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November 2018
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Third Horizon Perspective

The emerging agreements as part of the spending review set out a clear financial expectation (required quantum and phasing of spending reduction). The challenge is to commute the expectation into practice without an unnecessary degradation in ‘front-line services’. Third Horizon experience confirms the following will be necessary:

An operational blueprint

Sponsorship from the top

An operational blueprint

The blueprint translates a financial requirement into an operational reality. Let’s take the MOD as an example. Total UK expenditure equates to 2.6% of GDP today and it is mandated that it will fall (by ~10% – according to press reports) to ~2.3% as a result of the spending review (which compares, for example to 1.8% in Australia and 1.3% in Canada). We have been spending at a relatively high level and the reduction will bring that spend more in line with our peers. But we have intractable problems within the MOD which need to be resolved as part and parcel of this spending reduction. We spend a disproportionate amount on bureaucracy and inter-service rivalry (e.g. as Liam Fox said “There is one civilian for every two armed forces personnel in the Ministry of Defence. In other words the total of civilians in the MoD is larger than the Royal Navy and the RAF combined”). This is unacceptable and must change. Defence expenditure should be primarily about achieving a security outcome rather than maintaining tradition or as a tool of industrial policy where certain businesses are propped up. The operational reality must, in the vernacular, make sure we cut the fat rather than the muscle.

Sponsorship from the top

No-one can doubt the political will to reduce government expenditure. But this does not mean the desired savings will be realised. Political will needs to be commuted to departmental intent. Sir Philip Green suggests there is scope to improve procurement across Government and he is surely right not least because other high-level reviews have come to similar conclusions. But the sceptics and cynics cry ‘why should anything happen this time’? Nothing short of a root and branch culture change will suffice and this will entail inter alia:

1. Focusing on non-negotiable outputs (rather than on inputs and processes)

2. Embedding business case thinking into all investment and change programmes (identifying the NPV taking account of risk and possible delay)

3. Removing barriers to change (whether they be people-, process- or protocol-related)

4. Effective communication (ensuring the message is heard, understood and reinforced through, for example, the reward mechanism)

Our track record

Third Horizon is currently working with a number of Australian federal and state government departments including:

The Department of Defence – a workforce and shared service review

NSW State Health Department – efficiency review and governance restructure implementation

‘Service Delivery Reform’ – a back office IT-enabled integration project across three Australian government departments (Department for Human Services, Centrelink and Medicare)

The NSW Department of Premier and Cabinet – shared services design across 13 super agencies

Department of Services, Technology and Administration – a major efficiency programme.

The overall themes of our work are:

Creation of super agencies (to deliver economies of scale and scope)

Integrating agencies at the point of delivery (to both reduce cost and improve customer experience)

Unlocking benefits from shared services (to deliver economies of scale and scope as well as improved capacity utilisation)

Better IT-enabled processes (effectively harnessing IT in both the front- and back-office).

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