1

INDEPENDENT PROJECT SUMMARY FOR THE ASSOCIATION OF COLLEGES March 2013

Project Daedalus:Creation of a scalable framework agreement covering outsourced back office services in the FE sector

2

NoteThis is a summary produced through an independent review of the extensive work that was undertaken on Project Daedalus. The report has been produced on behalf of the Association of Colleges, who supported the project through the Collaboration and Shared Service Fund. The aim is to help provide lessons for a wider audience on the opportunities and challenges associated with shared services by testing an innovative model.

Contents

1. Executive Summary ..................................................................................................................................................... 22. Introduction to Project Daedalus .............................................................................................................................. 5

2.1 Background and Project Summary .................................................................................................................... 52.2 Objectives and Outputs ....................................................................................................................................... 72.3 Structure of Report Explained ............................................................................................................................ 82.4 Overview of Sections ............................................................................................................................................ 9

3. Working Practices and Principles ............................................................................................................................. 93.1 Management of Project ......................................................................................................................................... 93.2 Working Principles ............................................................................................................................................... 10

4. Developing the Target Operating Model ................................................................................................................ 114.1 Overview ................................................................................................................................................................ 114.2 Approach Summary ............................................................................................................................................. 124.3 Baseline Operating Model ................................................................................................................................... 134.4 Developing the Target Operating Model – High Level ................................................................................... 154.5 SWOT Analysis of Proposed Target Operating Model ................................................................................... 174.6 Developing the Target Operating Model - Level 2 .......................................................................................... 184.7 Target Operating Model Level 3 and Detailed Process Work ........................................................................ 204.8 Retained Organisation ......................................................................................................................................... 234.9 Section Conclusion ............................................................................................................................................... 24

5. Business Case and Project Benefits .......................................................................................................................... 245.2 Summary of Key Benefits .................................................................................................................................... 255.3 Project Economics ................................................................................................................................................. 265.4 Key Uncertainties .................................................................................................................................................. 275.5 Conclusions ............................................................................................................................................................ 27

6. Additional Considerations ......................................................................................................................................... 286.1 Governance ............................................................................................................................................................ 296.2 Staffing ................................................................................................................................................................... 306.3 Procurement and Commercial ............................................................................................................................ 336.4 Implementation Readiness .................................................................................................................................. 356.5 Wider Public Sector Experience of Shared Services ........................................................................................ 37

7. Market Demand ............................................................................................................................................................ 407.1 Introduction ............................................................................................................................................................ 407.2 Market Testing Approach .................................................................................................................................... 407.3 Market Testing Outcomes .................................................................................................................................... 417.4 Conclusions ............................................................................................................................................................ 41

8. Overall Conclusions..................................................................................................................................................... 438.1 Summary .................................................................................................................................................................. 438.2 A Challenge to the Existing Approach ................................................................................................................ 448.3 The Need for a Strategic Decision ........................................................................................................................ 448.4 Way Forward Comments ....................................................................................................................................... 458.5 Explanation of Why Daedalus Has Not Progressed .......................................................................................... 46

Annexes .............................................................................................................................................................................. 47Annex 1 - Strategic Risk Register for Procurement and Implementation of Contract ..................................... 47Annex 2 - Business Intelligence ................................................................................................................................ 49Annex 3 - The Colleges Involved in the Daedalus Project and Main Output Documents .............................. 51

3

1. Executive Summary

Project Daedalus examined the potential for support services outsourcing across the 12 participating Colleges to achieve significant savings; improve the quality and timeliness of business intelligence; strengthen organisational resilience; and enable Colleges to focus energy and resources on core business.

The aim of this report is to provide a summary that shows the approach used, why that approach was taken, the potential outcomes and benefits, plus the key considerations. This could then be helpful for other Colleges considering outsourcing, and support an aim of the Collaboration and Shared Services Grant Fund in providing lessons for other Colleges wishing to make similar arrangements.

The project had a three-phase design to provide a logical examination and progression of the opportunity:

Phase 1 - Business Case: confirmation of project scope, development of operating model, financial appraisal and market review.

Phase 2 - Procurement Readiness: design of procurement process and development of associated documentation including legal review, output specification and key commercial principles.

Phase 3 - Procurement Process: Undertaking the tendering and contract award for the agreed requirements.

This report summarises key aspects of the extensive set of outputs and level of detail around the steps towards outsourcing of back-office functions that were produced in Phases 1 and 2. The project has not progressed to Phase 3 and key reasons for this - resourcing, governance, and the method for sharing savings - are included in Section 8.

4

Developing the Proposed Operating Model

Project Daedalus put significant effort into developing a more efficient operating model for back-office functions. It was seen as providing the foundation for the business case as the work examined how back-office services can be provided in the future, by whom, and the performance standards that would govern their operation.

The baseline position for developing the model was that all of the Colleges operated as separate entities. This meant that all activities and associated processes were managed and executed separately within each College.

The work covered 16 main functions and, using staff directly from a number of different Colleges, showed that a standard process could be adopted for the processes assessed. This was fundamental for underpinning the achievement of key project objectives as once the standard process had been created work could be more easily undertaken to improve the efficiency and effectiveness of the process and its outputs.

Business Case and Key Considerations

The outsourcing envisaged by this project represented a major step change in the way Colleges run their back-office functions and manage their businesses. This work aimed to give a balanced view of the opportunities and challenges. The idea was not to recommend that Colleges continue through to implementation of the project – this properly being a local decision – but to recommend how the project would be transacted for those that wish to implement.

As generating savings was a core aim of the project, the business case received closed attention and the following high-level summary was underpinned by a detailed financial model that assessed savings at an overall and individual College level.

The project identified that if sufficient Colleges commit to a process that leads to the appointment of an outsourcing partner the potential benefits include:

  On average across the Colleges, post-tax annual savings of 27% - 33% are achievable (for the back-office areas covered), including the costs of restructuring, and new investment in systems and processes.

  An increase in business continuity and organisational resilience.

  Improved and real-time business intelligence to help more effectively manage Colleges.

  The ability to capitalise on strong market interest in Daedalus to shape market investments in FE systems around our needs.

  Improved learner experience through better follow up, less data duplication, and quicker response times.

The proposed operational model was developed in consultation with key service managers, however, it should be noted that there were very significant variations in the modelled savings per College based on the charging principles used.

The significant variance in expected savings per College was seen as partly due to the savings apportionment methodology (using transactional volumes), but may also reflect concerns as to data integrity on baseline costs and volumes - the data provided by Colleges did not appear consistent, particularly in the treatment of non-pay costs.

5

A number of additional considerations – governance, staffing, procurement and commercial considerations, and implementation readiness – have been highlighted as areas to be addressed by any organisation looking to implement a shared services solution.

Staffing implications in particular are important. Project benefits are dependent upon reducing College headcount, and implementing a shared services solution is a major business change that will affect staff beyond just the functions in scope. How Colleges deal with their staff will be the critical determinant of whether this type of project is successful.

Implementation readiness, from a process and cultural change perspective, was assessed for the processes under consideration. Most areas had no major issues and process issues were generally limited, however, cultural issues were identified as potentially significant in three sub-processes.

The Supply Market

Market testing showed that a strong potential market was there if the project progressed. There was a large potential market capable of responding and the organisations included in the initial marketing campaign expressed strong interest in the opportunity.

Scale, consistency of requirement and governance, and flexibility around how the solution is delivered were noted as key to building and sustaining competitive tension. The feedback suggested eight-ten Colleges would need to complete the Daedalus transformation programme to make the amortisation of fixed costs affordable, with higher numbers improving the market interest and the business case.

Conclusions

Project Daedalus showed that while delivering some processes via a shared service arrangement might be complex and require careful planning, no legal, technical or other reasons became evident that would prevent the transfer of the processes in scope.

A project like Daedalus does come with some considerable challenges in making sure the approach will work in delivering the benefits of lower costs and improved processes. It is a major change programme and therefore this means managing the impact of a lot of people exiting the organisation and on those staying in the organisation. This includes the need to invest to change behaviours to get the most out of the new service and ensuring continuity of service throughout to maintain student satisfaction during transition.

If the challenges can be overcome this report shows that the potential benefits perceived by Project Daedalus through a shared service solution could be significant.

6

2. Introduction to Project Daedalus

2.1 Background and Project Summary

Project Daedalus was a proposal examining the potential for support services outsourcing to achieve significant savings in FE; improve the quality and timeliness of business intelligence; strengthen organisational resilience; and enable Colleges to focus energy and resources on core business.

The Colleges involved in the Daedalus project comprised of 11 members of London Capital Colleges and one other FE College operating within Greater London. The project was awarded a grant of £1.785m through the Collaboration and Shared Services Grant Fund (the largest from the fund), of which £0.6m was used for the first two phases that this report is based on.

The project assessed the potential for structural solutions to achieve a step change in performance and cost in the short term across London Colleges, and considered the role of back-office transformation as a key stage in achieving both objectives.

The project had a three-phase design to provide a logical examination and progression of the opportunity:

Phase 1 - Business Case: confirmation of project scope, development of operating model,financial appraisal and market review.

Phase 2 - Procurement Readiness: design of procurement process and development of associated documentation including legal review, output specification and key commercial principles.

Phase 3 - Procurement Process: Undertaking the tendering and contract award for the agreed requirements.

This report covers the initial two phases of the project to help share the experience, approach and learning for other organisations considering the outsourcing of back-office services.

The project scope covered back-office functions around the administration and reporting of FE activity (including Finance, HR, Registry and Management Information). It built upon a study funded by the AoC Efficiency & Innovation Fund, conducted between December 2010 and June 2011. This original study had indicated the potential for FE Colleges to run their back-office processes to a common specification and the potential to drive material financial savings were they to do so. Key areas from this original study were revisited and developed as part of the extensive work under Project Daedalus.

7

An outsourcing model best satisfied the key evaluation criteria for use within FE, when tested against the realistic alternative models. This is summarised in the following table:

Main Potential Models

Evaluation criteria for sharing services Bench- marking

Informal Collaboration

FE Shared Services Outsourcing

Enhance, not detract from learner experience Low Low Medium High

Facilitate wider curriculum collaboration, where this benefits learners

Low Low Medium Medium

Achieve material savings quickly to create space for the curriculum to respond to emerging opportunities and challenges

Low Low Medium High

Be sustainable No Low Medium High

Be scaleable, allowing benefits across the sector No No Medium High

Achieve a step change in the reliability, timeliness and accuracy of Business Intelligence

Low Low High High

Cap the investments required to deliver change N/A N/A No Yes

Achieve appropriate risk transfer N/A No No Yes

Be deliverable within a firm timeline N/A Low Medium High

Have the skills to manage successful implementation N/A N/A Low High

The outsourcing envisaged by this project represents a major step change in the way Colleges run their back-office functions and manage their businesses, and any decision to proceed requires careful consideration by executive teams and their governing bodies. Phase 1 developed the potential operating model to help shape the project and develop the business case. The aim of Phase 2 was to recommend how the project is transacted for those that wish to continue - not to recommend that Colleges continue with this project, this properly being a local decision.

