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Collaborative cost-cutting: productive efficiency as an
interdependency between public organizations

Elston, T., MacCarthaigh, M., & Verhoest, K. (2018). Collaborative cost-cutting: productive efficiency as an
interdependency between public organizations. Public Management Review, 20(12), 1815-1835.
https://doi.org/10.1080/14719037.2018.1438498

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Public Management Review

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Download date:22. Mar. 2020

https://doi.org/10.1080/14719037.2018.1438498

https://pure.qub.ac.uk/en/publications/collaborative-costcutting-productive-efficiency-as-an-interdependency-between-public-organizations(03a1307f-4fe1-419b-9f08-0aa27d0855f5).html

Collaborative Cost Cutting: Productive Efficiency as an

Interdependency between Public Organizations

Article accepted January 2018 and forthcoming in Public Management Review

Dr Thomas Elston, University of Oxford

Dr Muiris MacCarthaigh, Queens University Belfast

Prof Dr Koen Verhoest, University of Antwerp

Abstract

Collaboration between public sector organizations is typically understood as a

response to complexity.

Agencies collaborate in order to address complex, cross-

cutting policy needs that cannot be met individually. However, when organizational

size is a constraining factor in public service efficiency, collaboration can also reduce

costs by capturing scale economies unavailable to organizations of sub-optimal size.

Using organization theory, the article conceptualizes these two different triggers for

public sector collaboration, and builds a framework for tracing their wider impact

upon the formation, operation and outcome of inter-agency partnerships. The

framework is illustrated, and its implications for future research explored.

Keywords

Efficiency; organization theory; shared services

Funding

Part of this research was funded by the Leverhulme Trust, Grant No. ECF/2014-069

2

Collaborative Cost Cutting: Productive Efficiency as an

Interdependency between Public Organizations

There is growing interest, among scholars and practitioners alike, in the role that

inter-organizational collaboration can play in reducing the cost of delivering public

services to citizens (Chen & Thurmaier, 2008; Dollery et al., 2012; Bel & Warner,

2015; Raudla & Tavares, 2018; Allers & de Greef, forthcoming). In the case of local

government, the idea of local authorities jointly providing services across separate

jurisdictions is not new, having often been cited as an alternative to council

amalgamations in long-running discussions about efficiency and optimal scale in

municipal service delivery (Ostrom et al., 1961; Ostrom, 1974). Such “inter-local”

arrangements have come of age since the global financial crisis, with examples

including shared residential waste collection (Zafra-Gómez et al., 2013; Bel et al.,

2014), police departments (Zeemering, forthcoming), fire and rescue services (Blåka,

forthcoming), tax collection (Niaounakis & Blank, 2017), and back-office functions

(Elston & Dixon, 2017). Similarly, in national government, recent budgetary

constraints have exposed the negative financial implications of operating central

public services through autonomous departments and agencies. Collaborative

solutions, involving personnel sharing and joint provision of common activities like

public procurement, information technology and professional expertise, are often

being implemented in place of, or alongside, mergers to create larger ministries

(Department of Public Expenditure and Reform, 2011; Cabinet Office, 2012;

Department of Finance, 2015; Office of Management and Budget, 2016).

Although recognizably instances of public sector collaboration, these

efficiency-inspired inter-organizational arrangements do not conform well with the

familiar understanding of “collaborative public management” as a response to policy

3

complexity. Typically, public agencies are thought to collaborate in order to address

complex and cross-cutting policy needs that cannot be met individually (Gray, 1985;

Challis et al., 1988; Peters, 2015). And yet in the aforementioned examples, it is the

search for cost savings, not the demand for joined-up policies, that provokes the

partnership. It remains unclear whether this distinction is subtle and of little

consequence, or whether it carries great practical or theoretical relevance. To date,

most studies of collaborative cost cutting have been quantitative evaluations of

financial performance. While hugely valuable, questions have gone unasked about

how the complexity and efficiency triggers for collaboration relate to one another, and

what significance – if any – these differing antecedents have for the formation,

operation and outcome of partnerships. Transaction cost economics, a popular

framework in large-N evaluations, provides limited guidance on this matter, and nor

is the mainstream collaborative public management literature geared towards

understanding “how collaboration might differ depending on the nature of the issue or

task to be dealt with,” as Bryson et al. (2015, p.650) recently observed. Yet questions

about the distinctiveness of collaborative cost-cutting are important if we are to

understand the current direction of travel in public service delivery, advance

collaboration research, and provide sound policy advice.

