers said, suggesting that public bodies and contractors establish a more collaborative approach to finding savings.

One thing that government procurement people need to do more cleverly is to look for flexible, long-term relationships with contractors, said Simon Lydiard, deputy director for commercial delivery at the Department for Transport. Buyers from departments should be able to approach suppliers over the lifetime of a long contract and explain how their needs have changed, and where they want to save money. “I think there are opportunities in long-term commercial relationships to seek a realignment of the needs of both sides,” Lydiard said. Chalmers agreed, arguing that savings will be easier to find in deals that are well-established than those about to be signed. “That’s where the supplier has gained a deep understanding of the landscape, and can use that knowledge to drive out efficiencies.”

Not only should longer-term deals be more flexible, said Lydiard, but efficiencies could be made by re-examining how procurement contracts apportion risk between departments and suppliers. Despite the fact that in many deals the government pays a premium to “outsource” risk – meaning the supplier is supposed to pay when things go wrong – in reality government cannot allow services or key suppliers to fail, so the taxpayer nearly always bears a large chunk of risk. “Ultimately, no matter how you draw up the contract, the public sector always bears the last element of risk, so sometimes we need to think more intelligently,” Lydiard said.

Lydiard’s former DfT colleague Barbara Moorhouse commented that buyers and suppliers rarely have open, ongoing discussions about where risks lie in the delivery of large-scale projects. “With a lot of these programmes, what goes wrong is that there isn’t a proper discussion about what is being done and what the risks genuinely are, or a proper control process that prevents new risks from coming in,” she said, calling for a “more holistic” method. But Ulrike Hotopp, director of performance and evaluation at the Department for Business, Innovation and Skills, reminded participants that there are different types of risk – and commercial risk must necessarily lie with the commercial delivery partner.

A more collaborative approach to managing and sharing risk may be supported at the top of government, said Atos Origin’s vice president of public sector Anne Ware, but it’s less evident in actual dealings with procurement professionals on the ground: “There’s a chasm between what’s being discussed with [cabinet secretary] Gus O’Donnell and the senior executives and what’s being procured, and there is still this idea in some parts of government that says: ‘This is risk – it must be yours, it must be yours’.”

Cultural change

So what kind of culture change is needed in the civil service – collectively and individually – to drive the kind of savings envisaged in the operational efficiency plans? The need for improved commercial skills within government looms large in both the collaborative procurement and the back office/IT strands of the OEP, and Lydiard supported the prominence the issue has been given. The civil service must become more “commercially astute”, the DfT man said, with less of a blinkered focus on achieving ‘value for money’ by following prescribed procurement procedures. “It’s about understanding how to utilise our relationship with markets to drive value,” he said. “One thing that’s really important, particularly on major projects, is that before you even go to the market you’ve got a view of how you can work with suppliers to drive out the best value, and you understand the market drivers at a fairly deep level.”

It also can’t just be about slightly better training for one specific sect within the civil service; the scale of intended efficiencies requires more skills and awareness from everyone who works in government, said Home Office director general for corporate services Helen Kilpatrick: “You can’t leave the corporate centres or the finance people or the commercial people to deliver the OEP; everybody working in the civil service has got to have those financial and commercial skills.”

On the implications for large business change projects, especially those involving IT, Kilpatrick says the belt-tightening might spell the end of the “all or nothing” attitude. The squeeze on capital budgets means such projects – whether intended for the frontline of services or the back office – are less likely to go ahead, but where they do happen they should be cut into “manageable chunks”. “It’s about breaking the projects down into parts and trying to deliver the parts that provide the most value first,” she said, pointing to the example of the Home Office-led e-Borders scheme. “Sometimes, doing the minimum is the right option,” agreed Bob Alexander, director of NHS finance at the Department of Health. Alexander said there must be “ruthless prioritisation” in deciding which projects go ahead. Mike Zealley said the efficiency agenda could help engender the kind of “lean thinking” he learned when working in the automotive industry. “One of the principles was the short, sharp burst of change,” he said. “Don’t try and leap from a standing start to your end point vision. Each step on the journey should add value in its own right.”