8

2.2 Objectives and Outputs

The project looked to provide a balanced view of opportunities and challenges, and had the following stated aims:

  To improve the quality and timeliness of the data and business intelligence available to Colleges, staff and learners through more consistent processes, and better and more integrated IT systems

  To deliver material cost savings through improved process efficiency

  Improve organisational resilience for many back-office functions which are often carried out by only a handful of people at each College

  Increase investment in IT systems for a lower overall cost for the individual Colleges, for both self-service and back-office functions, which in turn will drive further efficiency savings

  An ability to focus on the core activities of each College – improved curriculum delivery

  To create a Shared Services Centre (SSC) which can be extended to support more Colleges and drive further savings.

Phase 1 (Business Case) Outputs:The Phase 1 Business Case aimed to present the evidence base for the Colleges involved to further explore the potential for outsourcing back-office functions. Outputs covered:

  Creation of a standardised, simplified and aggregated operating model for how back-office functions would be delivered, and by whom, under an outsourced scenario

  Acceptance of this specification by the Colleges as the basis for taking the project forward

  Examination of the potential to mitigate the VAT charge that would otherwise be levied on shared or outsourced services

  Evidence of market demand from key outsourcing suppliers, and

  Commitment and buy-in from the participating Colleges to explore this commercial proposition in further detail in a second, pre-procurement, phase of the project.

Phase 2 (Procurement Readiness) Outputs:The objective of the second phase was to create an evidence base that would support Colleges in their decision over whether to participate in a formal procurement process to select an outsourced delivery partner. The key areas addressed were:

  What functions will be retained in Colleges; what will transfer; and how these work together

  What the economics look like on a College-by-College basis, as well as in aggregate

  How more Colleges can join over time; and

  The key commercial and service principles that would underpin any procurement process, and form the basis on which bids would be evaluated and the service contracts awarded.

9

2.3 Structure of Report Explained

The aim of this report is to provide a summary that shows the approach used, why that approach was taken, the potential outcomes and benefits, plus the key considerations. This could then be helpful for other Colleges considering outsourcing, and support an aim of the Collaboration and Shared Services Grant Fund in providing lessons for other Colleges wishing to make similar arrangements.

Significant effort went into Project Daedalus to produce an extensive set of outputs and a level of detail around the steps towards outsourcing of back-office functions. Clearly the volume of outputs produced by a project cannot be taken as a measure of value of those outputs, however, by understanding the quantity of documentation produced it helps to explain the reason for a summary report.

Overall the project contained over 200 documents as part of developing the initial two phases of the project. The main output report for Phase 1 contained ten documents and 291 pages. The main output report for Phase 2, including appendices, was 362 pages. These totals exclude supporting detail work to help create these outputs – for example the Finance, Procurement and Payroll Process, and Hand-Off Mapping covered over 100 pages in detailing key aspects of these areas that were developed with the Colleges through the project work.

This document therefore looks to summarise key areas that may be useful to other organisations by focusing on the more generic findings (e.g. the progressive steps taken in developing the approach and business case), rather than focusing on the areas that may be more specific and/or sensitive to an individual College involved in the Daedalus project (e.g. headcount impacts for specific Colleges).

2.4 Overview of Sections

Section 3. Working Practices and Principles – looks at how the project was managed.

Section 4. Developing the Target Operating Model – summarises key areas of the significant amount of work undertaken to develop and assess a new operating model for back-office activities. This includes high-level process structures and diagrams showing the targeted processes for a shared services centre.

Section 5. Business Case and Project Benefits – covers the financial and performance benefits identified in the detailed project work while noting key factors that could impact the business case.

Section 6. Additional Considerations – highlights four important areas that are recommended to be addressed by any organisation looking to implement a shared service solution, and also summarises findings from two reports into wider public sector experience of shared services.

Section 7. Market Demand – review of activities to identify the potential supply base, and understand the level of interest and views from suppliers.

Section 8. Overall Conclusions – includes general conclusions alongside sub-sections on the need for senior level direction and challenging the current approach.

This report contains more on the approach and important considerations than on the benefits. It was felt that the benefits can be summarised fairly quickly, while the financial model details were based on specific information from participating Colleges and therefore were less applicable to a wider audience while also being sensitive. The approach is to support the report objective of covering methods and information that will be useful for other organisations considering their own shared services.

10

3. Working Practices and Principles

3.1 Management of Project

Both Phase 1 and Phase 2 of the project were delivered on time and within budget. Management of the project was principally at two levels – the Project Board and the Steering Group. External advisers were appointed to support the project.

Project BoardThe project was governed by a Project Board comprising 12 Principals from the partnership Colleges, each of whom signed a Memorandum of Understanding setting out their rights and responsibilities. The Association of Colleges (AoC) had an observer seat on the Project Board and the AoC Innovations Committee monitored the Project.

The operational management of the Project was delegated by the Project Board to a Steering Group, comprising of the senior financial representatives of the Colleges involved in the Daedalus project, under the leadership of the Director of Finance at Westminster Kingsway College (WKC).

Of the Colleges involved, 11 were shareholders of London Capital Colleges (LCC) and there was an additional smaller London College to help test and ensure the outsourced procurement solution acquired meets the needs of smaller Colleges in the sector.

Steering GroupOperating at a detailed level the Steering Group managed the initiating stages of the project while representing the interests of stakeholders.

The Steering Group in Phase 1 was comprised of six Financial Directors with a ‘buddy’ system in place that kept the peer group informed. However as Phase 2 of the project looked at key commercial issues that would affect individual Colleges as well as the collective, membership was extended to all College Financial Directors/Vice Principals Resources.

The Steering Group met fortnightly to review progress of the programme and critically evaluate scenarios, proposals, options and recommendations by the advisers on the key deliverables of the Phase 2 workstreams.

Appointment of AdvisersThe Steering Group made three appointments to support and advise on the main areas of the project. A major consultancy firm was appointed to advise on the refinement of the shared services solution and provide commercial and financial advice; a legal firm was appointed for legal advice on procurement, TUPE and pensions; and a project resource was appointed to support the Project Director.

Risk ManagementThe risks associated with the initial stages of the project have all been managed. As with all transformation projects, however, there are considerable risks associated with running a procurement exercise and managing the subsequent implementation. These key risks are summarised in Annex 1 – Strategic Risk Register for Procurement and Implementation of Contract.

11

3.2 Working Principles

The Steering Group agreed the following principles, endorsed through an open workshop with colleagues, to help steer the project and solution development:

Process

  Standardisation – FE Colleges are required to report common data in a common format to their funding bodies. Standardised processes should be optimised with minimal scope for ‘customisation’.

  Maintaining brand and identity – Colleges must be able to maintain their unique branding and identity but not to the detriment of standardisation.

  The Shared Services Centre should deliver a core set of standardised processes with a further menu of additional services available.

Technology

  Automation – exploit technology to deliver efficient, effective and learner/customer-focused services.

  Self‐service – optimising the level of self‐service for learners and staff in the processes.

Data

  Timely and accurate data – electronic data captured at source, entered once, used many times.

  Ownership – Colleges must be able to access the underlying data.

People

  Flexible resourcing –use flexible management and resourcing structures that enable staff to be appropriately deployed to meet changing needs and seasonal variations within the organisation.

  Creating professional teams – use dedicated teams for specialist, common corporate services, and develop administration and business support as a profession with career structures and job roles that harness the skills, aspirations and enthusiasm of administration and business support staff.

  Learner focused – putting the learner and prospective learner at the heart of our processes to secure sustainable financial viability through attracting and retaining learners.

Participating Colleges provided source data on volumes of student and financial data handled, and the resources (staffing and spend levels) needed to process these. These data sets were reconfirmed or updated by each of the Colleges as part of this business case.

12

4. Developing the Target Operating Model

4.1 Overview

Project Daedalus put significant effort into developing a Target Operating Model (TOM). It was seen as providing the foundation for the business case as the work examined how back-office services can be provided in the future, by whom, and the performance standards that would govern their operation.

The Steering Group appointed external advisers to support the development of the Target Operating Model. The model described how the services required to deliver a FE College’s back-office functions would work, and where responsibility for these would lie. This series of flow charts set out all the key processes and tasks that constitute each component of service delivery, and details regarding responsibility.

A Target Operating Model is effectively a way of illustrating the processes by which data is generated, captured, analysed and reported. The work then looked at where these processes would be handled in an outsourced scenario. Some would be generated through self‐service (staff and students); some by the staff retained within the Colleges; and some by an outsourced service provider.

The work progressed to three levels of detail. The most detailed work (Level 3) assessed 16 processes to cover aspects such as where responsibility lies; the key assumptions; benefits of the approach; associated risks and issues; key performance indicators; and behavioural and cultural impacts.

The work concluded by converting the Target Operating Model into a 34-page, high-level output specification. This document could then be used in a formal procurement to set out, for each business process, the specific service requirements; performance indicators; constraints; and volumetric. Responses from bidders could then be assessed to see the extent to which bidders’ proposals met the Colleges’ requirements.

The Potential for StandardisationThe baseline position for developing the model was that all the Colleges involved in the project operated as separate entities. This meant all activities and associated processes were managed and executed separately within each College. Many of the activities carried out by each of them were the same, for example learner applications and enrolments, processing of bills and invoices, and payroll.

The premise was that if the processes supporting those activities could be standardised they could be shared across the Colleges, allowing for economies of scale and implementation of best practice across all of them.

It was recognised that some activities will always need to be carried out by the individual Colleges themselves. Core curriculum delivery, i.e. teaching, Information, Advice and Guidance (IAG), and pastoral support, will always be conducted by individual Colleges. Project Daedalus was concerned

with whether the generic business support functions, such as HR and Finance, and learner administration and registry processes such as application, enrolment and student record management, could be shared by the Colleges in order to deliver benefits to the Colleges and their learners.

As a result, the Colleges were looking to reduce the amount of back-office support and administration tasks that took place in each individual College and move that activity to a shared delivery vehicle in order to realise their core objectives of improved data and business intelligence, reduced costs and increased organisational resilience. In turn it was anticipated that this would reduce the administrative burden on College staff so they could focus on delivering the value-added activities of providing excellent learning delivery for their respective learners.

13

4.2 Approach Summary

The operating model is the representation of how an organisation operates across all of its dimensions in order to deliver value. Recognising that any organisation is a complex system consisting of several different interlinked logical components, the operating model therefore looked to break this complex machinery down into its logical components. This included showing how functions interacted, what the underlying model was for delivery of those functions, and then designing ways for each component to deliver better value.

