Can the UN achieve cost savings through shared services?

10 December 2023

By Katja Hemmerich

This week, the UN General Assembly begins negotiations on the budget resolution in earnest. The aim is to find consensus on the substantive and financial elements of the resolution approving the budget and related programme priorities for 2024 (see our Quick Guide on the Fifth Committee process for an overview of how it works, and why it’s so complicated). One issue that the Fifth Committee is coming back to this week for further discussion is the Secretary-General’s proposal for improving service delivery across the UN Secretariat (A/78/391).

The Secretary-General’s (SG) report outlines his initiatives to further improve operational support and service delivery as key elements of his management reform approved by the General Assembly in 2019. The concept underlying these improvements is the “incremental adoption of a shared services approach”. The Advisory Committee on Administrative and Budgetary Questions (ACABQ) is quite critical of the report, in large part because the Committee feels that the SG appears to be reviving the global service delivery model, which the General Assembly decided not to pursue during previous reform discussions. Despite its critical tone, the ACABQ does not oppose the concept of shared services, but seems to prefer implementation primarily at the local level through common back offices (A/78/391, para. 28).

Both the Secretariat and the ACABQ seem convinced that shared services will result in cost reductions and better service provision. But what does the research tell us about this?

Our spotlight this week highlights recent research on the results of similar shared service approaches undertaken by different countries and how the impact of these reforms can be measured to inform the current UN discussions. We provide some points for member states and Secretariat practitioners to consider as this negotiation goes forward.

The origins of shared services reforms

Over the last 10-20 years, Western governments in particular, as well as other countries like Brazil, have increasingly adopted shared services approaches from the private sector, often with the aim of cost savings. In 2015, consulting firms like AGA and Accenture estimated that the US government could save as much as $47 billion annually through shared services. Other countries like Brazil and the UK have looked to shared services as a means of trying to keep public services at local and regional level accessible while also reducing costs. It is not surprising therefore that similar assumptions and motivations underlie the UN discussions on shared services.

While a $47 billion savings sounds incredibly enticing, the first problem highlighted by researchers assessing such reforms is that there is no consistent approach to forecasting, much less measuring, these results.

“Various methods are used to produce these forecasts, ranging from casual reference to (un-audited) private-sector experience (e.g., HM Treasury 2009) to “benchmarking” an organization’s back-office functions against “best-in-class” comparators.” - T. Elston & R. Dixon, “The Effect of Shared Service Centers on Administrative Intensity in English Local Government: A Longitudinal Evaluation”, 2020

The SG’s report on the improved service delivery concept includes no projected cost savings, nor any data on the current state of operations or performance indicators by which to measure future success - a key point of contention for the ACABQ. The challenge of measuring ‘efficiency’ and identifying related KPIs is not a new problem for international organizations and is an issue that has long plagued management reforms in the UN. The ACABQ has been similarly critical of this year’s report on Umoja implementation for its lack of data and clarity on benefits realization, for example. The lack of consistent measurement of efficiencies across different reform initiatives makes it particularly difficult for member states to find consensus and agreement with the Secretariat on which reform initiatives should go forward and how.

But as academic researchers have sought to identify the results of shared service reforms in different countries, they have found effective solutions to the measurement challenges, which can also be applied at the international level. Through rational and replicable measurement tools, researchers have gained concrete insights into whether shared services reforms actually achieve their intended outcomes and savings - which are not necessarily in line with consultants’ predictions.

‘Administrative intensity’ as a measure of support efficiency

To allow for a consistent measurement of support costs and future efficiencies and savings, researchers across different countries have increasingly used the concept of ‘administrative intensity’. Administrative intensity is is typically defined as the administrative cost and effort of running an organization. It can be measured by quantifying the proportion of an organization’s resources dedicated to support functions as compared to the performance of its mandated tasks. In doing so, it is also a tool for capturing the true benefits associated to economies of scale, which is at the heart of the shared services concept.

Proponents of shared services argue that shared services lead to economies of scale, meaning achieving a higher output with the same level of resources that are pooled or shared. This is the primary source of cost saving. Economies of scale can be achieved in a variety of ways, including through negotiating better procurement conditions on behalf of a group of entities, investing in technology that smaller units could not otherwise afford, or sharing of material or equipment to increase usage and reduce unnecessary downtime for that equipment. But because leveraging economies of scale tends to involve changes to business processes, it is often hard to directly compare costs in the ‘before’ and ‘after’ phases of reforms. As an example, procuring goods or services as a group might result in cheaper prices, but it can also create more work (think of the difference in effort in setting up a systems contract versus running a single RFP process). To get a true picture of cost savings, you need to be able to capture and compare the savings in terms of cheaper prices with the extra person hours and effort needed to obtain those cheaper prices.

