There are multiple ways for a municipality, community or other public-sector organization to reduce costs, improve service quality, or improve their operations. I have written other blogs about process improvement and finding operational efficiencies as ways to deal with these pressures.
But another popular way to reduce costs and achieve operational improvement is through service integration or consolidation.
What Do You Mean By Integration?
By integration, we are referring to combining or merging services, locations, and assets. You can integrate multiple services or locations within one organization, or between separate organizations.
It is sometimes confused with integrated service delivery, which is really collaboration under another name and refers to a number of service agencies working together to collaborate and coordinate their support, services and interventions for clients.
Integration requires combining into one model the human resources, service delivery model, and physical assets required to complete the process or service in mind.
An example of a simple integration is two small community organizations combining their finance processes to reduce costs. The services remain under the governance and management of at least one of the organizations.
On a larger scale, you can use the same principles to create a Shared Services Organization. Typically, these are separate organizations that take on the resources, assets and service model from participating organizations, and under a new entity run the service on their behalf. Think of Plexxus handling logistics, sourcing and other services for GTA hospitals.
When Does It Make Sense?
Service integration generally makes sense in the following conditions:
There are multiple organizations providing the same or similar services in the same geographic area and there isn’t sufficient funding for all of the organizations in the same area;
By integrating with another organization, you can reduce resource costs overall versus the current scenario;
You can expand your client base through joining forces;
You can address existing operational or service gaps.
What Can I Achieve?
Most studies typically find several mechanisms through which service integration decrease costs including benefits of scale, reduced costs of capital, and service or clinical standardization.
Typically, costs are reduced (versus the combined cost of the two separate organizations) as the processes, infrastructures and people used to operate the services are combined (or eventually reduced over time).
Several econometric studies have found a range of 2.5% to 5% reduction in annual operating expenses based on service integration.
Others have found that these savings are marginal or insubstantial for smaller community organizations and are only likely to be achieved by larger hospital organizations. However, while operating costs may not decrease, they are at least strengthened and more sustainable due to increased staff skills, improved internal processes, and using the circumstance to introduce back office operating best practices.
A significant study by the United States Federal Government found that it is possible to achieve somewhere between 5% and 15% reduction in cost due to process improvements when organizations combine their back offices.
An additional 5% to 20% cost savings was found due to improved human resource factors such as focusing on core competencies and improving staff capabilities.
The amount of savings you achieve varies depending on:
The amount of standardization or streamlining that has occurred previously. If organizations have not completed any activity like this previous to the shared service/consolidation effort, they will achieve greater savings
The current use of technology in the existing environment. Typically non-automated agencies will achieve greater efficiencies in the new environment
The degree to which the participating agencies have common funders, policies and regulations. Agencies that have multiple funders (and therefore multiple agreements and operational policies) have a harder time participating or achieving savings
The amount of upfront transition capital used by the mandated authority to invest in process efficiency
The degree to which participating agencies actively participate and seek out ways to maximize value drivers
The size of the organization. Larger organizations with more resources typically have more opportunities to realize savings and efficiencies.
How Do I Achieve Efficiency Through Integration?
Efficiency can be found in public sector organizations in 5 main ways:
Streamlining existing processes to reduce the steps and time
Reducing the variability and excessive activities in the process
Standardizing processes (either within one organization or between multiple organizations), so that you can become more efficient and effective over time through specialization
Introducing technology (to achieve all of the above)
Improving the skills and qualities of the people working on the process
You can achieve efficiency through integration if it is an effective way to pursue any of those five factors. If integrating your finance or IT processes with another organization allows you to standardize processes, implement improved IT and improve the skills of the staff supporting your organization then you have a viable option.
A majority of successful broader public-sector efficiency projects have focused on internal efficiency and shared services. The most successful approaches achieve streamlined processes, strengthened human resources (improved skills and staff morale), reduced costs and (eventually) the ability to expand services (for greater return on investment)
What Services are The Best to Focus On?
Typically, those processes that provide the best opportunity for integration are those that:
Are severable (i.e. not too closely linked with other non-shared service processes)
Are highly transactional and repeatable
Have high volumes
Have less strategic impact on the organization
Can be standardized
Can be streamlined
Can achieve economies of scale
Are low cost to implement/achieve goals
Have a low legal/policy impact
In the end, this has often meant back-office units like Finance, Human Resources, Administration, or Supply Chain Management.
What Are Some Key Success Factors?
Again, based on research and experience, the factors that significantly increase the chances for successful integration include:
Focus on change management/people side from the beginning;
Think right away about transitioning to the future state;
The most successful ones have involved at least 3 organizations and multiple streams;
Use a phased implementation approach;
Standardize, streamline and simplify along the way.
So Now What?
At this point in time, if you feel you are in a situation that would enable a potential integration of one or more services, it is time for an in-depth feasibility study. An initial study should be able to clarify whether it is possible, whether you can maintain or improve service, and whether it will save your money or cost you more to achieve.