The work assessed where the process should be undertaken (in-house or outsourced, centrally co-ordinated or devolved through the organisation) and assessed processes to three levels:

  Level 1: Function - A high-level description of the functions (e.g. Finance, HR, Registry and Management Information) and their location within the new arrangements

  Level 2: Process - A more detailed description of the individual processes within each function (e.g. learner applications, leavers, payroll) and where and how they would take place within the new arrangements

  Level 3: Activity - A detailed list of activities that would be conducted within each of the functions and processes listed above (e.g. application screening, raising an invoice). At this level we used three core locations for where activities were to be carried out: self-service (both for learners and staff), retained in College, and a Shared Services Centre.

The project went into significant detail, with the above areas being covered in a 106-page report. Further granularity of the activities was produced through detailed process and hand-off mapping documents that covered process schematics and hand-off tables. For example, on key Finance, Procurement, and Payroll processes this saw a further 122 pages of detail to help understand the operational level, and the potential for standardisation and improvement of processes.

Functions in Scope:

• Student applications • Student credit control

• Student assessments • Accounts receivable and payable

• Student enrolments • Staff records and payroll

• Student attendance • Enquiries

• Leavers • Procurement

• Transfers • HR

• Completers • Financial management

• Exam administration • Business intelligence

It was important to ensure that the development of the Target Operating Model was a collaborative exercise with the Colleges to help enable them to gain the required understanding and buy-in for a solution that was suitable for all interested parties. Therefore at key stages in the project, outputs and options were presented to the Steering Group for agreement on behalf of the Colleges, including a large workshop to discuss and agree the straw-man of the Level 3 model.

14

4.3 Baseline Operating Model

The baseline position for the project was that all the Colleges operated as separate entities. This meant all processes were managed separately within each College. This is shown in the below diagram:

The above illustrates, at the highest level, the functional areas forming part of the baseline operating model. Within the baseline model there are two ‘delivery channels’ – ‘self-service’ and ‘College’. In this model each individual College is responsible for operating both of these channels.

Self-Service: Each College provides different levels of self-service functionality depending on how much each organisation has invested in this. Functional activity which occurs in self-service is typically split into learner (also potential learner) and staff self-service, and includes activities such as applications, learner record management, billing and receiving payments, HR self-service and e-procurement. The amount of self-service provided by each organisation is different across different Colleges. The pooling of College resources could facilitate a single, shared self-service channel, delivered across all of the Colleges, which would deliver a much richer self-service channel for a lower level of individual investment. This investment would be repaid with reduced burdens on the back-office of individual Colleges.

College: the ‘College’ delivery channel is the more traditional way of delivering services. In the baseline operating model the Colleges deliver a number of functional areas:

  Curriculum Delivery: includes delivery of teaching, IAG, curriculum development etc. It was proposed that each College would continue to deliver these services individually and therefore curriculum delivery was outside the scope of Project Daedalus.

15

  Enquiry Handling: including course, assessment and eligibility enquires. Many of these processes are similar and a consolidated contact centre could potentially provide cost savings, while allowing retention of the individual character of each of the Colleges.

  Learner Administration and Registry: including management of student applications, assessments, enrolment, timetabling, examinations, management of leavers and completers, attendance, learner information, and business intelligence and data.

  Corporate Core: the strategic direction setting and managerial functions of the Colleges. These functions are intrinsic to the governance and identity of each College and set the core objectives for each one. It was therefore proposed that this would remain within each organisation.

  Business Support Functions: Functional areas, such as HR, Finance and Procurement, could be shared across the Colleges and indeed these functions are well tried and tested in the shared service market place, so this could be achieved rapidly, with the benefit of both reduced operating costs, and improved capability and capacity.

4.4 Developing the Target Operating Model – High Level

The first stage of developing the Target Operating Model was to agree a set of design principles (as shown in section 3.2). These principles provided an anchor around which all design effort was centred and were used as a guide when making decisions about potential options for designing the new operating model. It is important that these are underpinned by the key drivers for change and an understanding of the elements of the existing arrangements that need to be improved.

For the Colleges involved, a number of key issues with existing arrangements were identified for consideration in developing the operating model:

  An inconsistency of key common processes across the Colleges

  A need for more timely and more accurate data, and more effective business intelligence

  Varied levels of use of technology to improve accuracy, speed and quality of service and learner experience, and a lack of available investment funds

  A desire to deliver a better learner experience, leading to improved conversion and retention rates of learners, but a lack of business process engineering capabilities within Colleges to ensure the most effective learner journeys

  Difficulties in recruiting specialist staff and expense of training them

  A desire to create more rewarding career paths and opportunities for non-teaching staff

The approach agreed by the Steering Group for detailed development included significant elements of both back-office functions, many of which are transactional in nature, and more directly learner-related activities, such as enquiry handling and learner administration and registry. This second type includes activities such as enrolment, managing the interface with awarding bodies and learner-specific finance activities.

Key features of the approach were:

  Curriculum delivery, IAG, strategic governance and some learner administration activity were retained in the Colleges.

  Expansion of self-service activities was possible as learner administration and registry activities were moved into a Shared Services Centre, making it possible to provide extra functionality from a learner self-service perspective.

16

  All transactional activities associated with operational support (e.g. HR, Finance and Procurement) would be part of the Shared Services Centre.

  A small number of support staff would be retained within the College where they would be required to interface with the Shared Services Centre.

The functions included as part of the Shared Services Centre are summarised in the diagram below and explained in the subsequent bullet points ( relates to the number bullet below).1

17

Self-service channel - increasing the amount of activity carried out via self-service mechanisms enables the Target Operating Model to be more efficient as it reduces the amount of information that needs to be provided / entered more than once, speeds up access to that information, and reduces the amount of activity that some back-office staff have to undertake. The proposed operating model includes two self-service lines:

1. Learner Self-Service – as learner data will be moved into the Shared Services Centre they will have greater freedom to view their records, e.g. monitor their attendance records, view personal learner records, make payments through the use of a self-service portal which will provide increased interaction between the learner, potential learner and Colleges, and help to improve the quality of curriculum delivery and the overall experience for the learners.

2. Staff Self-Service – there are two dimensions to the staff self-service portal. Firstly it will provide functionality to College staff to view and update their own personal information, pay slips etc. Perhaps more importantly it will also enable staff to update and manage learner records, access business intelligence dashboards and manage key processes electronically, such a transfer requests and electronic attendance registers.

Shared Services Centre – a single entity would be responsible for providing a wide range of back-office and learner administration and registry functions for all of the Colleges. It would be able to achieve economies of scale making significant investment in technology solutions possible, and delivering a more consistent and improved quality of service to the Colleges and learners.

3. Learner Administration and Registry - this includes activities such as processing applications, enrolment activities, ILR returns, and learner scheduling activities such as appointments. It would also include registers, follow-up of leavers and awarding body administration. Some of this activity will be retained within the Colleges when it is important to retain brand differentiation or a personal touch, for example interviews or enrolment in cases where anticipated grades haven’t been achieved.

4. Enquiry Handling - the majority of enquiries will be handled by the Shared Services Centre, with only specialist and more complex enquiries retained within the College. This includes activities such as financial assessment for overseas learners, specialist advice and career guidance.

5. Business Support Functions - largely transactional business support activity delivered via the Shared Services Centre.

6. Business Intelligence and Data Management - moving both business support, and learner administration and registry into the Shared Services Centre will help to ensure that the two key reporting data sets are in one place resulting in more accurate and up-to-date data. More importantly perhaps it will enable this data (both around learners and business processes) to be analysed to become business intelligence – insight into how each College is performing across a range of areas – that can then be used to help Colleges plan their future activities and strategies, and benchmarking their performance against each other to drive continual improvement.

[Annex 2 contains a specific section on Business Intelligence.]

18

4.5 SWOT Analysis of Proposed Target Operating Model

The project produced the following table to help summarise key points on the approach:

Strengths

� Greater absolute levels of efficiency

� All administration and support will be within the Shared Services Centre allowing greater focus on core activities

� Potential to leverage current investments in IT and standardise the systems landscape

� Improved business intelligence capability

� Standardised and improved learner administration processes delivered by self-service functionality

� Potential improvement in service quality and learner learning experience - a single source of learner data in resulting in effective management and availability of learner data

� Increased organisational resilience through larger workforces and greater opportunities for multi- skilling of the workforce

Weaknesses

� Trying to move all non-learning delivery to an Shared Services Centre could be costly, complex and difficult to implement

� Will require strong contract management in order to ensure service standards are maintained

� Issues around TUPE may make the proposition less attractive to third party suppliers

� Immaturity of the market in supporting learner admin and registry functions

Opportunities

� Opportunity to adopt standardised best practice processes across all Colleges for learner administration, HR, Procurement and Finance

� Potential to standardise the use of systems

� Opportunity to outsource the Shared Services Centre

� Potential to outsource expert functions to external providers

Threats

� Perception of loss of control may deter Colleges

� Concerns over ability to retain distinct brand and identify for individual Colleges

� The processes may not be adopted in the most appropriate manner leading to inefficiencies

� Too much ‘picking and choosing’ may lead to a reduction in standardisation

19

4.6 Developing the Target Operating Model - Level 2

Level 2 - Target Operating Model

The Level 2 activities provided a further detail and refinement of the Target Operating Model. The following breakdown was agreed by the Daedalus Steering Group (note: some processes will occur in more than one channel and the split of activities within each of these processes is described later as part of the Level 3 Target Operating Model).

Level 2 - Target Operating Model

The Target Operating Model presents the full picture of those processes that will be carried out, not just those that are being considered for inclusion in the Shared Services Centre. At Level 2 the Target Operating Model, as agreed by the Steering Group, provides more detail as to where within the three ‘delivery channels’ of self-service, College and shared service, the key processes are expected to take place in the new model.

20

The delivery channels identified at Level 1 were further refined during Level 2 work. The following summarises these and the potential benefits from the approach:

1. Self-Service: there are two types of self-service that are envisaged. One is for learners (existing and potential), the other for College staff (teaching and non-teaching). This function will provide both the learners and staff with the increased ability to view, update and monitor their personal records, as well as allowing them to access information pertinent to their learning and delivery of learning respectively. In the case of some staff members, this relates to monitoring and managing the performance of the learners and staff they manage. It will also create a channel for staff, primarily teaching staff, to manage electronically key processes at the interface between curriculum delivery and learner administration, such as updating learner information, processing learner requests (e.g. for course transfers), and managing attendance registers. It will also provide them with access to improved relevant business intelligence. The desired result is to simplify and standardise processes, and create efficiencies in the way of working by encouraging users to become self-reliant through providing them with access to relevant information, minimising the need for human interaction and increasing automation for carrying out simple tasks. This will help to improve the overall learning experience by giving the learners enough information and the necessary tools to enable them to take more responsibility for their learning, e.g. learners will have the ability to view their student records, make transfer requests, make enquiries etc. The self-service may also be made available, as appropriate, to other stakeholders, such as parents and employers.