Shared services

Part of the government’s vision of greater efficiency has involved greater sharing of corporate services. Central departments have had varying degrees of success in shared services, for a number of reasons – among them a reluctance to make staff cuts where necessary. Despite the agenda’s somewhat chequered past, Paul Williams, head of the business change unit at the Department for International Development (DfID), said he is optimistic about the future take-up of shared services, and offered the Department for Work & Pensions and HM Revenue & Customs as “centres of excellence” that could encourage others. Williams said that the dispersed nature of his department’s administrative work means there is scope for deep savings through sharing of services, but added that these things take “longer than any finance ministry will want”. Kelvin Green, change manager at the Foreign Office, said that his department has run 170 separate back office functions in different countries – an obvious inefficiency illustrating the
need for sharing.

On shared services, central departments will have to grasp the nettle, said Ruth Ormsby, who runs the NHS’s shared business services scheme. More than 100 trusts now use IT services provided through the system, including e-procurement and accounting. Crucial to the system’s success and affordability, Ormsby said, is the fact that 50 per cent of the work is outsourced to India.

It’s becoming harder for departments to resist sharing services, Helen Kilpatrick added – and the OEP will add further leverage. “The pressure is such now that we are at a tipping point. The ‘I’m special, I’m different’ argument is too costly,” she said. “It’s easier now to sell the benefits of shared services by laying out those savings, and certainly that was our experience on our estates shared service.”

Governance

While the OEP makes much of the need for improved governance, with a call for stronger reporting to top officials and ministers on the delivery of large IT projects, Moorhouse said there should not be undue focus on simply changing reporting structures. “It is an enabling mechanism, but it is not an output or an achievement in its own right,” she said. “People talk about getting the governance right as if then everything else will just flow.”

Mike Zealley echoed this point, arguing that excellent lines of accountability don’t necessarily improve delivery. “Where I’ve seen things achieved, there are clearly-defined goals and objectives, and an empowered team with minimum interdependencies who can get on and make it happen, rather than building huge hierarchies of reporting lines which are inevitably slow,” he said. What’s more, simply changing governance structures on paper rarely has the effect of fundamentally changing the way people operate. Ulrike Hotopp, who has just moved to the reorganised business department but was formerly at the Department for Energy and Climate Change – itself carved out of two other departments – noted that management changes at DECC didn’t initially create coordination of effort. “We struggled with getting the right governance structure, because just having a joint board didn’t seem to quite do it,” Hotopp said.

One thing on which there was definite consensus was the need for every civil servant to feel a degree of responsibility for helping deliver on the OEP targets. Paul Williams said that DfID staff must be persuaded that efficiency savings are being made to help them perform their frontline duties better, even if the subjects of back office costs and procurement fail to excite them. “Nobody joins the civil service to be in the back office,” Williams said. “Certainly not at DfID; we have some of the most committed staff, and I don’t think they all join to process payments.” He suggested that the prospect of moving officials from the back office to the frontline might improve staff acceptance of efficiency moves.

That may be true, admitted Bob Alexander, but the worst thing would be to stigmatise back office staff – the people mostly responsible for delivering the OEP – as an “isolated little group in a back room”. “When I worked as a finance director of a trust, people who worked in our payroll dept genuinely thought that their ‘reason for being’ was patient care, because they kept doctors and nurses paid and they sorted out queries so [frontline staff] didn’t have to take time off the wards,” Alexander said. “This is not about belittling the back office; what we’re saying is that the slicker, the more economic, the more efficient you make it, the better the chance of that organisation delivering on its ‘reason for being’.” ?Whitehall will soon be echoing to the sound of sharp intakes of breath as many belts are tightened – and with all the main parties stressing their wish to retain as much frontline spending as possible, there is an ever-growing focus on making operations more efficient. The government’s latest cost-cutting drive came with the operational efficiency programme (OEP), launched by the Treasury almost exactly a year ago, with its final recommendations published in time for April’s Budget. It calls for £15bn in new savings, with £6bn to be realised in the current spending period and another £9bn in the next one. The multi-themed study explored cost-savings in five separate strands, and delivering on the ambitions in two of these areas – collaborative procurement; and back office and IT – was the topic for discussion at recent roundtable event held by Civil Service World in conjunction with IT services company Atos Origin.

