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When government becomes the customer

Public-sector organisations are embracing a new role and discovering efficiencies through outsourcing.

By Rebecca McCaffry, FCMA, CGMA, and Samantha White

Customer insight often refers to product or service providers gaining intelligence on their customers’ needs, wants, and purchasing patterns for sales and marketing purposes. This commercially focused definition has traditionally been less relevant in the public sector.

But with governments around the world switching from direct provision to commissioning of services, a new definition is emerging in which government entities gain insight into their new role, that of customer.

Shared-service centres offer governments the opportunity to service transactional functions such as HR, procurement, and finance at a lower cost. Strong customer insight enables governments to meet the demands of managing outsourced service provision and to ensure best value for money and quality of service from the provider.

Rev Counter, ACMA, CGMA, formerly head of intelligent client function for London’s Metropolitan Police, spent almost ten years developing customer insight expertise in the UK Civil Service, with a focus on improving the management of outsourced services. Although his customer insight framework focuses mainly on relationships with external providers, Counter believes this applies to all shared-service models, internal or external.

“When outsourcing, organisations too often transfer responsibility for something without really understanding what it is they are transferring or the detail of how their processes work,” Counter, now an employee of the UK Home Office, said. “Before taking this step, all organisations should follow the same principles of being clear about what you want, understanding what you do currently, and knowing what you will be moving to.”

Following a 2012 National Audit Office report that highlighted the need for a more intelligent customer approach to contract management, Counter was tasked by the UK Cabinet Office with developing a model customer insight approach for shared services across government.

Drawing on his experience in other government departments, Counter developed a model covering three major areas: financial management, service management, and performance management. Retaining oversight of the outsourced service is crucial, he said. “If you don’t know what the appropriate or relevant KPIs are, you won’t be able to measure performance, so you won’t know if you’re getting the value for money and quality of service you require,” Counter said.

Government-wide changes in the provision of shared services across and between departments resulted in a ready group of organisations trying to come to the same solutions but from different start points. Counter sensed an opportunity.

“When I moved to the Cabinet Office, it gave me the chance to consult all of these organisations plus the other organisations I knew from my personal network, and the user group developed out of this alongside the model,” he said. As time has passed, the user group has grown along with Counter’s expertise.

Counter believes that organisations often outsource things that they don’t understand or are too difficult to change when “entrenched” in-house. “A lot of the shared-services agenda is about transforming the way you do business. [Securing] organisational buy-in and support for the business change that is needed to support that transformation is the most difficult to achieve,” he said. (See the sidebar, “Shared Services: Tips for Getting Started”, for Counter’s advice on steps to take to build support for a shared-services agenda.)

Within large and complex government departments, such as the UK’s Department for Work and Pensions (DWP), the customer insight team can provide a unified voice for the organisation and act as the main contact point when escalating issues that affect service levels or costs. One primary role is to develop trust between customer and provider to facilitate transparent discussion around service improvement.

The customer insight approach that Counter developed includes a maturity framework, where organisations can assess themselves at one of four stages, from low-level scorekeeper to high-level strategic partner. The maturity framework highlights the areas organisations must focus on and understand. A strong customer insight function (CIF) understands how the costs and benefits of the service relate to each other, the effects of implementing changes, and how fluctuations in demand affect the cost and quality of the service.

Counter offers the example of an organisation that signed up to provide shared services on the expectation of headcount levels falling over the duration of the contract. A decision later taken by politicians to increase the size of the organisation led to significant challenges in both being able to afford the additional recruitment and the capacity of the outsourced supplier to meet the new demand.

“The relationship between the customer and supplier is critical if you are going to be able to adjust demand levels at short notice and work together to ensure that the increased capacity is available as soon as possible,” Counter said. “It requires flexibility on both parties and a willingness to accept the limitations of each other.”

4 stages of customer insight maturity

Stage 1 (Scorekeeper)

At this level, fundamental contract management tasks are undertaken, but there is little insight into customer behaviour or identification of the opportunities for improvement. Typically, the CIF will have a budget for the service, manage service-level agreements and performance information, manage change to the service, and understand the scope of the service received. However, it will have little insight into what future demands are likely to be or how process change could reduce costs or improve efficiency.