An excellent study of the results of shared administrative service centers in the UK demonstrates how Administrative Intensity actually captures all those costs. The study measured administrative intensity across 300 local authorities over an eight year period by calculating:

1. The overall support costs as a percentage of total expenditures (AI total);

2. The cost of support staff and employees as a percentage of total employee costs (AI employee); and,

3. The non-staff support costs as a percentage of total gross expenditure (AI running costs).

In this way, the researchers could capture where, for example, economies of scale in procurement resulted in lower ‘AI running costs’, but may also have led to increased human effort in managing that process and increased the ‘AI employee’ costs. By using this approach, the study found that in the UK there was actually no discernible cost reduction attributable to the use of administrative shared service centers. Other studies have shown varying results. A Brazilian study, which assessed the sharing of public services more broadly across municipalities, showed a reduction in administrative intensity for the smallest municipalities, but for larger municipalities shared services resulted in greater administrative intensity. Other studies of shared public services show different results depending on the type of service, e.g. waste management and waste water management show cost savings in New York State and South Australia, but other types of services show no cost savings, or in some cases, increased cost.

The mixed results of these studies illustrate that there is no guarantee of cost savings from shared services, but that it is dependent on what types of services are shared, the size and dispersion of the client population and the organizational context all impact whether cost savings will or won’t be realized. At the same time, they also highlighted that there can be broader objectives of shared services, like increasing accessibility of services to remote populations or increasing the quality of services. These objectives were often achieved, albeit sometimes at a cost. But by measuring the benefits and costs across different service areas, policymakers could make informed decisions about when to invest in shared services.

“Shared services are no panacea. Service sharing may result in higher costs; but it also may help fragmented local governments achieve higher quality services. Policymakers should be clear about the desired goals of cooperation and realize economies of scale may be more limited than popularly assumed.” - Austin Aldag et al., “It Depends on What You Share: The Elusive Cost Savings from Service Sharing”, 2020

Agreement on the objective of shared service reforms

The research therefore highlights another key point that should be considered in the discussion of shared services in the UN: what is the objective of the reform? A shared understanding between member states and the UN leadership about what shared services are supposed to achieve can clarify when common back offices, or regional or global shared services approaches will be the most effective. If the only point of agreement is that shared services should lead to cost savings, then it is likely that only a limited investment and use of shared services will achieve that result.

Currently, there does not appear to be a shared understanding of the objectives. The ACABQ seems skeptical of the incremental and varied global, regional and local sharing of service approach proposed by the SG. Rather, the ACABQ seems more convinced that common back offices at country or subnational levels are the most likely to benefit the UN, stating that

“The Advisory Committee is of the view that the common back office and premises concept offers opportunities for achieving improved efficiency and effectiveness.” - ACABQ, A/78/391, para. 28

The Committee doesn’t provide an explanation for this view, or further detail on what constitutes effectiveness or how it will determine whether efficiency gains have been achieved.

Alternatively, the SG’s report highlights five detailed objectives for improved service delivery:

1. Increased economies of scale and reduced duplication in capacities and footprints in insecure and remote locations;

2. Interoperability that is underpinned by standardized processes and common support arrangements;

3. Enhanced responsiveness through access to service providers that offer comparative advantages in specific elements of operational support;

4. Strengthened resilience and adaptability in the face of evolving operational demands and challenges;

5. Operational continuity in enabling those best placed to make decisions and sustained availability of remotely delivered support services.

These objectives go beyond simple cost savings, but also without indicating how achievement of these objectives will be measured. These discrepancies in the ACABQ and Secretariat views will not make it easy for member states to find consensus on the way forward for improved service delivery and shared services in the UN.

Points for further consideration

Therefore, to help facilitate more concrete discussions and future measurement of improved service delivery through shared services, we suggest that the delegates and practitioners involved in the debate consider the following:

1. When requesting the next report on improved service delivery, can member states agree on a few key objectives of the reform to define the parameters for the UN Secretariat?

2. Member states may want to consider requesting the Secretariat to explore the concept of administrative intensity to benchmark current and future benefits of shared services and other reforms. Practitioners may want to get a headstart on this.

3. Member state delegates may want to request that prior to the next report the relevant office in their capitals compile their own and other countries’ experience and research with shared services to better understand what objectives are achievable and how to measure results.

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