Making the change

There was broad consensus around the table that the OEP – and the broader efficiency agenda – has been given a big boost by the parlous state of public finances. The review led by former Office of Government Commerce head Sir Peter Gershon in 2004 was conducted at a time of relative plenty, and – unlike the current plans – its main method of leverage was by offering departments the prospect of retaining a portion of any money saved. The OEP places less emphasis on such incentives, instead relying on the more robust method of creating a ‘burning platform’: the intended efficiency savings are simply being taken out of departmental budgets. The risk with this approach, said some panellists, is that the most straightforward way to cut costs is simply to axe a few major projects, rather than changing civil service practices to yield efficiency savings. “It’s an awful lot easier to point at a capital project which has clearly defined boundaries than it is to tackle fairly intimately-entwined operational, day-to-day
expenditure,” Atos Origin’s head of procurement Mike Zealley said. “However, the bigger prize is in the day-to-day expenditure, so we need to keep our nerve.”

What’s more, said Barbara Moorhouse – until recently commercial director at the Department for Transport, and before that the Ministry of Justice – if the OEP is dominated by cuts to the back office as opposed to real culture change, then delivery of public services could well suffer.

Moorhouse was in little doubt about the scale of the challenge; it demands a real move towards collaboration, she said – something that’s not easy when “politics as usual” in the civil service can mean representing one of a number of disparate political interests. Officials tend to defend their operational turf and financial autonomy jealously, she added, damaging the prospects for working across silos, fostering shared services and a range of other collaborative activities – and declining budgets could simply lead to greater competition for resources between different parts of the civil service. Things appear to be reaching an “inflection point”, Moorhouse argued, and could go either way. “Will this pressure be enough to create a new model of working, or will it just exacerbate the tensions in a very traditional way? That I think would just make very difficult for everybody, and as stress levels rise, good collaboration is more difficult.”

Procurement

Saving such large quantities of money self-evidently demands that government spend less on procurement. Moreover, it means government buyers getting more value from new and existing deals – and the OEP envisages cuts in the price of current contracts. Being realistic, said Atos Origin’s director of strategy Philip Chalmers, means acknowledging that there are “fairly savage cuts ahead”, while also recognising that the “pain” is not being experienced by government departments alone. “If the response [of departments] is to send out a letter to suppliers that says: ‘Thank you very much but we’d like you to take a 15 per cent cut in your service charges,’ we won’t get anywhere,” Chalmers said, suggesting that public bodies and contractors establish a more collaborative approach to finding savings.

One thing that government procurement people need to do more cleverly is to look for flexible, long-term relationships with contractors, said Simon Lydiard, deputy director for commercial delivery at the Department for Transport. Buyers from departments should be able to approach suppliers over the lifetime of a long contract and explain how their needs have changed, and where they want to save money. “I think there are opportunities in long-term commercial relationships to seek a realignment of the needs of both sides,” Lydiard said. Chalmers agreed, arguing that savings will be easier to find in deals that are well-established than those about to be signed. “That’s where the supplier has gained a deep understanding of the landscape, and can use that knowledge to drive out efficiencies.”

Not only should longer-term deals be more flexible, said Lydiard, but efficiencies could be made by re-examining how procurement contracts apportion risk between departments and suppliers. Despite the fact that in many deals the government pays a premium to “outsource” risk – meaning the supplier is supposed to pay when things go wrong – in reality government cannot allow services or key suppliers to fail, so the taxpayer nearly always bears a large chunk of risk. “Ultimately, no matter how you draw up the contract, the public sector always bears the last element of risk, so sometimes we need to think more intelligently,” Lydiard said.

Lydiard’s former DfT colleague Barbara Moorhouse commented that buyers and suppliers rarely have open, ongoing discussions about where risks lie in the delivery of large-scale projects. “With a lot of these programmes, what goes wrong is that there isn’t a proper discussion about what is being done and what the risks genuinely are, or a proper control process that prevents new risks from coming in,” she said, calling for a “more holistic” method. But Ulrike Hotopp, director of performance and evaluation at the Department for Business, Innovation and Skills, reminded participants that there are different types of risk – and commercial risk must necessarily lie with the commercial delivery partner.