Stage 2 (Custodian)

This level is similar to Stage 1 but with greater capability in managing the customer organisation. The insight (intelligence) is not great. Typically, the CIF might own the budget and lead on change and service-level agreement (SLA) definitions, and the customer will have a greater understanding of what the service received is but without any greater understanding as to what the customer needs are.

Stage 3 (Relationship Manager)

At this level, there is greater insight into the customer rather than greater capability. Typically, the CIF has a greater understanding of how customer needs are formed and what future demands might be but is unable to influence the customer or provider sufficiently to make this insight useful. Both the Custodian and Relationship Manager stages are an improvement on Stage 1, but neither can deliver a world-class service or fully utilise the knowledge or influence the CIF has.

Stage 4 (Strategic Partner)

This brings together the best aspects of the Custodian role in owning and managing the service received from the provider and the insight into customer needs and future demands from the Relationship Manager role. At this stage, the CIF acts as a strategic partner, obtaining insight into the customer organisation in order to identify and manage opportunities that produce mutual benefit. Applying this insight fully ensures the greatest value for the money, and efficiency from the provider. This level of maturity requires leadership and support from the organisation’s senior management, who review and articulate the strategic vision regularly.

The relationship aspect of customer insight is internal as well as external. One of Counter’s first actions was to set up a cross-governmental user group to share experience, best practice, and lessons learned.

“When I started in the Cabinet Office, I had a reasonably extensive list of contacts built up from previous work, but I now had access to more organisations and the official support of the Cabinet Office,” Counter said. “This allowed me to contact more and more organisations and to speak to them about what their current back-office arrangements were. Some had outsourced, some were operating an internal service, and some had a hybrid arrangement.”

Counter’s first task was to visit numerous organisations throughout the UK and identify their problem areas. “Once I had established what the situation was and the problems that were currently being experienced, it was straightforward to develop the user group to identify common problems and discuss possible solutions,” he said.

“I had seen similar work before in a HM Treasury-led group some years ago and always found that forum invaluable in dealing with problems in my job then,” he said. “It was relatively easy to encourage those with newly outsourced arrangements to join, but it was more problematic to encourage those that had internal services that were perceived to be working well.”

Counter persuaded a number of organisations to join the group, both with internal and external services. After starting regular meetings, he was better able to diagnose the organisations’ issues. “From that it was clear that language, expectations, and transparency varied between organisations who had all invented the solutions in isolation, and whilst there was a large amount of commonality, there still existed a variety of solutions that could be considered and adapted by others,” Counter said. “The maturity matrix was an approach that we then developed from the model to help standardise the way we discussed and evaluated the different aspects and to get some sort of baseline we could all work from.”

Shared services: Tips for getting started

Rev Counter, ACMA, CGMA, an employee of the UK Home Office, advises taking the following steps to build support for a shared-services agenda:

Identify organisations that are best to work with in terms of sharing data. “It was relatively simple to work with other government organisations,” Counter said. “But there was still an initial suspicion that disclosure of any weakness was going to be pounced on and punished somehow. You need to find organisations to compare experience with that will enter in the same spirit of co-operation that you do.”

Be clear about the services you need to receive. Counter said it is often not until asking questions of potential suppliers that you understand what it is you need. “Then you have to make sure you have the right drivers and to make sure both sides can deliver. If you are not in agreement on drivers and KPIs, potentially you’re measuring the wrong thing,” he said. “Then, you end up not getting the service you thought you were going to get.”

Focus on making the relationship strong. “You need to build up the level of trust with the supplier so that if they are having short-term problems, you can have an honest conversation with them,” Counter said. “You want them to be able to come to you to talk about how to fix issues without them fearing you’re going straight to contract and penalties. You need to have an honest relationship that allows both sides to be comfortable talking.”

Don’t be too ambitious to start. Pick areas that are well understood and have a realistic chance of being improved — payroll, for instance, assuming that function is one you already perform well. If you’re aiming to transform your hiring and recruitment processes, for example, you can’t expect it to happen quickly. “It takes time for an outsourced organisation to understand exactly how you do things and to deliver the quality you want,” Counter said. “To get them up to speed and ask them to transform the process at the same time is over-ambitious.”

Rebecca McCaffry, FCMA, CGMA, is an associate technical director—Management Accounting at the Association of International Certified Professional Accountants. Samantha White is a writer and editor based in the UK.

This article was originally published in FM Magazine.