2. College: From a staff perspective, there is also a shift in focus to remove the burden of carrying out a large number of administration related tasks by pushing them to be carried out by the Shared Services Centre, and through the self- service channel outlined above reducing the efforts involved in the remaining administrative tasks they are required to conduct. This will allow teaching staff to focus more of their time and effort on value added activities i.e. delivering excellent learning. Irrespective of how the activities and responsibilities are split, the Colleges will need to maintain some specialist learner-facing and back-office processes (e.g. IAG, corporate strategy) and also a level of residual support for processes that have been moved to the Shared Services Centre. This is to ensure effective liaison with, and management of, the Shared Services Centre and ensure that adequate skills are retained to conduct all the various activities.

3. Shared Services Centre: The Shared Services Centre, in whatever structural and commercial form it takes, will look to deliver the majority of the administration related, high-volume activities that can sensibly be delivered in a standardised and consolidated manner.

4.7 Target Operating Model Level 3 and Detailed Process Work

The Level 3 Target Operating Model describes in detail the split of process activities that will need to be delivered through each of the three delivery channels, self-service, College and the Shared Services Centre. This model was developed through direct working with representatives from the Colleges. As such it is believed that this created a good level of buy-in to the proposed model and distribution of activities.

At this stage the Level 3 analysis has been limited to the processes outlined earlier. At a future date the Colleges may wish to consider other processes that could be carried out using a self-service channel and/or a shared service approach – for example legal services or facilities management services, including catering, security and cleaning etc.

21

Although there are processes not included in the analysis, most of those relate to those activities that are largely the core activities of an FE College, e.g. direct and supporting curriculum delivery – teaching, advice and guidance, timetabling, curriculum development etc, and strategic corporate functions, e.g. governance, business strategy, policy.

It is important to recognise that Colleges should continue to conduct these processes shown to ensure that where there are interactions with the Shared Services Centre, and/or self-serve channels, these interactions are clearly understood.

The diagram on the following page sets out the Target Operating Model for each of the processes in scope, outlining where the activities that are part of those processes are expected to take place. The processes and activities within the red boxes are those which were in scope for Project Daedalus. Those outside of the boxes, as mentioned above, were not in scope, but are key activities for the Colleges.

Detailed Target Operating Models for each of the in-scope processes were produced. For each process there was a description of how they envisaged the split of activities across the three delivery channels and an assessment of some of the key assumptions, benefits, risks and mitigating activities, performance metrics, and links to data and systems.

22

23

The above diagram showing Levels 2 and 3 provided a useful high-level view of the Target Operating Model. However, in developing standardised processes a much greater level of detail was needed to ensure that, at a working level, a standard approach could be agreed. As evidence to the type of significant detail of a low-level sub-process produced by the team, the diagram on this page shows the Invoice/Credit Matching Process as part of the Invoice and Payment Processing functions under Purchase to Pay. The table covers the handover points to the Shared Services Centre (SSC). This level of detailed was replicated across a wide range of sub-processes.

Process Input by Input Manual/automated

Output by Output Manual/automated

A Non-matchedinvoice approval

SSC Request to College to approve invoice

Automated College Decision on whether to approve

Manual

B Invoice not approved

College Invoice not approved

Manual SSC Invoice retrrned to supplier

Manual

C Invoice approved

College Invoice approved Manual SSC Payment processed

Manual

D Confirmation of receipt of goods/service

SSC Request to Colleeg to confirm whether goods/service have been received

Automated College Good/service receipt confirm

Manual

Handover to SSC

24

4.8 Retained Organisation

The retained organisation is what would be left after staff and activities have transitioned across to the provider. By quantifying the size of the retained organisation, it was possible to understand the cost of the retained function and therefore the potential saving available to the Colleges. As such the retained organisation design was a key input to the overarching business case for Project Daedalus.

Both the level of resource recommended to perform the retained functions – on average and at College level – and the relative readiness of Colleges to make this transition were assessed.

The calculation of the retained size for each College was based on the volume of activity (primarily learner numbers) managed by the most efficient Colleges, extrapolated across each College, and then sense checked against data gathered in workshops with the Colleges.

Reduction in staff levels (initial versus retained organisation) for the areas proposed varied from 35% to 77%. Across the 12 Colleges where data was collected the average reduction was 62%. This analysis is used in the following section to show the overall benefits from the proposed changes.

4.9 Section Conclusion

Having staff directly from a number of different Colleges showed that a standard process could be adopted for the processes assessed. This was fundamental for underpinning the achievement of key project objectives as once the standard process had been created then work can be more easily undertaken to improve the efficiency and effectiveness of the process and its outputs.

The work on the Target Operating Model contained a lot of information. However, further work should be undertaken to produce a more complete model. Proposed next steps would include producing the following:

  ICT Target Operating Model – a mapping of the systems that will support each of the processes and how they should interact

  Data Target Operating Model – a mapping of the information and data requirements that will underpin the processes and where that data will be recorded, stored and reported.

25

5. Business Case and Project Benefits

5.1 Introduction

As generating savings was a core aim of the project, the business case received close attention and the following high-level summary was underpinned by a detailed financial model that assessed savings at an overall and individual College level. However, the benefits from the project were expected to be more than just direct cash savings.

The outsourcing envisaged by this project represents a major step change in the way Colleges run their back-office functions and manage their businesses, and any decision to proceed requires careful consideration by executive teams and their governing bodies.

The aim of the work was not to recommend that Colleges continue through to implementation of the project – this properly being a local decision – but to recommend how the project is transacted for those that wish to implement.

This work aimed to give a balanced view of the opportunities and challenges of continuing with this project. The business case was therefore created for information purposes rather than as a sales pitch for a shared service solution.

Note that savings levels and benefits for individual Colleges are not shown due to confidentiality and because of the bespoke nature of these savings makes this low level of detail less applicable to a wider audience.

The significant amount of detail produced through developing the Target Operating Model and the standardised sub-processes enabled work on the business case to be more than a simple top-down estimate. This meant that for the headcount savings a bottom-up consideration of what could be expected, looking at the retained organisation size and learner volumes, could be produced.

5.2 Summary of Key Benefits

If sufficient Colleges commit to a process that leads to the appointment of an outsourcing partner the work has shown that potential benefits include the following:

  On average across the Colleges, post-tax annual savings of 27% - 33% are achievable (for the back-office areas covered), including the costs of restructuring and new investment in systems and processes. [It should be noted that there were significant variations in savings per College based on the charging principles used in the model.]

  A more efficient operating model that has the potential to improve data quality and business intelligence; improve the learner experience; and release savings.

  An increase in business continuity and organisational resilience.

  Improved and real-time business intelligence to help more effectively manage Colleges.

  The ability to capitalise on strong market interest in Daedalus to shape market investments in FE systems around our needs.

  Improved learner experience through better follow up, less data duplication, and quicker response times.

26

The operational benefits of the Target Operating Model were set out in an earlier section and are summarised below:

Benefit Description

Non‐cashable financial savings (potential to become cashable over time)

  Increased investment in IT systems for a lower overall cost for the individual Colleges for both self-service and back-office functions. This in turn will drive further efficiency savings

  Creation of a Shared Services Centre which can be extended to support more Colleges and drive further savings

  Reduction in space requirements – either cashable or can be released back to front line curriculum delivery

Learner benefits   An ability to focus on the core activities of each College – improved learner delivery

  A smoother learner journey achieved through better follow up, less data duplication, quicker response times

  Improved quality and timeliness of information available to learners and staff through more consistent processes and IT systems

Operational benefits   Catalyse wider cultural change programmes

Management benefits   Business Intelligence – the right information at the right time in the right format, leading to better business decisions

  Organisational resilience for back-office functions where expertise lies in a handful of people at each organisation

Outsourcing the common specification offers the potential to deliver post-tax, steady state annual savings. Taking into account the initial investment in underlying systems this could equate to an estimated £42m - £70m efficiency gain over a ten year period for redirecting into front line curriculum delivery in London.

5.3 Project Economics

The financial model was created to help illustrate the potential financial benefits in aggregate and at individual College level. The cost of the retained organisation was modelled in some detail through the interactive workshops. The outsourcing cost assumptions were developed by the external advisers with reference to other transactions on which they had worked, and sense tested with three business process outsourcing companies. It should be noted that the financial analysis remains indicative and actual cost savings can only be established through a competitive procurement process culminating in service offers that are capable of contractual acceptance.

27

A view on Daedalus was that the understanding of staff/payroll costs was generally good, but the understanding and capturing of non-payroll costs wasn’t. It is important that Colleges review and validate their data to ensure that the “as is” staffing levels are accurate; there is no double counting; and that all relevant staff and costs involved in delivering the in-scope functions are captured, especially the full non-payroll costs (e.g. full accommodation costs, and systems costs such as data storage and software licences). The view was that non-payroll costs are likely to have been understated as they are harder to identify. However, it is important to ensure that these types of costs could actually be reduced, e.g. can reduced accommodation /space requirements be realised into cashable savings.

On the base case assumptions there was a very significant variance in expected savings per College. This is partly down to the savings apportionment methodology used (using transactional volumes), but may also reflect concerns as to data integrity on baseline costs and volumes. It was, however, clear that the analysis supported the proposition that there are material savings to be achieved from the approach. Again, for illustrative purposes only, if the modelled benefit was split equally per College in cash terms, the steady state, business-as-usual annual saving would be around £900k per College; and if the modelled benefit was split equally per College in percentage terms, the steady state, business-as-usual annual saving would be around 29% below baseline costs per College.

Key input assumptions were subjected to sensitivity testing, indicating that the modelling has a reasonable level of resilience against the potential for overstating savings and understating costs.

5.4 Key Uncertainties

While the Steering Group considered that significant progress had been made in Phase 2 to translate the high-level aggregated assumptions modelled in Phase 1 to more granular, bottom up costings, there remained a number of key uncertainties at the end of Phase 2:

  A procurement process would flush out detailed pricing proposals, but must be predicated on a common set of shared principles. At this stage the project could not be certain how the market would price the project and its approach may vary widely from that modelled in Phase 2.

  The data provided by Colleges did not appear consistent, particularly in the treatment of non-pay costs. Reliable baseline data is required to make meaningful judgements on value for money, and Colleges continuing to Phase 3 would need to ensure they have fully validated their own data.

  The relationship between fixed and variable costs was indicative, as was the level of investment required to upgrade systems and processes. At this stage the model provided weak evidence around the economies of scale needed for this project to be viable, although market testing in Phase 1 suggested eight-ten Colleges would need to complete the Daedalus transformation programme to make the amortisation of fixed costs affordable.

  The model assumed that Colleges would accept the size of the retained organisation recommended. The key operational challenge was to agree on a substantially standardised solution as opposed to a modularised model. Compromise and commercial pragmatism would be required to constrain investment costs and achieve economies of scale.

