It’s both captive and external. It’s government and private entity. Most of all, it is expected to save the U.K. government millions of pounds each year. How does the NHS Shared Business Services do it? Read on.

by Russ Banham

Few government bureaucracies rival England’s National Health Service, a massive organization employing more than 1.5 million people in 600 different corporate entities to provide medical services to Britons. The back room of NHS is similarly labyrinth, with each of the 600 entrusted to handle its own accounting, payroll, and other financial functions. To obtain much-needed efficiency and economies of scale, NHS developed a shared-services center in 2001.

The pilot project tested the concept of delivering financial services according to the shared-services model widely used in the private sector. Although successful, Britain’s Department of Health wanted to optimize the potential and recommended a 50-50 joint venture with a private sector partner to provide service. The result was the creation of the only F&A outsourcing service provider that is part-owned by a government and part-owned by a private-sector company. It’s also the first joint venture between the government and the private sector in the U.K., with a board of directors culled from two directors from the Department of Health and two from the service provider: Reading, England-based Xansa. A fifth tie-breaking director fills an independent chair.

“No doubt having something already operating has made it much easier to make this thing work,” said Peter Coates, NHS deputy director of finance.

The joint venture between NHS and Xansa—NHS Shared Business Services—has grown from its initial 47 hospital customers to 120 in only 18 months of operations. “We’re growing at twice the speed we thought we would,” Coates said. “We also started with simple finance and accounting, and now offer full payroll services and are moving into HR services next year.” The two service centers in Leeds and Bristol from the initial shared-services concept were turned over to the joint venture, and their staff is now on the payroll of NHS Shared Business Services.

The Department of Health does not require hospitals to outsource finance and accounting to NHS Shared Business Services. The joint venture has thrived, instead, by its ability to improve processes, save money, delivery high quality, timely information, and enable senior NHS finance staff to focus on strategic planning and management. Chalk it up to the unique partnership: dividends from the for-profit venture are awarded in a two-to-one ratio to the Department of Health, which in turn passes the money to client hospitals on a pro-rata basis. Said Coates, “We haven’t yet returned a profit, since we are only in our second year of operation, but we anticipate doing that by the end of this fiscal year on March 31, 2007.”

DRAMATIC TENSION
The initial shared-services center concept introduced in 2001, while a significant improvement from the bureaucratic jumble of previous finance and accounting practices, had only scratched the surface of improved efficiencies.

“It was a wonderful thing to do, but it lacked clarity in terms of who was the customer and who was the buyer,” Coates explained. “When you’re doing all the work internally, essentially you are working for the same boss. Arguments erupt as to who calls the shots and sets standards. There wasn’t the clarity you get when you’re buying a service from an external party. If the provider you’re paying doesn’t meet your requirements, you can have a more robust conversation about how to improve things.”

Coates described the difficulties in the internal shared-services model as a lack of effective tension. “We needed the tension that typically exists between a customer and buyer,” he explained. “We mulled this concept, and in 2003 decided to start a procurement exercise to bring in a private-sector partner with the skill to manage the interface between NHS and client hospitals more professionally than we could do it ourselves.”

Several major F&A outsourcing providers bid on the project, including Accenture, EDS, and Capita Group, but Xansa emerged in the competition. “It was a very competitive tendering process, and we settled on Xansa because they offered the best experience fit with the government and a compelling financial package,” said Coates. “We told them we had assets worth £28 million to make this work and asked, ‘What will you put in?’ Their investment offer indicated a sincere willingness to make this a success.” Coates declined to reveal the details.

Xansa started life as an IT outsourcing provider and moved into the F&A sphere following a spate of acquisitions of consultancies and project management businesses. Its biggest prior F&A outsourcing assignment was British Telecom (it is contracted to run BT’s accounting and finance through 2008). “We brought to the table F&A expertise, not only in terms of operational management but also sales development and communications know-how,” said Daniel Rona, managing director of NHS Shared Business Services.

“Since we were dealing with the government, we had to prove our commercial benefit—that there is quality and cost savings that come with implementing our service,” he explained. “The joint venture concept took this a step further, giving the Department of Health a stake in not only making this work but also in terms of the benefits it derives, the two-thirds of dividends that are provided client hospitals and the cost efficiencies inherent in outsourcing.”

Rona said there is more incentive for the government to work closely with NHS Shared Business Services “because it is literally part of them.”
At its launch in April 2005, NHS Shared Business Services focused on five core F&A services: purchase-to-pay, order-to-cash, accounting-to-reporting, treasury and cash management, and value-added tax advice and assistance. It later implemented two additional services—payroll and electronic procurement support via an online purchasing portal.

