| 10 August 2006 |  |
| To | Heads of HEFCE-funded higher education institutions |
| Direct Line | 0117 931 7300 |
| Direct Fax | 0117 931 7203 |
Circular letter number 20/2006
For further information contact Stephen Butcher, tel 0117 931 7425, e-mail s.butcher@hefce.ac.uk
Dear Vice-Chancellor or Principal
Shared services: the benefits for higher education institutions
1. In November 2005 the Cabinet Office published 'Transformational Government: Enabled by Technology', which set out the Government's vision for a long-term transformation of public services. One of the three key recommendations was that Government should move to a culture of shared services to improve the quality and cost effectiveness of public services.
2. While this is not mandatory in higher education, as higher education institutions (HEIs) are not part of the public sector, we expect that they will wish to take advantage of such opportunities to improve services and release resources to support teaching and research. This letter explains more about the potential benefits of shared services, and how we are planning to support the sector in building on existing good practice.
What is a shared service?
3. Definitions of shared services vary. Typically they describe a model of providing services in a combined or collaborative function, sharing processes and technology. In the private sector this is usually within the same group of companies, but in other sectors it will most often be between separate entities. The most sophisticated models involve establishing a completely new organisation, run and managed as an autonomous business.
4. The traditional definition of a shared service concentrates on bringing together 'back office' functions, often from geographically disparate areas, into a separate organisation. However, a broader definition could offer wider opportunities.
5. The diagram below shows how shared services could enable HEIs to benefit by changing how they operate without affecting the positive aspects of teaching and research at any individual institution.
6. The sector already has many shared services which fall into different stages of the evolution model. Examples include:
- Resource management
- the Universities and Colleges Admissions Service (UCAS) which processes applications for all full-time undergraduate courses at UK universities and colleges
- the Higher Education Statistics Agency (HESA), which is a central source for higher education statistics, and has standardised and streamlined the data collection and publication process to become a respected point of reference
- Specialisation
- regional purchasing consortia use the combined purchasing power of institutions in contracting for commonly used goods and services
- the UNIAC internal audit consortium services HEIs in the north west of England
- Student and research-centred solutions
- the M25 Consortium of Academic Libraries comprises 55 institutions sharing resources and services for the benefit of students and researchers
- the Universities Transport Partnership provides common programme and module content and delivery mechanisms for transport studies
- the COSMOS Consortium consists of eight institutions researching the microwave sky and origins of the universe. They share a common research strategy and the National Cosmology Supercomputer based in Cambridge.
7. Shared services do not necessarily mean outsourcing, although this is an option. There are many other models, ranging from one institution providing a service for another, to institutions grouping together to form a joint venture company to provide a service for all the participants. There are examples already in the sector where these models have been established and are working well.
Shared services in the wider education sector
8. In April 2006 the Government published a Transformational Government Implementation Plan, which sets out the commitments for shared services until July 2007. Nine discrete areas, of which education is one, were identified. Each of these sectors is now developing plans for implementing shared services. These sector plans will be the basis for delivery of shared services over the next three to seven years.
9. The education and skills sector plan is being developed by the Department for Education and Skills (DfES), which has commissioned four sub-sector reviews covering higher education, further education, schools and children's services. This will enable the unique challenges and characteristics of each sub-sector to be taken into full account in the overall sector plan.
Potential benefits for the higher education sector
10. We have been contributing to the development of the DfES' overall approach to shared services. This includes shared services that could operate across sectors. To inform our input, we commissioned consultants KPMG to carry out a study to identify the scale of existing shared service activities within higher education. In doing so, it engaged a wide range of sector representative bodies.
11. The KPMG report, 'Shared services in the higher education sector', is published on our web-site. It details the extensive range of existing shared services in higher education, many of which have operated for some time. Operations such as UCAS, HESA, the Joint Information Systems Committee (JISC) and regional purchasing consortia were developed by the sector to meet its own needs and have delivered value over a number of years.
12. The report's key findings are:
- HEIs are already co operating in many different areas to achieve significant savings and improvements in performance.
- There is significant potential for HEIs to secure sustainable efficiencies (including economic benefits and service improvements) where they are not in direct competition. This is not just through sharing support functions, but through considering the wider range of areas where there is collaboration.
- In order to realise the benefits, the impetus for moving towards sharing additional services must come from the institutions themselves.
13. We have continued to engage with HEIs and sector representative bodies to explore the potential to build on the existing base. We have held two workshops to explore both the challenges to be overcome in developing shared services, and the opportunities and benefits that would flow from adopting them. We will continue to work with the HE sector to identify and take forward specific opportunities (see paragraph 19 below).
Barriers to delivering effective shared services
14. The KPMG report identifies a number of barriers to implementing additional shared services in the HE sector, the two most important being:
- The additional costs of shared services as a result of irrecoverable VAT.
- The need for HEIs to maintain their independence (and be seen to be doing so), when they are in competition with one another.
15. Education and research in HEIs are exempt from VAT; however, outsourced services are not. This means that the 17.5 per cent VAT paid on outsourced services is not recoverable, and is therefore a disincentive to outsourcing. We have raised this issue with the Treasury, the Cabinet Office and DfES, and we understand that changes in the VAT position are under active consideration.
16. The KPMG report suggests that sharing support functions without threatening academic or operational independence, or sharing student services without compromising a competitive advantage, is feasible as HEIs already co-operate very effectively in many areas.
Opportunities and benefits
17. The participants at the workshops explored the potential to build on existing arrangements in higher education; to extend existing higher education shared services into other sectors; to exploit shared services developed in other sectors; and to identify new areas for shared service within higher education.
18. Participants considered that many activities within higher education had the potential for some form of sharing, in particular:
- finance (notably accounts payable and receivable)
- human resources (notably payroll)
- IT/data systems
- student administration
As well as activities with a transactional focus, there were also potential benefits associated with sharing specialisms.
Next steps
19. Currently we are establishing an advisory group of experienced senior managers from the sector to assist in taking forward shared services in the sector. Working with the group, as a first step we will establish a baseline for activities so that we can identify possible areas for feasibility studies. We will also invite suggestions from the sector.
20. From the feasibility studies the advisory group will identify pilot projects and partner institutions. Once the pilot projects are complete, we will communicate outcomes to the sector, and encourage HEIs to adopt shared services where the pilots have shown that they are effective.
21. We are developing an action plan encompassing these steps, and a communications strategy to keep the sector informed about developments, including through the web.
Conclusion
22. There are real opportunities for the sector to benefit from adopting shared services, and we would encourage HEIs to engage positively with these developments.
Yours sincerely
Steve Egan
Acting Chief Executive