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Steria Ventures Into New Deal with U.K. Government

This is Steria’s largest ever award: the press release refers to the contract being potentially worth over £1bn over 10 years (7 plus 3): with the foundation clients, the value is closer to £500m, depending on what additional business Steria brings in to the JV, its lifetime value could be worth much more than £1bn.

The contract was signed last night: the conclusion, since the announcement of Steria as preferred supplier in September, has been rapid. In the few weeks that followed:

  • SSCL, the company has been set up, 75% owned by Steria and 25% by the Government
  • 150 contracts of the existing shared service centers have been novated
  • Arrangements were finalized about the transfer of ~1200 staff, with effect from today.

The immediate future is going to be equally busy for SSCL. For example:

  • Services are being transitioned as they are for continued operations; now there will be a period of detailed analysis and fact checking to plan the required transformation
  • SSCL is looking to get some degree of platform harmonization across the different versions of Oracle that are currently in use (ranging from R12 to R10,) ahead of any final platform consolidation and sharing across the board. Clearly, the most pressing need will be to upgrade the oldest instances, the overall journey is expected to take around two years
  • The harmonization and eventually standardization of the platform will allow SSCL to  embed big data handling and analytics capabilities for operational insight e.g. process efficiency, and cost management, e.g. understanding buying and expenditure patterns and eliminating duplications
  • At the same time there will be a strong focus on achieving process rationalization and standardization on the journey to a SOP.

Steria has the benefit of experience of another major public sector shared services JV, with the NHS, which also operates on an Oracle platform.

The JV is picking up a range of services capabilities: as Steria discovers these, expect to see the offerings expand over time to include services such as grants management, training admin and travel management inter alia.

Given the scale of the contract, we expect to see SSCL maintain some of the eight existing Government shared service centers it is taking over, but some degree of consolidation is likely in order to achieve the efficiencies that the government is looking for. Some degree of offshoring is also ultimately on the cards. This is most likely to follow the model that Steria has implemented within its NHS SBS, where some of the supporting back-office processes will be undertaken offshore e.g. reconciliations.

The creation of SSCL follows that of ISSC1 contract award to arvato in March this year. According to arvato in a recent briefing with NelsonHall, progress is on plan.

SSCL is a much bigger entity, for example, starting with eight service centers and 1200 staff transferring, compared with ISSC1’s one service center and 200 staff, but there is good potential for growth for both.

SSCL and ISSC1 will be competing against each other and also four or five internal government shared service centers for business. The U.K. government's ambition to build a competitive marketplace for its back-office services is starting to take shape.

As far as the governance of the two independent SSCs go, the JV model of SSCL provides a share of the potential profits as well as efficiency savings. Other benefits of the JV include having a voice inside government to encourage other organizations to join (similarly, the involvement of the Department of Health in the NHS SBS JV has been useful). On the other hand, the totally independent model of ISSC1, gives arvato complete control to set the pace of change for business development in the future.

The shape of the U.K. Government back office shared services market has changed significantly today, with contract opportunities now somewhat limited for other suppliers. The focus of the program is currently on the main departments and so perhaps some opportunities might still exist among non-departmental bodies.

While the government’s drive for efficiency continues, there is still some duplication of effort. For example, CGI (then Logica) was awarded an extended framework agreement for payroll, HR and finance services by the GPS in December 2011, in a renewal of an existing framework agreement through which CGI has been delivering payroll services for ~140k civil servants. The new framework is open to any central government agencies for payroll services, HR systems, HR outsourcing, outsourced training and integrated financial and accounting systems. Given the current government program, this framework is unlikely to see much take up in central government. However, it leaves CGI with opportunities in police, education, local and health authorities, where the shared services model is also seeing renewed impetus.

NelsonHall will be publishing a global Public Sector Shared Services Market Report in January 2014. It will  be publishing a series of vendor assessments as part of the report, including profiles of Steria and arvato as well as other major vendors. BT Global Services' public sector shared service profile has already been published and can be accessed by subscribers here:

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