  There were important staffing and Trade Union considerations, supported by full and open communication once the Colleges made the decision to proceed to Phase 3. The financial base case assumed that continued local employment will not be a key driver, and that Fair Deal would not apply.

  Irrecoverable VAT was deemed payable (at an effective rate of c15%).

28

5.5 Conclusions

The financial analysis suggested that on average the Colleges could make cash savings of around 27% – 33% on the in-scope areas, with significant variations between Colleges depending on the way in which benefits are allocated / how the charging method operates.

Additionally significant non-cashable benefits were identified that could help to improve performance and lead to further cashable savings over time. The value of these benefits were clearly more subjective and therefore likely to rely more heavily on the strategic view of individual Colleges.

The proposed operational model went into a significant level of detail to test the potential for standardisation and help provide better information for the business case. The model was developed in consultation with key service managers, and the savings were based on key inputs and assumptions included in the model that needed validation and acceptance from Colleges. However, there were a number of uncertainties - including potentially inconsistent data around costs – and the ability to capture savings would be clearly dependent upon being offered that potential by the successful supplier in a competitive procurement process.

Before progressing to procurement, participating Colleges would need to ensure they understood and accepted the basis on which the financial business case was made, that the key considerations raised above were covered, and that they accepted the proposals for how costs would be shared and apportioned.

29

6. Additional Considerations

The previous sections have highlighted a number of areas for consideration in progressing a potential shared services solution, with points that are specific to the operating model or business case being noted in the relevant sections.

This section includes a number of additional areas that should be covered in the assessment and development of a similar shared services project. They are:

6.1 Governance6.2 Staffing6.3 Procurement and Commercial6.4 Implementation Readiness6.5 Wider Public Sector Experience of Shared Services

6.1 Governance

Governance is a key issue during the development, procurement and implementation phases of a project. Different governance arrangements are likely to be required during the different phases to make sure appropriate management and decision-making can take place.

Before a shared service is procured two key questions will need to have been resolved - who will own the contract(s) and who will manage the contract(s). This section briefly looks at the role of contracting authority and intelligent customer.

The Contracting Authority and Intelligent Customer

Significant work was undertaken to assess two important governance issues – who owned the contract; and how would its operations be managed and overseen. Under EU law a framework contract must be let by a recognised Contracting Authority. Since the Colleges participating in the project were not a collective legal entity they would have to use either an existing company, create a new Special Purpose Vehicle, or use a third party (e.g. a specialist procurement “hub”) to conduct and consummate a procurement process.

In addition to the role of awarding a framework contract, there is also a requirement to ensure that the framework operates as intended and that the individual call off contracts are optimised. Examples of this “intelligent customer” role would include:

  promoting take-up of the framework agreement among other Colleges to increase economies of scale

  policing compliance with the framework by both individual Colleges and the provider to ensure that contracted efficiencies are achieved in practice, and

  negotiating cost-effective variations to the contract on behalf of all customers where changes are desired or become necessary through statutory or regulatory direction.

30

There are pros and cons to performing the role of contracting authority and intelligent customer “in-house” as opposed to transferring such responsibilities to a third party. The Daedalus Project Director spoke to a number of organisations that might be considered suitable for the roles, to test the potential merits of different approaches. The following were considered key evaluation criteria for selecting the Contracting Authority:

  Control by members (e.g. participating Colleges)

  Trusted to represent London Capital Colleges’ interests

  Trusted to represent wider FE interests

  Established networks across the sector

  Core business

  Have the skills to manage successful implementation

  Appetite and capacity

  Credibility

  Value for money

  Governance arrangements to protect members

Daedalus assumed that the participating Colleges would wish to control the Contracting Authority, but there remained some key questions as to whether they second or directly employ staff to run the procurement and framework agreement, or sub-contract elements of procurement advice and contract management to specialist third parties. This latter approach might enable the Colleges to combine control with the expertise necessary to be a credible and effective Contracting Authority / Intelligent Customer. The relative availability and commitment of skilled resource across the Colleges needs to be balanced against the cost and potential dilution associated with bringing in a third party.

The benefits of a single function for managing the delivery contract with the Shared Service Centre include a greater resource saving since each College would not need to employ such resources, a more consistent level of service for each College and more consistent relationship with the provider. The benefits of each College managing its own contract include greater control (or at least a perception of this), a more immediate relationship between College and provider, and a greater ability to negotiate flexibilities. Depending on the final model chosen, the Colleges would need to agree how the contract(s) are managed.

A decision on governance and resource commitments from initial participants before the procurement process starts is key. If a third party is selected, it should be recognised that they would need to get up to speed with the project and gain their own internal approval to participate, therefore an early decision is important.

6.2 Staffing

Headcount reductions were identified as by far the greatest source of financial value in Project Daedalus. Identified savings were supported through technology investment and business process efficiencies, but without the commensurate reduction in labour that these facilitated, there would be no efficiency case to pay for new systems and processes; contractor profit; and redistribution of back-office costs to the front line.

How Colleges deal with their staff is the critical determinant of whether this type of project is successful. Open and timely communication, alongside fair treatment of staff leaving the organisation are both best practice and a legal requirement. There are important choices to be made in respect of

31

“fair treatment” that will impact both the financial savings case and staff attitude to the transition plan.

Employment Issues and Recommendations

Legal advisers were appointed to consider the employment implications and their conclusions are summarised below:

Issue Advice

TUPE   Assume TUPE applies.

  Determine whether all back-office staff transfer – or just those involved in the “in-scope” activities associated with data capture, processing and reporting.

  Determine which employees are assigned to each part of the College as this will determine whether or not they TUPE transfer.

Communication   Start early informal information/consultation as soon as the proposed outsourcing becomes public knowledge, i.e. no later than the time when the Invitation To Tender or Invitation to Participate in Dialogue is published. This informal consultation can continue during the procurement process.

  Commence formal TUPE consultation (if required) once contracts have been signed with the provider. Such consultation will need to be with all affected employees. This is likely to include academic staff.

  Daedalus will require a culture shift in terms of compliance with the processing of student activity. The greater emphasis on academic compliance will require particular attention in consultation with University and College Union (UCU).

  Consult beyond the statutory minimum – e.g. staff briefings, information on the individual Colleges’ intranets, question and answer sessions etc.

  Consider the cost versus transition benefits of offering a voluntary severance scheme to employees who do not want to TUPE transfer.

Transfer process   Commence formal TUPE consultation (if required) once contracts have been signed with the provider.

  Transfer all employees (other than those who opt out through voluntary severance) to the provider.

  The provider would carry out redundancy consultations and make those employees it does not require redundant.

  The provider would consider what changes are needed to terms and conditions, and implement those if permissible.

  The Colleges are likely to need to agree to reimburse/indemnify the provider in respect of all or some of the redundancy costs associated with TUPE. An evaluation should be carried out of the likely pass through costs and those the Colleges would be prepared to meet, as well as a calculation of likely redundancy costs particularly bearing in mind the early retirement provisions under the Local Government Pension Scheme.

32

Issue Advice

Pension   Colleges can limit pension protection for future service to a money purchase scheme under which the employer matches employee contributions of up to 6%.

  Fair Deal does not apply to FE Colleges. There will be expectations – externally and potentially internally – that Colleges should be more generous, and we will need to balance the savings case against employee relations and transition planning. Fair Deal could add on costs of 20‐25% depending on the age profile of transferring staff.

Employment of Retained (site dependent) Staff

Project Daedalus assumed that the members of the retained organisation would continue to be directly employed by their own Colleges. There are a number of reasons why Colleges should continue to employ the retained staff - retaining some expertise in-house, and ensuring staff working in the College are employed by the College and are committed to the College rather than a third party.

However, there may be advantages of TUPE transferring the retained staff to the provider – particularly those involved in on-site transactional duties associated with assessments and student contact. The transfer of site-based transactional staff to the provider, potentially under a joint contract of employment, could potentially create a more seamless service and ensure that local staff are fully integrated into service delivery.

The pros and cons of transferring all back-office staff to the outsourcer – both those based locally engaged in face-to-face functions and those working remotely – are summarised below:

Pros Cons

  A seamless service – the same party is responsible for local interfaces and remote data processes

  Transition process is more difficult because key process champions have less job security

  Negation of blame factors / single accountability of provider for back-office

  Reduced staff loyalty / allegiance / engagement and weaker internal communication, “them and us”

  Sharing of local and specialist knowledge   Creates different interface issues - less of a “buffer” between curriculum and support functions

  Local choice around staff terms and conditions retained on-site

  Potential future loss of control over staffing levels and recruitment

  May facilitate termination scenarios - retained staff understand outsourcer processes

  Potential VAT charge may be mitigated through joint contracts of employment

For Project Daedalus the decision was seen as unlikely to be a deal-breaker, but a decision would need to be made before progressing to procurement.

33

Other Employment Considerations

The potential location of the shared services centre needs consideration. There has been a trend within UK outsourcing to create service centres in low cost geographies. While bidders may propose a variety of service delivery models, Colleges need to be mindful that very few staff currently employed who are eligible under TUPE to transfer to the new provider may be likely to do so.

Being a major local employer was noted as an important issue for some of the Colleges. An outsourcing transaction is likely to reduce direct local employment, but has the potential to increase local jobs by diverting resources from internal, back-office functions to the core business of running additional skills and employability programmes. The balance between being a major local employer versus being the creator of large scale employment opportunities through education and training is a material factor that the Project Board was asked to consider.

It is also important to recognise that changing the operating model does not guarantee success. In order to deliver the Target Operating Model there would be a need for some staff in each College to change what they do in their day jobs and how they do it. Thus changes in behaviour and culture need to take place in order for Colleges to deliver services as part of a Shared Services Centre. For example course information will need to be provided and updated regularly, diaries/calendars will need to be kept up-to-date and lecturers will need to amend relevant student details in a timely manner.

All shared services projects have material staffing consequences, the impact of which will vary by College. Should a project proceed to the procurement phase, there will need to be full and open consultation with Trade Unions. Given the number of organisations involved, the need for consistency going forwards, and the important nature of the change it should be considered that project communications and staff negotiations are co-ordinated centrally.

6.3 Procurement and Commercial

The procurement process followed to select the shared service provider may be standard. However, given the breadth of requirements, the number of organisations involved, the range of commercial considerations, the potential timescales in which contracts could run, and the limited precedence for this requirement, executing a successful procurement could be complex.

This section covers some key points on the procurement process, and identifies a number of commercial issues that need to be understood and addressed. It also briefly covers VAT treatment as this was a specific area of review in Phase 1.

Procurement

Legal advisers reviewed the project and points on the general procurement approach are summarised below:

  Official Journal of the European Union (OJEU) procurement regulations would apply.

  The objective of the procurement process is to award a framework agreement that allows the Colleges to procure the pilot project and additional Colleges to call-off services using the framework’s terms, payment mechanism and standard service specifications in the future.

