The latest PwC benchmarking of government corporate services shows that over the past two years the cost of corporate services appears to be reducing relative to the overall cost of the entity but these savings have been made through short-term measures that are unlikely to be sustainable.
The study shows the cost of corporate services as a proportion of total departmental expenses for smaller entities is almost double that of the larger entities, which benefit from economies of scale.
This suggests that smaller agencies would benefit from sharing services with their larger cousins in a particular portfolio area or similar function, such as regulation.
The benchmarking study found that only 5% of agencies were confident that these short-term tactical measures would deliver the intended return on investment over the long term.
As a result, the focus for agencies will need to shift from restructuring and spending cuts to larger and more strategic changes such as ICT enabled transformation and different sourcing models, including shared services and outsourcing.
These measures have the potential to deliver substantial productivity improvements but typically require significant changes to the internal functions and processes of corporate services areas, as well as upfront investment and a discipline in calculating, measuring and capturing benefits.
As agencies face continuing pressure to cut costs and improve performance, corporate services areas will also need to focus on core activities that support the delivery of outcomes while finding ways to reduce the cost of non-core/transactional activities.
Agencies increased appetite for risk should also provide opportunities for further efficiencies such as the cutting of red tape and streamlining of operations.
Changes in service delivery models mean entities will rely more on different skill sets and specialist staff, and face new risks in their operations.
The study also found that 25% of shared services and 74% of outsourcing arrangements were perceived to be of higher quality and lower price than the government entities could deliver internally.
However only one quarter of agencies are actively assessing the potential to increase the use of shared services, although this will become a greater focus over the next three years, as will outsourcing, particularly in the finance and ICT areas as entities focus on core activities.
A selective sourcing strategy that includes both shared services and contracting to the private sector could deliver better results, and this is supported by a PwC global study showing there were significant cost savings to be had where a disciplined approach to standardisation of processes is pursued.
However, the building of a shared services platform ought to be treated as a long-term, strategic decision, and will likely require a significant upfront investment in a common IT platform both within and across entities.
The area with the most to gain from shared services is finance where there are common problems with technology such as the lack of integrated systems and workflow automation.
Agencies may also not have a clear picture of their transaction costs and they will need to review their technology and processes and consider outsourcing as well as sharing services.
In the wake of the PGPA Act, many entities have or are in the process of reassessing their appetite for risk and some have reduced the amount of controls or red tape for financial transactions.
A third of agencies surveyed agreed that the level of residual risk that they accept in their operations is higher than it was two years ago. This increased level of tolerance for residual risk would provide greater scope to identify further efficiencies, and help demonstrate that an entity’s governance function is fit-for-purpose.
ICT is key to transforming the delivery of government services and outcomes, and aligning ICT strategy to the entity’s long-term business needs has become the highest concern of chief information officers.
ICT departments will look more and more to outsource functions, such as communication services and data centres that benefit from economies of scale, and to source from the cloud, bringing cyber security challenges.
Outsourcing the management of ICT services to third party providers will also allow entities to focus on their top priorities and improve the strategic management of ICT at the portfolio level.
The shift away from the transactional nature of work in corporate services will bring a greater reliance on specialist staff, particularly in ICT, raising another potential area of risk: the loss of corporate knowledge.
It will be important for contracted specialists to pass on knowledge to ongoing APS staff and for entities to invest in training and skills development to ensure continuity and resilience.