Research Significance: Declining government budgets since the global financial crisis, coupled with rising demand for public services, are forcing politicians and public managers to find innovative cost-cutting measures.... [ view full abstract ]
Research Significance: Declining government budgets since the global financial crisis, coupled with rising demand for public services, are forcing politicians and public managers to find innovative cost-cutting measures. Back-office administration is a priority area for reform, given that savings here can protect front-line services. A popular reform in this vein–highly relevant to local government–is the ‘shared service centre’ (SSC) which performs the same administrative tasks for several clients, for example by providing legal, financial, or human resources functions across several organisations. National and sub-national governments from Singapore to Queensland are creating SSCs, claiming expected savings of up to 40% in administration costs. English local authorities, the focus of the present study, are enthusiastic adopters of SSCs as they struggle with significant budgetary restraints.
However, there is almost no quantitative evidence of the outcomes of reorganising back-office functions into SSCs, and thus no empirical grounds for the numerous initiatives currently underway. Not only does this lacuna prevent researchers from offering sound advice to practitioners, but it also represents a significant deficit in our understanding of emergent models of organisation and their impact on operational efficiency. Accordingly, this study undertakes one of the first systematic evaluations of the effect of SSCs on administrative costs using data from all 353 English local authorities.
Theoretical and Conceptual Foundations: Viewed from the perspective of organisation theory, SSCs are designed to reduce ‘administrative intensity’ (AI). AI is the ratio of administrative to operational staff (or costs). In the local government context, reducing AI would free resources to improve frontline services or to pay off deficits.
AI was analysed extensively in the 1950s-1970s in both public- and private-sector organisations. Such studies indicated that large organisations often have lower AI due to economies of scale. However, there is as yet no research on whether the same scale effects can be achieved by smaller organisations pooling their administration in SSCs. Moreover, other factors might be expected to offset such economies, for example, transaction costs can be larger in SSCs than in-house administration.
Research Question, Method, and Results: This paper tests the hypothesis that participating in SSC reduces administration costs (specifically, ‘administrative intensity’) in English local government.
This paper determines the effect of SSCs on AI by analysing a comprehensive dataset of English local authorities. This novel database brings together measures of AI and the number and functions of SSCs, along with explanatory variables such as local government structure, demographic factors, and organisation and population size. English local authorities participate in over one hundred ‘back-office’ SSCs, as shown in the 2016 Local Government Association ‘Shared Services Map.’
The results of this study – whether confirming or disconfirming the predicted administrative cost savings due to SSCs – will contribute valuable empirical evidence to an important policy debate, as well as extending organization theory into a novel and significant area.
Acknowledgements: This study is funded by the British Academy. We are grateful to the Department for Communities and Local Government and the Local Government Association for access to unpublished data.