Consequently, in this article, we turn to organization theory to conceptualize

the similarities and differences between the complexity and efficiency motivations for

public sector collaboration – and suggest some possible consequences for the

unfolding of partnerships. Overall, our argument is that the two forms are alike in so

far as each addresses an interdependency arising between two or more organizations;

but are dissimilar in the kind of interdependency being addressed. Complexity-driven

collaboration confronts task interdependencies, while the efficiency type focuses on

4

interdependencies of scale. These distinct antecedents may impact significantly upon

key aspects of the collaboration, including partner selection, institutional collective

action, mode of leadership and performance evaluation. In the confines of one article

we cannot enumerate and test all the possible implications, but we do provide prima-

facie grounds for exploring the issue further.

The article is structured as follows. The first section explores the mechanisms

by which inter-organizational collaboration might cut the cost of public service

delivery. The second builds a model of collaboration that connects the complexity

and efficiency types and provides a basis for comparing the impact of alternative

motivations upon partnership formation, structure and outcomes. The third section

illustrates the model with a recent multi-agency “shared service” reform in England.

Finally, the fourth section highlights areas for future research.

Collaboration and Productive Efficiency of Public Services

Efficiency is a favourite concept in public service reform. Andrews and

Entwistle (2013) identify four distinct uses of the term in such debates. Our interest is

in productive efficiency, which describes the ratio of inputs (staff, raw materials) to

outputs (products, services) in an organization. This can be enhanced in several ways,

including by maximizing outputs while holding inputs constant, reducing inputs while

preserving outputs, increasing inputs but increasing outputs proportionally more, or

decreasing inputs while decreasing outputs proportionately less (Pollitt & Bouckaert,

2011, pp.140-143). Productive efficiency is usefully conceived in relative rather than

absolute terms. As Herbert Simon (1997, p.256) wrote, “The efficiency of a

behaviour is the ratio of results obtainable from that behaviour [compared to] the

maximum of results obtainable from the behaviours which are alternative” (emphasis

added). In other words, inefficiency arises when there exists a different method of

5

producing services that would deliver better input-output productivity. This

distinguishes efficiency from “economy,” which refers more simply to an absolute

reduction of inputs (Pollitt & Bouckaert, 2011, pp.135-136).

Among the alternative methods available to public managers looking to

improve public service efficiency are many “internal” strategies that agencies can

implement without resorting to collaboration. However, productive efficiency is

often significantly contingent upon the size of an organization’s output, and it is here

that collaborative solutions may be required.

Economies of scale and scope occur when there are cost advantages to larger

organizational output (Besanko et al., 2003). For economies of scale, average unit

costs decline as output increases, generally because fixed costs are diluted and higher

workloads allow staff specialization. Often, the relationship is non-linear, with

returns to scale gradually slowing (producing an L-shaped curve) or turning negative

(a U-shape) – for example, if disproportionate bureaucratic growth accompanies

increased output. Economies of scope occur when production costs fall as the variety

of goods and services produced using the same methods increases; for instance, if

knowledge developed for one service is relevant to another. To some extent, public

organizations can pursue both scale and scope economies internally, by redesigning

processes or restructuring departments. However, once these efforts are exhausted, an

external “growth pathway” is required (Bovaird, 2014).

Policymakers and researchers often discuss the optimal scale at which to

deliver local public services, and the growth opportunities for achieving that optimum

(Lago-Peñas & Martinez-Vazquez, 2013). In a seminal article, Ostrom et al (1961,

p.853) list factors determining municipal size as: “[ease of] control, efficiency,

political representation and self-determination.” Because productive efficiency is

6

only one consideration, and is “sometimes in conflict” with others, local authorities

often deliver services at suboptimal scale from a cost point of view. Moreover, even

if productive efficiency were made the overriding consideration, public agencies are

frequently multipurpose, performing diverse tasks with varying cost functions

(Oakerson, 1992). Hence, a degree of inefficiency is still likely if one organization

provides multiple services.

These problems are not confined to local government. Questions about

organizational size, degree of specialization, and ease of public service control and

accountability confront central policymakers too (Hood et al., 1985). Re-structuring

the machinery of government to achieve larger or smaller output is a favourite lever

of reform, as the international wave of bureaucratic disaggregation and

decentralization during the “new public management” era (subsequently reversed in

many cases) illustrates (Verhoest et al., 2011).

Whether at the local or national levels, if amalgamating public service

agencies in pursuit of scale and scope economies is not possible or desirable, inter-

agency collaboration in carefully selected activities is a promising alternative for

improving productive efficiency (Thurmaier & Wood, 2004; Dollery, et al., 2012; Bel

& Warner, 2015). As Andrews and Entwistle (2013, p.38) explain: “In theory,

economies of scale can be garnered just as effectively where one or more providers

are required to produce outputs jointly, as when those providers are merged to

increase the overall scale of the operation.” By such collaboration, the hope is to

maintain organizational boundaries that match control or accountability preferences,

while up-scaling output to approach the optimum for the activity in question.

