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December 2018
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Election 2010: Where Next for Public Sector Spending Cuts?

So, it seems we face a choice between ‘securing the recovery’ or being taken seriously by the markets with regard to deficit reduction. Between halving the deficit (by £78m) over the next four years or a more ‘roots and branches’ attack on spending perhaps something more akin to Ireland, where cuts and tax rises in 2009 of around 5% of GDP would be like taking £65bn out of the UK economy in a single year.

In all of this, something very fundamental is being overlooked. And it’s time to wake up and realise what we’re missing. Here’s why.

The drive for savings has focused on Government back office functions – Finance, HR, Procurement, IT. There seems to have been a reluctance to date to think beyond this – possibly stemming from the, in our view, mistaken premise that this is the best way to ‘protect front line services’.

But, think about it. Based on HMG’s own data , Finance, HR and Procurement functions typically represent 0.6% to 2% of organisational spending. IT, typically between 4% and 8%. Across all these areas, the estimated potential for savings is £4bn a year on annual spend of £18bn.

All of which is certainly not to be sneezed at. But now just think what could be achieved if we open up for scrutiny the other 90-95% of operational costs at the heart of business operations. On this scale, even relatively small improvements could have a huge impact for savings. THIS is surely what we need to be turning our minds to now, in the face of today’s demands for long-term, sustainable savings. And, unlike the back office which has been targeted since 2004, it’s a largely untapped area for savings.

This is not ‘nice theory’, but based on pragmatic experience at the sharp end. Atos Origin has a long track record of working with Government clients to help drive savings in traditional, back office areas. Over the past 12-18 months, however, we have increasingly focused on helping to deliver improvements and reduce cost of services to the citizen. And we are already seeing glimpses of the ‘art of the possible’ in terms of what this can mean for savings.

Take, for example, health. Within the West Midlands Strategic Health Authority (SHA), Atos Origin was selected to support the application of ‘lean’ principles across a whole health economy in Stoke-on-Trent and North Staffordshire. This work involved engaging with patients, clinicians and managers in a sector that employs 11,000 people and serves a population of 483,000. The requirement was to deliver two things improvements in quality and reductions in costs. Over an 18 month period, our approach led to improvements in A&E performance, reductions in waiting times, reductions in delayed discharges and the identification of 21 projects with potential recurring savings of nearly £50 million over a 3 year period. This represents a return on investment of more than 50:1.

Now imagine that replicated across all hospitals and all SHA’s

Which is why, in our view, optimising end to end customer service costs, from first interaction to service delivery, now represents the biggest potential for new, scale savings. Fundamentally, it’s all about taking a ‘whole system’ view and reducing cost and improving service by removing duplication and hand-offs between different delivery silos.

What’s more, experience demonstrates that these savings do NOT have to be at the expense of service quality. Far from it. Redesigning and restructuring services offers real scope for improving BOTH effectiveness AND efficiency. It does, however, require a willingness to fundamentally re-think the way public services operate.

Of course, there are beartraps awaiting the unwary in adopting this new approach. The most dangerous of which is setting out with an insufficient understanding of what’s most important and valuable to different groups of citizens. In this case, the risk is that efficiency comes at the cost of reduced effectiveness and quality of service which is definitely NOT the answer.

Underpinning all this, therefore, are some key principles:

  • Develop real customer insight and don’t treat all citizens the same – which means moving away from a -one size fits all approach. And don’t assume you know your customer and their expectations. The societal, technological and economic changes, just in the past 5 years, mean that the way different groups of citizens need, and want, to interact with Government changes constantly.
  • Focus on how best to achieve desired outcomes, rather than improving administrative processes. Efficiency gains may drive down administrative costs, but only increased effectiveness will drive down overall programme spend.
  • Put minimising unnecessary customer contact and eliminating non essential steps at the forefront of any process re-design. Managing customer demand and sign posting the most appropriate route for each customer are equally important.
  • In summary, challenging times require us to think more radically and holistically to open up whole new potential areas for savings in the next spending round. It won’t happen overnight, and does require a significant culture change. By far the most important thing a new Government must do, therefore, is to break with old habits and mantras, and put in place new governance, budgeting and corporate and personal incentives that will break down silo thinking and allow and encourage public sector staff to think fundamentally differently about how services are delivered.

    1. Cf.Learning from the Irish recession, Stephanie Flanders, BBC economics editor, 9 April 2010
    2. Benchmarking the Back Office – Central Government, 2009

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