A more collaborative approach to managing and sharing risk may be supported at the top of government, said Atos Origin’s vice president of public sector Anne Ware, but it’s less evident in actual dealings with procurement professionals on the ground: “There’s a chasm between what’s being discussed with [cabinet secretary] Gus O’Donnell and the senior executives and what’s being procured, and there is still this idea in some parts of government that says: ‘This is risk – it must be yours, it must be yours’.”

Cultural change

So what kind of culture change is needed in the civil service – collectively and individually – to drive the kind of savings envisaged in the operational efficiency plans? The need for improved commercial skills within government looms large in both the collaborative procurement and the back office/IT strands of the OEP, and Lydiard supported the prominence the issue has been given. The civil service must become more “commercially astute”, the DfT man said, with less of a blinkered focus on achieving ‘value for money’ by following prescribed procurement procedures. “It’s about understanding how to utilise our relationship with markets to drive value,” he said. “One thing that’s really important, particularly on major projects, is that before you even go to the market you’ve got a view of how you can work with suppliers to drive out the best value, and you understand the market drivers at a fairly deep level.”

It also can’t just be about slightly better training for one specific sect within the civil service; the scale of intended efficiencies requires more skills and awareness from everyone who works in government, said Home Office director general for corporate services Helen Kilpatrick: “You can’t leave the corporate centres or the finance people or the commercial people to deliver the OEP; everybody working in the civil service has got to have those financial and commercial skills.”

On the implications for large business change projects, especially those involving IT, Kilpatrick says the belt-tightening might spell the end of the “all or nothing” attitude. The squeeze on capital budgets means such projects – whether intended for the frontline of services or the back office – are less likely to go ahead, but where they do happen they should be cut into “manageable chunks”. “It’s about breaking the projects down into parts and trying to deliver the parts that provide the most value first,” she said, pointing to the example of the Home Office-led e-Borders scheme. “Sometimes, doing the minimum is the right option,” agreed Bob Alexander, director of NHS finance at the Department of Health. Alexander said there must be “ruthless prioritisation” in deciding which projects go ahead. Mike Zealley said the efficiency agenda could help engender the kind of “lean thinking” he learned when working in the automotive industry. “One of the principles was the short, sharp burst of change,” he said. “Don’t try and leap from a standing start to your end point vision. Each step on the journey should add value in its own right.”

Shared services

Part of the government’s vision of greater efficiency has involved greater sharing of corporate services. Central departments have had varying degrees of success in shared services, for a number of reasons – among them a reluctance to make staff cuts where necessary. Despite the agenda’s somewhat chequered past, Paul Williams, head of the business change unit at the Department for International Development (DfID), said he is optimistic about the future take-up of shared services, and offered the Department for Work & Pensions and HM Revenue & Customs as “centres of excellence” that could encourage others. Williams said that the dispersed nature of his department’s administrative work means there is scope for deep savings through sharing of services, but added that these things take “longer than any finance ministry will want”. Kelvin Green, change manager at the Foreign Office, said that his department has run 170 separate back office functions in different countries – an obvious inefficiency illustrating the need for sharing.

On shared services, central departments will have to grasp the nettle, said Ruth Ormsby, who runs the NHS’s shared business services scheme. More than 100 trusts now use IT services provided through the system, including e-procurement and accounting. Crucial to the system’s success and affordability, Ormsby said, is the fact that 50 per cent of the work is outsourced to India.

It’s becoming harder for departments to resist sharing services, Helen Kilpatrick added – and the OEP will add further leverage. “The pressure is such now that we are at a tipping point. The ‘I’m special, I’m different’ argument is too costly,” she said. “It’s easier now to sell the benefits of shared services by laying out those savings, and certainly that was our experience on our estates shared service.”

Governance

While the OEP makes much of the need for improved governance, with a call for stronger reporting to top officials and ministers on the delivery of large IT projects, Moorhouse said there should not be undue focus on simply changing reporting structures. “It is an enabling mechanism, but it is not an output or an achievement in its own right,” she said. “People talk about getting the governance right as if then everything else will just flow.”

