Exclusive! Delays hit arvato’s government shared services centre

The UK government’s programme to develop an effective shared service programme for all Whitehall departments has been hit by delays, we’ve learnt. The independent Shared Service Centre 1 (ISSC1) is planned to take on back office processing work such as payroll and accounts payable for several departments and agencies. It was created from the existing Department for Transport (DfT) shared service centre, based in Swansea, South Wales, which itself had a very chequered past including some coruscatingly negative NAO reports.

The contract for running ISSC1 was won by arvato (note stupid lower case name) in March 2013. This is what Cabinet Office, the body that runs the whole programme, said then.

Under the agreement, arvato will provide back office services to the DfT and its executive agencies. This is expected to deliver significant savings to DfT over a seven-year period. The newly independent centre will then expand to provide HR, procurement, payroll and finance transactional services to multiple government departments and arms-length bodies. The economies of scale will enable arvato to drive down costs and improve service levels by sharing expertise across customers, adopting common processes and systems, and investing in new tools”.

Sounds good - but we have learnt that the implementation plan is now running into trouble. The plan was that the Centre would move onto the Agresso Central Government ERP Platform, moving DfT away from their current SAP system, and using Agresso for the other departments as they came on board. That software migration was planned for last month, but hasn’t happened. We hear that DfT aren’t too worried – they were probably bounced into that move by Cabinet Office anyway, and SAP presumably works for them to some extent at least.

But more seriously, the migration dates for other Departments into the ISSC1, such as Culture, Media & Sport, and Communities & Local Government, which were supposed to start transitioning in October/November 2014, are also slipping. We understand that arvato may have under-estimated the volume of work and the change management effort needed. The earliest date being discussed now is January 2015, but the Departments are concerned that this won’t be achieved and October 2015 is being seen as more likely. This is causing those Departments real problems with their current suppliers in some cases and they are even considering their whole commitment to ISSC1.

This has potential impact beyond its immediate consequences too. Choosing arvato was a very significant sign that the government wanted to move away from and reduce reliance on the “usual suspects” of public sector business process outsourcing – IBM, Accenture, BT, Capita, etc. So arvato was an outsider, part of the German Bertelsmann Group, and without much UK track record compared to some of those other firms. It would be embarrassing to say the least if this all goes wrong.

The Cabinet Office told me that (understandably) they “do not comment on speculation or on negotiations with suppliers”. So there you have it.

And on a personal note, there is a further little twist. We understand that a key individual in the arvato team is Steve Dover, who was at the Department of Work and Pensions where he played a key role in the early days of the Universal Credit programme. He got out of that in early 2012 - just in time, we might say. So he knows and has worked with some key people on the government side of the ISSC1 deal, including Sue Owen, now the relatively new Permanent Secretary at DCMS, one of the affected Departments. She also worked at DWP (Director General of Strategy from 2011-13) and must know Dover well. But now they find themselves on different sides of the table. Interesting !

Personally, I want this to succeed. I know that there is a view that shared services centres just don’t work – and I have a lot of respect for John Seddon for instance and his views. But it doesn’t seem unreasonable that a few government departments could share similar processes for paying invoices, for instance. But the issues here show that achieving any change in government is rarely as easy as it first seems.

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Voices (3)

  1. Philippa Bradley:

    Maybe there is no proof yet of multiple customer full back office shared services but CGI have proven it with payroll software and services, utilising the (now known as) Crown Commercial Service RM887 framework. Since 2002, CGI have provided cost-efficient payroll services to over 75 central government bodies and police forces on a single platform (ePayfact). Every time there is a change in legislation which affects payroll ( which is at least annually and often more frequently!), we change it once and share the cost across 75+ customers. The integration to HR and Finance systems is easily handled these days and Customers get the best of all worlds. I cautiously suggest full ERP and multi-back office BPO is a declining market.

  2. Sue M:

    Once again Spend Matters gets there first, the FT ran a story on this today!

  3. David Orr:

    Peter – Once again a big scale shared services initiative fails.

    The logic of greater scale is a siren voice, yet failure appears to be the outcome again and again e.g. Somerset, Liverpool, Birmingham etc.

    The inevitable “build and they will come” business case strategy to use post-build sales to square the virtuous circle of:big upfront investment + debt/interest repayment + contractor profit + founding partner gain/share + big “back office” savings for all partners, has repeatedly failed, yet honest & genuine big scale adherents (like yourself Peter) still believe. Given the serial failing track record in shared services across disparate organisations, why?

    For a shared service to work across multiple partners then surely there would need to be shared management, shared culture and shared processes. Is this where failure is “baked in” at the outset?

    Looking at the Euro zone – the ultimate shared something project – it is now easy to see that “one size fits all” will always be doomed to failure.

    Arise Sir John Seddon?

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