The contract between NHS and the joint venture calls for its services to be benchmarked annually against The Hackett Group’s best practices. Hackett is a global strategic advisory firm supporting benchmarking and business transformation services across the Global 2000. The contract requires NHS Shared Business Services to deliver performance within the top quartile of Hackett benchmarks. “We’re judged not only by the financials but by the external assessment that Hackett provides,” said Rona. “In our first year of operation, for instance, we reduced accounts payables transaction costs by 18 percent, in line with projections.”

Overall, Rona estimated that after one year, NHS Shared Business Services has delivered an average cost savings of 34 percent to NHS hospital trusts. The partnership is expected to save more than £220 million pounds for NHS over the 10-year life of the contract, enough cost savings to pay the salaries of more than 3,000 general practitioners or 12,000 nurses (the estimate is provided by England’s Health Minister John Hutton).

The key to growth is to convince the more than 600 NHS hospital trusts to use centralized service centers to carry out back-office work such as payment of invoices, VAT returns, debt collection, and bank account reconciliation.

“It’s a selling exercise (to the hospitals),” said Coates. “We try to point out the benefits, such as an immediate 20-percent savings over current in-house practices, as well as note that the organization is part of the NHS family, half-owned by NHS.”

At Queen Elizabeth Hospital Trust, a Southeast London-based hospital with 600 beds, being part of the family has paid off in many ways. The hospital went live with NHS Shared Business Services in April 2005, and its CFO, David Wragg, said there is now a “much closer link between finance and our clinical directorates. Consequently, we’ve been able to reduce staff, which in the past manually ran the financial ledger and other finance functions through paper-intensive practices. We’ve gotten rid of the paperwork and now have purely digital records. We have proper workflow through the hospital, so we know where all the invoices, for example, are at any given moment.”

The new system is “completely transparent, giving us a more accurate system of accounting and strengthening the management accounting function,” Wragg adds. “We’re seeing big staff savings.”

ORACULAR VISIONS
NHS Shared Business Services inherited the Oracle IT system previously deployed by NHS for its internal shared services platform. The joint venture has built on this foundation, for example, recently adding the ability to automate month-end reconciliations.

"We took on what essentially were two separate shared-services centers in Leeds and Bristol, with two very different processes for AP, and have worked to standardize these processes,” Rona explained. “We’re also improving the front end, creating help desks for customers and a common phone number, where all inquiries come in and are logged. The challenge has been the swift pace of growth and the need for the system to have the industrial strength to manage more volume.”

He notes that NHS Shared Business Services has needed to increase computing capacity by more than 50 percent, as well as increase the bandwidth of its links to NHS.

Despite playing catch-up, the joint venture recently reported a major achievement—compliance with SAS 70, considered one of the most rigorous global auditing standards.

“We are one of the first public-sector, shared-services organizations to achieve this, which is further proof that our standards-control objectives are robust, thereby giving our clients peace of mind,” Rona comments.

The bureaucracy-busting partnership is breaking even and fully expects to be profitable next year. The key is to convince larger hospitals—called foundation trust hospitals—to jump on the bandwagon (NHS Shared Business Services has established a strategic objective of supporting almost half of all hospital trusts by 2009).

“There is a move afoot here where the big hospitals can opt out of NHS and become independent entities,” Rona noted. “We’re tailoring our solution right now to appeal to these hospitals, adding things like project accounting, data warehousing, fixed asset accounting, and other services to our menu. For all our clients and all our services, we assure that quality standards are rigorously applied through service-level agreements and key performance indicators. We need to move with the changing needs of our clients.”

Possibly the single most powerful advertisement for the partnership “is to visit one of our service centers,” Rona said. “Visitors can see for themselves how shared services work in practice and witness the unique nature of the emerging culture of a private/public joint venture, where a deep understanding of NHS combines with private-sector best practices and cutting-edge IT.”

If the experience at Queen Elizabeth Trust is any indication, more clients are in the offing. “A huge load of routine clerical operations have been lifted off our shoulders,” Wragg said. “Automation has saved money and provided really good quality information to our clinicians and managers. We also are making much better resource allocation and management decisions. Rather than spend our time trying to manually generate data from old-fashioned ledgers and explaining the spend, we have moved the level of debate to more sophisticated strategic issues.”

Rona said interest in the joint F&A outsourcing venture also has been expressed by several foreign public sector organizations, including entities in Scandinavia, southern Europe, Australia, and Hong Kong. “We take this as further support for the concept of a public/private joint venture run on a commercial footing and using economies of scale to provide better services at lower cost,” he said.

Other business processes are to be outsourced to NHS Shared Business Services, including HR within the next year. “The name of our organization reflects the fact that we are not restricted to just offering financial and accounting services,” Rona said. “We will continue to assess opportunities to expand into other back-office service areas where economies of scale can be applied to deliver efficiency and financial benefits.”

Coates said the “tension” desired by the creation of a joint venture has been realized. “There is a binding contract now between two organizations, and performance guarantees via the Hackett benchmarks that provide for the withholding of payment if contract terms are not met,” he explained. “Tension is a good thing.”