  A framework agreement lasting up to ten years is likely to be justifiable. This would enable call‐off contracts of 14‐17 years to be awarded, enabling both Colleges and the market to gain value from their investment.

34

  The Colleges should award a framework agreement to a single supplier with the “pilot” project being the first call off under the framework. The Colleges should incorporate evaluation of the pilot project call off as part of the evaluation for the award of the framework itself.

  Use of the competitive dialogue procedure is most appropriate, following suitable pre‐ procurement engagement with the market place.

  The procurement should be run by a single contracting authority than can act both as the authority party and intelligent client. This could be an existing organisation or a Special Purpose Vehicle established for the purpose.

Key Commercial Principles

The most material of the key commercial principles were deemed to be:

  How Colleges would pay for the new service, including the extent to which benefits are ring-fenced or standardised.

  How initial investment costs are recovered, both from the Colleges involved in the Daedalus project and subsequent joiners.

  How the consequences of exit and termination are managed.

The key commercial recommendations made are summarised below:

Issue AdvicePricing   Colleges should aggregate volumes to drive the lowest unit cost for the benefit of all.

  The base case assumption is that Colleges will pay for the new service on the basis of transaction pricing. This is predominantly based on learner numbers and the model assumes a weighting of 80% enrolments; 10% finance transaction volumes; and 10% staff numbers.

  Certain costs – e.g. the cost of the Intelligent Customer role and set up costs should be borne equally, as all benefit equally from the service provided.

  The sharing of pricing risk around volumes will need to be tested through competitive dialogue.

  While each College should make its own investment case, the Project Board should reserve the right to consider some element of benefit standardisation if this is in the common interest.

Investments   Bidders are likely to adopt very different solutions requiring different levels of investment.

  The procurement process will need to ensure that cost, timing and functionality risk is transferred to the Contractor. There may be an affordability argument for Colleges to finance the investment up‐front.

  Any up‐front investment will be recovered pro‐rata from Colleges joining the framework agreement.

New joiners   New joiners will be encouraged to join, and will have equal rights and responsibilities in the governance of the framework agreement.

  Pricing will be on the same basis as the “founding fathers” – i.e. a transactional pricing model reflecting aggregated volume discounts.

  New joiners will reimburse “founding fathers” in respect of any up‐front investment made.

35

Issue AdviceExit/termination   Colleges will always have the right to walk away from the deal and recover their

data. The contract will require bidders to submit exit plans that will need to be refreshed annually over the call‐off contract.

  Where Colleges choose to exit “for convenience” they will need to compensate the contractor (and potentially the remaining Colleges) for any adverse financial impact.

  At termination, the Colleges will have the right to extend the contract; re‐tender the contract; or bring the services back in-house. The mechanics for achieving this should be tested through competitive dialogue.

Given the potential contract length some aspects, such as the charging model, may need flexibility and regular review over time to make sure they are still appropriate for the services provided. As the services required, the approach to providing services, and the number of Colleges using the services all evolves it is important that the charging mechanism remains valid and doesn’t incentivise the wrong behaviours for users or the supplier - or inappropriately reward Colleges that are large and/or inefficient. If charging is based on a number of different transaction types, tests should be undertaken to see if those transactions are still appropriate as the basis for total charges and are those charges still appropriate for the service delivered/received.

The above assessment of key commercial principles remains high level and would require further refinement. Daedalus challenged the advisers to produce recommendations given the project assumptions since there are so few precedent deals involving multiple autonomous clients operating to a standard specification delivered by a single supplier. Many of these commercial principles would need to be further established through competitive dialogue, and potentially in consultation with other shared services examples in the public sector that may have similar issues.

VAT

Advice in respect of Project Daedalus noted that outsourcing and shared services would create an irrecoverable VAT charge when the new entity invoiced the customer for these services. This primarily affects staffing costs, as VAT is already borne on systems and software. During Phase 1 the Government was introducing legislation that, in certain circumstances, may enable Cost Sharing Groups to deliver services without charging VAT. The project sought advice from accounting specialists to help understand the position, particularly in relation to the potential for some of the on-site staff either being transferred to the shared service provider or working under joint contracts of employment.

HMRC’s attitude was seen to change during the project following a consultation period and, given the potential changing nature of this area, the Steering Group recommended that VAT should be treated as one of several commercial considerations and that opportunities for VAT mitigation continued to be explored.

6.4 Implementation Readiness

Daedalus considered processes through three increasingly detailed levels in order to test the feasibility further, and to identify the specific activities that would be carried out by a Shared Services Centre or the College under such an arrangement.

36

As part of the detailed assessment the implementation challenges for each of the functions was also considered. These are summarised in the following table:

G = Green; A = Amber; R = Red

Process Sub ProcessAchievability

Comment/RationalProcess Culture

Learner Administration

Enquiry Handling G G

Will require information to be provided regularly by the Colleges to the Shared Services Centre to enable it to answer enquiries, but overall there was not seen to be any sizeable barriers to moving enquiry handling to the Shared Services Centre.

Applications G G

Advanced online applications can be transferred and supported with enhanced online application systems. Applications which are processed on-site will require more detailed consideration.

Assessment A A

More challenging depending on level/type of assessment required and volume of assessment activity, as well as process variation within the individual Colleges.

Enrolment A R

Complex to move to the Shared Services Centre as 60‐80% of this process is currently done on‐site within the Colleges in August. There is some potential to reduce the amount which is conducted on-site.

Attendance G A

Currently, Colleges rely on academic staff for completion of registers, with College administration completing registers on academic’s behalf. Will require improved compliance from academic staff to implement.

Transfers G R

Transfers of learners has a direct impact on funding – so while there are no issues from a process point of view, there was considerable nervousness about perceived loss of financial planning control if transfer administration is moved out to the Shared Services Centre.

Exams A G

Contains some on‐site activity. Less of an issue in Colleges which use academic staff to invigilate exams rather than dedicated staff. There is some process variation in results/certificate distribution, but overall the administration regarding both certificates and Awarding Organisation (AO) management were where the appetite for the Shared Services Centre was particularly strong among the Colleges.

Leavers G G The leavers process is largely automated - as such no issues were identified.

Completers G GAs above, largely automated and as such no issues were identified.

37

Process Sub ProcessAchievability

Comment/RationalProcess Culture

HR

- G G

Tried and tested with Shared Services Centre provision. Overall buy in from HR representatives was high. There is also some potential to include more strategic HR as part of the Shared Services Centre or build up ‘Centres of Excellence’ drawn from the existing College HR staff.

Finance

- G G

As with HR, broad buy in and support. The key identified issue was that Finance was at the end of many of the Learner Administration processes and as such was dependent on these processes being completed successfully.

Managementinformaton

ILR A R

The ILR – as the key funding return – was understandably a sensitive issue with Colleges, although the benefits of reduced administrative overheads were seen. There was some nervousness about losing the ability to optimise records to fit with the funding envelope Colleges receive from the Skills Funding Agency (SFA).

Reporting G G

Will require the ability to self‐create reports based on information held by the Shared Services Centre but overall Colleges were excited about the prospect of enhanced reporting, dashboarding and business intelligence.

6.5 Wider Public Sector Experience of Shared Services

The creation of shared services has been a growing area over the last 10-20 years, particularly in large private sector organisations where increasing size from a more global marketplace has been supported by increasing opportunities in technology to provide support for shared (and often distant) services.

The National Audit Office (NAO) identified in its 2012 paper, Efficiency and reform in government corporate functions through Shared Services Centres, that cost savings can be made by sharing functions and the private sector has typically saved in excess of 20 per cent, with a less than five year return on investment.

This section briefly covers two reports looking at shared services in the public sector:

  The National Audit Office’s (NAO) March 2012 paper, Efficiency and reform in government corporate functions through Shared Services Centres – this fairly well publicised report looked at five large shared services projects in Government departments and highlighted poor performance due to a number of issues.

38

  The Local Government Association’s (LGA) August 2012 report, Shared Services: Costs spared? An analysis of the financial and non-financial benefits of local authority shared services – this looked at five shared services projects undertaken within local Government and found significant savings and benefits.

Efficiency and reform in government corporate functions through Shared Services Centres, NAO, 2012

This report looks at whether shared services have delivered value for money for central Government, and highlighted the challenges which departments and the Cabinet Office have faced. It analysed how they have been commissioned, how well Government has performed as a customer, and provided a detailed review of five shared services centres. These were the Department for Environment, Food and Rural Affairs (Defra), the Department for Transport, the Department for Work and Pensions (DWP), the Ministry of Justice (MoJ) and Research Councils UK (RCUK).

Key relevant findings from the report included:

  Departments have invested significant cost and effort in implementing shared services. The five Centres showed a significant overspend to build and operate core back-office functions.

  Most customers of Shared Services Centres have not driven benefits. By insisting on overly customised processes they have not acted as intelligent customers. Most have not optimised benefits from the implemented solutions or adequately worked with the Centres to understand the cost drivers. Departments and agencies have been hampered by the lack of detailed cost information and benchmarks.

  The services provided are overly customised. The research found shared services to be more complex than expected. They are overly tailored to meet customer needs. This limits the ability for the Centres to make efficiencies as they have an overhead of running multiple systems and processes.

  The software systems used in the Centres have added complexity and cost. All the Centres visited used complex Enterprise Resource Planning (ERP) software systems that had proven to be expensive, partly due to a lack of scale and usage in some Centres, limited standardisation and low levels of automation. All the Centres acknowledge they need to simplify and standardise their systems and reduce customisation.

  Most shared service customers do not have adequate information on costs, performance and benefits to make informed decisions. Customers, or those commissioning shared services, must set out clear accountability for managing all costs and benefits associated with shared services (not just those incurred in the Shared Services Centre). They should make sure that these are recorded, independently scrutinised and then benchmarked with appropriate external comparators to assess performance.

  Most customers of Shared Service Centres have not acted as intelligent customers. Customers should implement a professional management function to ensure shared services comply with service level agreements and reduce costs, by for example, standardising services, managing demand and improving service delivery.

  Shared Services Centres and their customers have not worked together to increase benefits. Centres need to operate as independent business units but must also collaborate with their customers to achieve benefits and to monitor performance.

The NAO report concluded that Government Shared Services have not met their objectives for three key reasons - indiscipline in a non-mandated environment; too much complexity and not enough standardisation; and too much emphasis on technology and not enough on the relationship between the shared service and the customer (the retained organisation).

39

On 28 December 2012, the Cabinet Office announced a new shared services strategy to help address issues identified. The Next Generation Shared Services Strategic Plan outlines how Government departments and arms-length bodies will work together to share functions such as HR, Procurement, Finance and Payroll to deliver potential savings of between £400 and £600 million a year in administration costs.