Mike Zealley echoed this point, arguing that excellent lines of accountability don’t necessarily improve delivery. “Where I’ve seen things achieved, there are clearly-defined goals and objectives, and an empowered team with minimum interdependencies who can get on and make it happen, rather than building huge hierarchies of reporting lines which are inevitably slow,” he said. What’s more, simply changing governance structures on paper rarely has the effect of fundamentally changing the way people operate. Ulrike Hotopp, who has just moved to the reorganised business department but was formerly at the Department for Energy and Climate Change – itself carved out of two other departments – noted that management changes at DECC didn’t initially create coordination of effort. “We struggled with getting the right governance structure, because just having a joint board didn’t seem to quite do it,” Hotopp said.

One thing on which there was definite consensus was the need for every civil servant to feel a degree of responsibility for helping deliver on the OEP targets. Paul Williams said that DfID staff must be persuaded that efficiency savings are being made to help them perform their frontline duties better, even if the subjects of back office costs and procurement fail to excite them. “Nobody joins the civil service to be in the back office,” Williams said. “Certainly not at DfID; we have some of the most committed staff, and I don’t think they all join to process payments.” He suggested that the prospect of moving officials from the back office to the frontline might improve staff acceptance of efficiency moves.

That may be true, admitted Bob Alexander, but the worst thing would be to stigmatise back office staff – the people mostly responsible for delivering the OEP – as an “isolated little group in a back room”. “When I worked as a finance director of a trust, people who worked in our payroll dept genuinely thought that their ‘reason for being’ was patient care, because they kept doctors and nurses paid and they sorted out queries so [frontline staff] didn’t have to take time off the wards,” Alexander said. “This is not about belittling the back office; what we’re saying is that the slicker, the more economic, the more efficient you make it, the better the chance of that organisation delivering on its ‘reason for being’.”

Who was at the table - and their thoughts on delivering the OEP

Bob Alexander, Director, NHS finance, Department of Health: “Monitoring and evaluation will be absolutely critical.”

Philip Chalmers, Strategy director, Atos Origin: “Engage suppliers early and make some attempt to recognise the pain that they have, because we are trying our hardest to understand what departmental pain points are. It would be nice for you to do the same.”

Wayne Gibson, General manager, Home Office account, Atos Origin

Kelvin Green, Change manager, Foreign and Commonwealth Office: “Generally it’s about being innovative in the way that we deliver overseas.”

Ulrike Hotopp, Director of performance and evaluation, Department for Business, Innovation and Skills: “Monitor and evaluate what you are doing, or else you can’t learn and you don’t know whether it worked or not. So collecting data before, during and after and then trying to establish what has caused what is really important.”

Helen Kilpatrick, Director general, financial and commercial directorate, Home Office: “Improve skills and incentives for ordinary civil servants, because you can’t leave the corporate centres or the finance people or the commercial people to deliver the OEP.”

Simon Lydiard, Deputy director, procurement commercial delivery, Department for Transport: “I think if the operational efficiency programme is going to be effective it’s got to mean something to individuals. If it just feels like a distant, top-level objective which doesn’t relate specifically to the individuals that run organisations, then it’s not going to have any impact.”

Barbara Moorhouse, Former corporate services director, Department for Transport: “Not disparaging the programme, but seeing it as something to be looked at so we get better and more efficient government.”

Ruth Ormsby, Director, shared services, Department of Health: “There are loads of talking shops where you talk about shared services, but we just got our heads down and got on with it… I’d like to see other people trying it.”

Anne Ware, Vice- president, public sector, Atos Origin: “Releasing funds at the back office to improve services at the front end doesn’t happen by magic, and you do have to have a line of sight between services at the front and the back.”

Paul Williams, Head of business change unit, Department for International Development: “I agree; we need to connect the front line to the back office.”

Mike Zealley, Partner, head of procurement transformation, Atos Origin: “The engagement of suppliers in those dialogues. Really do involve us in discussions about how we help you achieve the objectives.”