Fragmentation of public service major barrier to cross-agency savings

Wednesday 7th March 2012 2 Comments

Fragmentation of New Zealand public services is the greatest hurdle for the state sector to achieve major back office savings, according to the Treasury.

Deputy chief executive Andrew Kibblewhite said the government has the potential to save as much as $250 million a year by integrating administrative and support functions to front-line services, and the autonomy of individual departments has eroded overall efficiency. That rises as high as an annual $450 million if big efficiencies can be made.

“Fragmentation is a systemic obstacle to efficiency that can be overcome with cross-agency collaboration,” Kibblewhite said. It has “long been regarded as a strength with agencies able to adapt and which can be more innovative.”

The Treasury’s second annual administrative & support services benchmarking report shows a moderate improvement in the public sector’s back office efficiencies could trim a quarter of a billion dollars from the overall bill, a figure Kibblewhite says is an achievable target.

“That $250 million figure is achievable and I think it will be in time,” he said.

The report again fingered the cost of information and communications technology services as the area for the biggest improvement, with $130.2 million of efficiency savings able to be realised, followed by a potential $44.5 million of savings in human resources, $34 million in property, $31.8 million in corporate and executive services and $10.7 million in finance departments.

In commentary on ICT, Stuart Wakefield, government chief information officer at the Department of Internal Affairs, said the ICT strategy group is leading work on aggregating demand for procurement from third parties, and using economies of scale across government for shared services.

While it will likely see some initial costs from capital expenditure, the changes will help improve efficiency and cut costs by simplifying ICT across all of government, he said.

The 31 agencies covered in the benchmark report spent $1.72 billion on support and administrative services in the 2010/11 financial year, some $20.4 million lower in real terms than the year before.

Kibblewhite said the Treasury is leading the way in reining in back office functions, and has set up a Central Agency Shared Services unit with the Department of Prime Minister and Cabinet and the State Services Commission.

The department reassessed its back office expenditure when last year’s report highlighted its spending on human resources, something the Treasury wasn’t aware was as big a cost as it was.

That will lead to a 15 percent reduction in spending over three years, and reduce headcount across those agencies by a fifth.

Invigorating a culture of greater financial rigour in the public sector has been a major goal of the National-led administration since it won office in 2008, and Treasury Secretary Gabriel Makhlouf last week urged state service executives to lead the change.

Finance Minister Bill English said the report showed there is “ample room for future savings” and he expects more cuts in back-office spending in the coming year.

BusinessDesk.co.nz

Comments from our readers

On 8 March 2012 at 11:59 am John said:

That should come as no surprise to anybody, least of all the Treasury. The decentralisation of the public service from the mid-80s was always going be costly mistake. Think about it - it used to be a single payroll system( excl the teachers' payroll) serving the entire public service. Now every single public entity has its own! There used to be a number of computer services centres providing IT services to the wjole sector. Now, every single department has its own. The departments never made those decisions themselves to go autonomous. The govt and the the Treasury did. There are times and decisions such as that back in the 80s where the Treasury and the govts (doesn't matter which one) has now got to take ownership and admit they were wrong to push for decentralisation. Some theories and concepts are some times just that!

On 8 March 2012 at 11:18 pm Ian said:

Payroll is an excellent example of what could and should be centralised and could probably just be outsourced. Yes many backoffice functions could be centralised but look at who is driving the change and who will in fact benefit from centralisation and are theY a NZ firm! Be careful on what you ask for when centralising services. NZ public services are quite good in comaparision to Australia or the UK or other 1st world countries. Just look at the mess European Union is in from mass centralisation and perhaps look at what real gains have been acheived from centralised health in Auckland and centralised local councils in Auckland. Do we get better services? Are the the total costs per person now less? Have our rates decreased as result of centralisation or is new waste created through a bureaucratic layer that is too far removed from the customer and can't adapt to customer needs? Centralisation doesn't always work does it?