Shared Services: Costs spared? An analysis of the financial and non-financial benefits of local authority shared services, LGA, 2012

This research, commissioned by the LGA and produced by Drummond MacFarlane, followed the July 2012 publication of the Commons Public Accounts Committee report into shared services, which demonstrated that local authorities are significantly outperforming central Government in this area.

Key relevant findings from the report included:

  Clear financial benefits have been achieved with the five shared services, saving £30 million between them across the lifetime of the sharing arrangements through reducing staff (removing duplication and management posts), integrating IT, reducing accommodation, and improving procurement.

  The set-up and integration costs for merging services are modest with less than a two-year payback period for all the shared services analysed.

  The shared services have succeeded in providing the same or better levels of performance at less cost.

  These initial benefits are typically delivered rapidly with strong top-down leadership.

  As shared services mature and evolve they are able to benefit from wider business transformation such as better use of IT and assets, improved processes and cultural change programmes.

  Baseline financial and performance information is essential to make the case for change and track the benefits of shared services in terms of efficiencies and service improvements.

  Good performance against organisations’ key performance indicators are complemented by good staff indicators such as high staff morale, low staff sickness and low turnover rates.

  Rapid implementation helps build momentum for change.

  Expanding established shared services to provide services for other public sector partners in a locality is a useful way to generate income and ensure efficiencies through greater economies of scale.

The findings of this report into smaller and more localised shared services contrasted dramatically with the NAO findings on large Government departments’ experience. Alongside providing more optimism on the benefits of shared services they may also represent a more comparable size and scale for the type of projects potentially undertaken in the FE sector.

40

7. Market Demand

7.1 Introduction

The project looked to gauge the level of interest that might be expected from the potential supply market. It was recognised that shared services are common in many areas, although they do not have any significant presence in the FE sector.

7.2 Market Testing Approach

An initial desk-based assessment of potential providers showed a potentially strong market. Direct engagement with six companies - drawn from a spectrum of organisations likely to respond to the requirements – provided more detailed insight.

In order to more accurately analyse the market and provide responses to help frame the commercial principles, the following six topics and questions were discussed at each Market Testing meeting.

Delivery Model   What type of back-office services would it be feasible to provide and how homogenous would the

College’s administration need to become?

  How would you envisage the structure and supply chain working?

Implementation Approach   How long could it take to set up such a service?

  What infrastructure would the FE Colleges need to implement?

  Would it be possible to include additional Colleges if the programme were to expand?

  Student Administration is a key issue. How would this area be managed and what information would be required to articulate the simplification, standardisation case?

Savings Potential   What level of saving could they feasibly envisage? Minimum and maximum levels?

  What commercial incentives could be offered to ‘Reference Colleges’ if additional Colleges join?

Investment Criteria   Is the FE sector of strategic interest? Are you willing to invest in Business Process Outsourcing

services for this sector?

  What level of take-up would be required for different levels of investment? How would this be recovered? What scale of investment would be considered and would Colleges be expected to co-invest?

Ownership Model   Any structural suggestions regarding VAT?

  Would you be comfortable owning 49% of an outsourcing entity (SPV)? How would this affect your overall position on the above questions?

  What expectations would you have in relation to risks, governance and management?

41

General overview   Where could the Colleges expect to see savings? (type and indicative value)

  Are there any concerns/factors which weaken or significantly affect interest in this opportunity?

  How does it compare to other market opportunities?

  How much value is placed on the wider market opportunity? How much of the investment costs would the Service Provider be prepared to carry forward (unamortised across the pathfinder deal) for future business?

7.3 Market Testing Outcomes

Key messages - results from the soft marketing exercise were positive:

  There was strong interest in Project Daedalus, provided that scale is maintained.

  Those consultees with the largest public sector client base were most comfortable about direct investment into a vehicle in which they held a minority interest (should HMRC relax its position and this provide a preferential approach).

  Consultees would consider deferring recovery of an element of their investment in Daedalus from the wider market opportunity created, subject to the nature of the framework agreement and its governance arrangements, and the confidence in the scale of wider market commitments.

  All consultees saw the potential for savings and had ideas around additional revenue opportunities.

Key market concerns - the marketing exercise indicated some common issues:

  The smaller the number of Colleges, or the more diffuse the acceptance of a standardised specification, the less consultees expressed investment potential or even interest. An initial group of less than ten participating Colleges was seen as making it difficult to justify the initial investment.

  An entirely on-shore solution would be unlikely to deliver the higher level of savings and therefore a combined on/off shore solution would be required to achieve savings of 20%-30% (post VAT).

  The learner administration element of the required platform was not presently available in the UK, and would need to be created and provided as a bespoke additional service. All companies confirmed that they would be able to deliver a bespoke service to include this.

Timescales All companies confirmed that a seven-ten year contract period would be a minimum requirement in order to help ensure viability of the project and their investment.

A phased transition was the preferred approach. This would mean an immediate lift of current systems onto an ‘orchestration level’, from which data would be centralised and then further loaded onto the new platform. The outsourced service could be provided within a few months of the contract being awarded, however the total transition would take 18-24 months. This would allow the provider to collaborate with the College to learn and fully understand their systems.

42

7.4 Conclusions

The testing showed that a strong potential market was there if the project progressed. There was a large potential market capable of responding to the outsourcing opportunity envisaged in Project Daedalus. The organisations included in the initial marketing campaign expressed strong interest in the opportunity. Scale; consistency of requirement and governance; and flexibility around how the solution is delivered would be key to building and sustaining competitive tension. Building FE commitment beyond the Colleges involved in the Daedalus project (whether as part of this initial project or potentially as a second tranche) would strengthen market demand and the financial business case further.

HR, Finance and Procurement processes are already delivered in many circumstances by third party suppliers and so there was significant experience within the process outsourcing market of how best to deliver these processes in an outsourced arrangement. However, the market did not have much experience, if any, of delivering learner administration, and registry and enquiry handling processes within an FE setting. This meant these areas needed developing. However, it presented the opportunity for the Colleges involved in the Daedalus project to have significant influence over the construction of these standardised processes, shaping the Target Operating Model to their own requirements.

43

8. Overall Conclusions

8.1 Summary

Project Daedalus sought a clear route to market for all Colleges in the UK, using a replicable model that is also scalable to embrace a wider range of functions, as required. The project had:

  undertaken detailed research on all of the major comparable public sector shared services initiatives

  carried out specific due diligence on an outsourcing proposition tailored to the FE sector; and

  completed a detailed review across London of the potential to standardise back-office functions in FE, and the cost benefits in doing so.

Project Daedalus showed that there was significant potential to reduce the existing headcount within Colleges as a result of transforming activities to a Shared Services Centre, which should result in a cost saving for the Colleges. The work also showed that while delivering some processes via a shared service arrangement might be complex and require careful planning, no legal, technical or other reasons became evident that would prevent the transfer of the processes in scope.

Detailed process mapping through engagement of relevant College staff was important to work through and demonstrate that standardisation was possible. This enabled an understanding of what people with the experience of operating the existing approaches thought standardisation would mean at a detailed level for everyday tasks.

Standardising and aggregating processes offered the potential to achieve very significant savings and quality improvements, but should not be the only reason for continuing. The approach can streamline College operations around what really matters to learners, and catalyse a series of efficiencies and operational benefits.

Moving from fragmented, often late management information to real-time business intelligence could transform the way Colleges manage and organise themselves around learners’ needs. This required investment and management focus, the potential for both of which was evidenced through soft market testing.

The core administrative processes that all FE Colleges must do, can be delivered better and more cost effectively if Colleges aggregate their requirements around a common specification. Daedalus provided a route map to the following:

  A more efficient operating model that was developed in consultation with key service managers. This new way of working showed the potential to improve data quality and business intelligence; improve the learner experience; and release savings.

  An increase in business continuity and organisational resilience.

  Post-tax, average annual savings of 27% - 33% per College for functions within the shared services. This included the costs of restructuring and new investment in systems and processes.

  The ability to capitalise on strong market interest in Daedalus to shape market investments in FE systems around the needs of participating Colleges.

44

8.2 A Challenge to the Existing Approach

Would we design the same approach and delivery method if starting from scratch?

The baseline position for the project was that the Colleges were shown to operate as separate entities. This meant that all activities and associated processes were managed and executed separately within each College. Many of the activities carried out by each of them were essentially the same but each College had developed its own approach.

This could be seen as missing the potential for economies of scale and the development of better approaches and systems. The existing approach can be viewed as creating inefficiencies in many areas – whether this is for the supplier who needs to register on numerous different systems or for the College who fails to gain the better pricing and performance that a joint procurement or shared system could bring.

If the processes supporting those activities could be standardised they could be shared across the Colleges, allowing for economies of scale and implementation of best practice across all of them. It is therefore fair to ask the question – would we design the existing approach if starting from scratch?

This question is highlighted in the Institute of Directors’ (IoD) sponsored paper called Towards Tesco – improving public sector procurement. It proposes that companies like Tesco or HSBC Bank would not be in business if each of its own branches had its own IT, its own finance system, did its own procurement, did its own processing, had its own call-centre, and its own website etc..

The IoD report highlights that it would be unthinkable for each TESCO store to have their own individual back-office processes and systems, and it would also be extremely inefficient for its customers and suppliers if each store operated different approaches. It is not just retailers; many leading customer-focused service sector companies have shared services to help deliver more efficient and effective back-office processes.

Given the fragmented nature of non-core activities in many parts of the public sector, would we really replicate the existing set-up and structures if we could start all over again? If not then a challenge to the sector is how to move towards a better approach.

8.3 The Need for a Strategic Decision

Daedalus highlighted that Colleges have evolved to run their back-office functions in a wide variety of ways, even though these functions serve a largely common purpose. The project demonstrated the potential to reorganise these functions in a more standardised way, differentiating between self-service functions; data processing that is not location dependent; and face-to-face contact. Standardisation in this way, supported by appropriate investments in technology, could significantly reduce the staffing levels used to run back-office functions. The elements that worked well included engagement of the committed Colleges; engagement of the market; the solution design; and the approach to procurement. To make these elements work needed an equal commitment of resourcing and will across all participating Colleges.

The LGA report into shared services was very positive on the benefits. Furthermore it noted that, with strong top-down leadership, benefits are typically delivered rapidly.

Clear commitment and support from the top to pursue a shared services solution is therefore extremely important for participating organisations. The feedback from Project Daedalus was to go for those committed at a strategic level rather than necessarily working on a geographical proximity basis. Open and positive commitment at the most senior levels is critical to making any major business changes work, and moving to a shared services solution is no different.

45

A strategic decision is also needed as the benefits from a shared service are not just about cost savings – they are also about a way of delivering better services and hence belief in achieving this is important. Outsourcing services is now common across the public sector and is seen in outsourced IT and buildings management contracts – areas that have every day criticality but are non-core operation.

