The Effect of Shared Service Centers on Administrative Intensity in English Local Government: A Longitudinal Evaluation

Abstract

“Administrative intensity” (AI) describes the proportion of total resources that organizations spend on administrative support functions rather than primary service and production processes. We test whether “sharing” administrative activities between organizations leads to a fall in AI due to economies of scale, as is often supposed, using organizational and financial data from more than 300 English local authorities. We employ multi-wave change score regression analysis to relate changes in AI from 2008 to 2016 to levels of shared services participation, and further test whether reform performance varies by category of local authority, type of administration, or degree of structural complexity. Although we find that some measures of AI fell slightly over this period, this was unrelated to shared service adoption for any category of local authority. Sharing of clerical rather than professional types of administration, and sharing by organizations and within partnerships characterized by lower structural complexity, also failed to improve reform outcomes. Faulty assumptions about the extent of administrative scale diseconomies in English local government partly explain this significant reform underperformance.

It Depends on What You Share: The Elusive Cost Savings from Service Sharing

“…However, Blåka (2017) also finds that inter-municipal corporations 2 with more member govenments show higher costs, due to the greater organizational transaction costs. This is similar to results found by Elston and Dixon (2019) in English shared service centers.…”

“…Dollery and Gant (2010) have shown these costs can be especially high among early innovators. Transactions costs of sharing may decline over time (Aldag and Waner 2018), but when service sharing does not reduce administrative intensity, no cost savings are found (Elston and Dixon 2019).…”

“…Diseconomies of scale have also played a role in the discussion on scale effects. Diseconomies of scale may result when the costs of coordination and communication increase with the scale of the activity due to an increase in administrative intensity (Elston and Dixon 2019). For example, large organizations may suffer from 'bureaucratic congestion' (Boyne, 1995).…”

“…There are a variety of reasons cost reductions from shared services would not be present. These include: start-up costs, transaction costs, improvements in service quality, increased administrative intensity and functional duplication (Bel and Warner 2016;Elston and MacCarthaigh 2016;Elston and Dixon 2019). Some sharing is used to provide redundant coverage to ensure fail safe delivery (Miranda and Lerner 1995).…”

“…Our first contribution to the literature is to conduct the first multivariate study of cooperation and costs for local governments in the US. A second contribution is that our study goes far beyond one sector, and measures a wide range of services in a disaggregated analysissomething the literature calls for (Feiock 2013;Elston and Dixon 2019;Zeemering 2018 ). All quantitative studies thus far, focus on a single service, 1 but our analysis includes a total of twelve commonly provided local services and a database of service costs which spans twenty years .…”