On Project Daedalus the level of participation looked directly proportional to the level of support for the approach. Eight Colleges attended every workshop during the project and two attended none. Of those attending every workshop the majority stated a desire to participate to the next stage of the project. No Colleges attending less than half the workshops wanted to proceed.

To implement a shared service has many challenges and it is sensible to be open to the need to overcome these, however there is little point going into the project not wanting it to happen – or working with other organisations that are not supportive to the development. A project like this needs organisations who will stick with the procurement as there are big issues (due to scale) if organisations drop out.

8.4 Way Forward Comments

In assessing whether to proceed to a shared services solution the following issues need careful consideration:

  The solution requires scale and commitment. For Project Daedalus the financial advantages modelled fell away if fewer than six large to ten average Colleges would see the project through to a successful conclusion.

  The solution requires consensus and compromise around the solution, and clear governance arrangements to ensure that effective, binding and timely decisions can be taken.

  The solution assumed that many of the functions around processing and reporting student data will no longer be directly delivered by Colleges. The savings case assumed that across London a high number of staff may be transferred to the outsourcing vehicle or face redundancy. This would require open dialogue with unions and the associated costs would fall to individual Colleges.

  Agreeing the basis for charging-out initial investment and ongoing service costs across the participants will require definition and agreement at a central and individual organisational level, and

  The complexity of the procurement process means that a high level of resourcing will be required and clarity on how client side interests are represented, while still enabling the benefits of standardisation, needs to be agreed.

A project like Daedalus does come with some considerable challenges to address in making sure the approach will work in delivering the benefits of lower costs and improved processes. It is a major change programme and therefore this means managing the impact of a lot of people exiting the organisation and on those staying in the organisation. This includes the need to invest to change behaviours to get the most out of the new service and ensuring continuity of service throughout to maintain student satisfaction during transition.

If the challenges can be overcome this report shows that the potential benefits perceived by Project Daedalus through a shared service solution could be significant.

46

8.5 Explanation of Why Daedalus Has Not Progressed

Project Daedalus was seen to provide some useful lessons for the sector and for organisations considering a shared service solution for back-office functions. The project has not progressed to Phase 3 (procurement) due to a number of factors.

As part of the post-project review, including a meeting with the Project Director, the following have been identified as key causes of the failure to progress to Phase 3:

1. Resourcing – some Colleges did not commit sufficient senior resource to the project. This meant that when decisions were required, the representatives of those Colleges had no evidence base other than two hours of presentation and existing preconceptions to rely on. Of the Colleges that did commit resource (second and third tier), five wished to continue beyond Phase 2 and two concluded that the standardisation model would not work for them.

2. Governance – the Board was distracted from determining the decisions on the critical path. The first key decision was whether Colleges accepted the standardised, simplified and aggregated approach to running back-office services on which a procurement would be run. The model was neither accepted nor rejected, with no debate over how consensus could be achieved. The second key issue at Phase 2 was to determine how governance would work in practice through a procurement and into the operational phases. Again, there was no resolution of this issue. Without a clear steer on these two issues, the Steering Group concluded that it would not be possible to run an effective procurement process.

3. Compelling business case - while the business case indicated material savings in aggregate, the initial suggestion of how these savings would be shared across Colleges was flawed. The initial savings methodology concentrated the savings in the largest and least efficient Colleges, at the expense of the majority. While fixable in an equitable way, the data presented to the Board was the last straw for many Colleges.

End of Report

47

Annexes

Annex 1 - Strategic Risk Register for Procurement and Implementation of Contract Phase 3: PROCUREMENT OF FRAMEWORK CONTRACT AND INITIAL CALL OFF CONTRACTS

Risk Description Mitigation

Governance � Governance is too passive or reactive to drive effective decisions

� Individual Colleges are not organised to manage internal due diligence or interface with project team

� Interface with contracting authority not established before procurement starts

� Monthly Project Board meetings, plus clear commitments through strengthened terms of reference

� Central project team supported by named College project teams of two-four FTE staff for duration of procurement

� Clear heads of terms / contractual interface setting out roles, rights, responsibilities and delegated authority.

Demand falls away � Reduction in scale (buy-in) undermines business case

� No consensus on solution

� No agreement on pace of change

� Colleges lose interest / distracted by other priorities

� Robust diligence at Phase 2 – those Colleges that continue into Phase 3 should be intending to consummate a deal

� Active engagement and commitment to process – with Board level sign off accepting the service specification and key commercial principles

� Market the opportunity to other Colleges – already discussed with other Colleges and interest shown.

Supply side � Market loses interest or does not see strategic value in opportunity to attract investment

� Market offers are not credible or affordable

� Market engagement / building

� Clear messages and project management

� Robust procurement process with no commitments until value proposition is understood

� Extend interest beyond the Colleges involved in the Daedalus project and provide clear route to market (the Framework Agreement).

Funding � AoC funding withdrawn

� VAT position does not improve

� Lobbying

� Lobbying / pursue alternative reliefs

Employment � Industrial action from support and potentially teaching staff

� Robust and consistent project and internal communications

� Statutory consultation starts from ITT stage

� Commercial impact and negotiations managed centrally

48

CONTRACT IMPLEMENTATION

Risk Description Mitigation

Governance � Relationship between individual Colleges, LCC and contracting authority not clear

� Roles, rights and responsibilities of the parties contractually defined

� Intelligent Customer role to police compliance with the framework contracts.

Future flexibility � Colleges’ requirements and/or budgets change over time

� Service charge based on volume bands to mitigate pricing volatility

� Intelligent Customer to negotiate changes that impact the entire sector

Exit � Limited options to bring services back in house

� Business continuity when contract ends

� Termination provisions to protect Colleges’ rights, business continuity and investment

� Contractual ability to bring back in house or move to another supplier at expiry

Pricing / commercialstandardisation

� An “equitable” way of sharing savings cannot be agreed.

� Commercial pragmatism required by Project Board to balance individual and collective benefits at outset.

� Profit share principles to be established in

� Phase 3

Affordability � Colleges will be bound by the contract and unable to make further deep cuts in back-office costs

� Daedalus offers the bird in the hand, not the two in the bush. Colleges must assess the size of saving relative to the targeted quality improvements.

� An important element of cost control will be to avoid “back filling” replaced staff with new administrative appointments.

� There are further potential efficiencies currently not in scope – e.g. IT, estates, student welfare etc.

49

Annex 2 - Business Intelligence

Specific Improvement Area – Business Intelligence and Data ManagementOne of the key objectives for Project Daedalus related to a desire to improve the information that is available to the Colleges to help them understand levels of performance, both in terms of learner outcomes and business process efficiency, and key trends and issues in their performance and environment.

Business intelligence and data management would therefore be a key function for the Share Services Centre. There are broadly two sets data – that which relates to learners, such as completion rates, exams success rates, and destinations – and that which relates to the various key business processes – such as invoice processing times, current expenditure, expenses, staff appraisals completed etc. This information would need to be collected, recorded and stored and validated for accuracy. Bringing together the majority of functions that generate this data into a Share Services Centre would enable a much greater level of integration between them, and using self-service and other automated channels for the collection of the data should ensure both greater accuracy, as data is only entered once; and timeliness, as it should be entered at the point of delivery of the service. A Share Services Centre would also be responsible for validating the data, much of which can be done automatically using a rules based approach to validation.

However, arguably the more important element of this function is the analysis of this data to create business intelligence. The Share Services Centre would be responsible for maintaining a business intelligence function, both by providing ‘live’ business intelligence dashboards that staff and learners will be able to access through self-service and through regular reporting on agreed aspects of learner and business performance to Colleges.

Below are some screen shots of an example dashboard. There are a number of products on the market that produce similar dashboard tools. These products can only be as good as the underlying data they report upon. These screenshots are included as examples of what a dashboard could look like for the Colleges.

To create such a dashboard Colleges would need to agree a core set of key performance indicators (KPIs) to be collected and monitored that cover a range of dimensions of the College’s performance. The Colleges were asked to consider a dashboard that covers six core dimensions:

The Student Profile � who are our students? � where are they from? � what are their qualifications? � what enquiries are we

receiving, and who from?

The Course Profile � what is the demand for our

courses? � how many places are taken? � what are the attendance

records? � what do students think of

the courses?

Learner Performance � do students finish their

courses? � do they pass their courses � what do they do afterwards?

Financial Performance � what income do we expect to

receive? � are we spending in line with

our budget? � how much debt do we have? � are we providing value for

money?

Staff Performance � how do learners rate our

staff? � what absence rates do we

have? � are staff being appraised? � what CPD / training

activities are happening? � are we able to recruit the

right staff?

Asset Utilisation � are our classrooms being

used effectively? � what demand is there for

our ICT resources? � how much energy are we

using?

50

Within each of these dimensions a core set of KPIs would need to be developed. These are likely to include measures around applications, enrolment, attendance, achievement, satisfaction, fee payment and debts, sickness and other absence, financial performance and forecasting among others.

Example Dashboards:

51

Annex 3 - The Colleges Involved in the Daedalus Project and Main Output Documents

The Colleges involved in the Daedalus ProjectWestminster Kingsway CollegeBarnet and Southgate CollegeCollege of North West LondonCity and Islington CollegeEaling, Hammersmith and West London CollegeLambeth CollegeCollege of Haringey, Enfield and North East LondonLewisham CollegeNewham College of Further EducationSouth Thames CollegeTower Hamlets CollegeWest Thames College

Daedalus Phase 1 Main ReportDaedalus Phase 1 Business Case (14 pages)Appendix 1 The Daedalus Colleges (2 pages)Appendix 2 Project Daedalus Rationale Objectives Delivery (32 pages)Appendix 3 Executive Summary Project Houdini (9 pages)Appendix 4 TOM and Output Specification (106 pages)Appendix 5 Financial Appraisal (15 pages)Appendix 6 VAT and Corporate Structuring (40 pages)Appendix 7 Market Demand (55 pages)Appendix 8 Phase 2 Plan (5 pages)Appendix 9 Phase 3 Plan (4 pages)

Daedalus Phase 2 Main ReportDaedalus Phase 2 Report (21 pages)Appendix 1 The Daedalus Colleges (2 pages)Appendix 2 Project Governance and Delivery (16 pages)Appendix 3 Retained Function Design (47 pages)Appendix 3a Output Specification (39 pages)Appendix 4 Financial Model Summary Output (32 pages)Appendix 4a Financial Model Specification and Assumptions Book (32 pages)Appendix 5 Employment and Pensions Report (33 pages)Appendix 6 Procurement Report (41 pages)Appendix 7 Commercial Report (80 pages)Appendix 8 Transition Plan and Phase 3 Programme (19 pages)

52

© Association of Colleges 20132 - 5 Stedham Place, London WC1A 1HU

Tel: 020 7034 9900 Fax: 020 7034 9950Email: sharedservices@aoc.co.uk Website: www.aoc.co.uk @info_AoC