This use of collaboration to realize size-contingent economies otherwise

unavailable to autonomous public agencies is quite distinct to the task-complexity

7

explanation that currently dominates the collaborative public management literature.

Admittedly, in practice, motives for collaboration are often multiple and blurred.

Collaboration may enable increased investment in higher-capability staff or

equipment with which to tackle difficult policy problems, resulting in more effective

organizations owing to more efficient use of resources. Nonetheless, for analytic

purposes, it is useful to distinguish efficiency-driven collaboration from both the

familiar task-complexity type, and from the alternative in-house cost-cutting solutions

available to public managers. To do so, we adapt Agranoff and McGuire’s (2003)

widely-used description of collaborative public management to define a distinct class

of partnership arrangements labelled “collaborative efficiency measures,” thus:

Collaborative efficiency measures are multi-organizational arrangements

designed to achieve levels of productive efficiency that cannot be achieved, or

achieved easily, by single organizations.

Collaboration: The View from Organization Theory

Having distinguished between the complexity and efficiency triggers for public sector

collaboration, we turn now to how they are related, conceptually, and whether the

distinction has significant consequences for how partnerships unfold. Theoretically,

the underlying trigger for all forms of collaboration is interdependence (Gray, 1985;

Alexander, 1995). According to Pfeffer and Salancik (1978, p.40), “Interdependence

exists whenever one actor does not entirely control all of the conditions necessary for

the achievement of an action or for obtaining the outcomes desired from the action.”

Interdependence is implicit in the economic theories of inter-organizational exchange

that increasingly inform research on collaborative public management (Carr &

Hawkins, 2013; Feiock, 2013). But a rich and recently overlooked literature can also

be found in organization theory, with empirical cases drawn from both public and

8

private sectors. This provides a nuanced, multidimensional foundation for analysing

relations between public organizations, and is the basis of our analytic framework. It

posits that interdependencies are not only a cause of collaboration, but also an

(unintended) consequence; that interdependencies occur in multiple aspects of

organizational design, including task and scale; that interdependencies vary in

strength, intricacy, direction and ease of recognition; and that interdependencies can

be managed by a variety of governance mechanisms. Figure 1 summarizes the

framework. The central logic is that when there exists an interdependence between

two or more agencies, in the form of a mutually-desired outcome that is difficult to

achieve autonomously, a collaboration might be formed, controlled by a variety of

governance mechanisms. As this unfolds and the initial interdependency is tackled,

partners begin to experience new interdependencies caused by constraints that joint

working imposes on each individual member. These new connections also require

handling through the governance mechanism, and may reduce the net benefit of

collaboration.

>>>INSERT FIGURE 1 HERE<<<

Ex-ante and Ex-post Interdependence

Organization theory views interdependence as both a cause and a consequence of

collaboration – a distinction we label as “ex-ante” and “ex-post” interdependence. In

terms of antecedents, Oliver (1990) suggests six key reasons for collaboration

between organizations: to comply with mandates from higher authorities

(“necessity”); to manage a critical relationship (“asymmetry”); to pursue “mutually

beneficial goals or interests” (“reciprocity”); to reduce internal costs (“efficiency”); to

increase the predictability of the external environment (“stability”); and to appear

9

acceptable in the eyes of key stakeholders (“legitimacy”). Five of these six reasons

assume a state of interdependence between collaborators. If there is problematic

“asymmetry” or potential for “reciprocity” between organizations, or if “efficiency,”

“stability,” and “legitimacy” all require collaboration, then – logically – these

desirables must be beyond the direct control of management – the crux of Pfeffer and

Salancik’s definition (above). Organizations thus enter into partnerships “to access

capabilities and resources that are essential to pursue their goals but that are at least in

part under the control of other organizations in their environment” (Gulati &

Gargiulo, 1999, p.1443).

This view of interdependence as triggering collaboration is widespread. For

Alexander (1995, p.271), it is the “critical stimulus,” while Gray (1985, p.921)

suggests that inter-organizational relations “make no sense” without “some

fundamental interdependence.” But interdependence also results from collaboration –

“ex post” (see Figure 1). As Aiken and Hage (1968, pp.913-914, 917) argue: “The

greater the number of joint programs [between organizations], the more

organizational decision-making is constrained through obligations, commitments, or

contracts with other organizations” (emphasis added). Because of these constraints,

actors “become netted together in a web of interdependencies.” Such ex-post

interdependencies take several forms. One is a loss of autonomy for each member of

the partnership, particularly in decision-making and work scheduling. This in turn

can increase the bargaining time required to agree collective decisions – something

Hood (1976, p.89) refers to as the problem of “multi-organization sub-optimization.”

Ex-post interdependence also means that organizational performance is subject to the

actions, mistakes and opportunism of others in the partnership. What was previously

self-determined is now contingent on others’ behaviour.

10

The potential for collaboration to induce ex-post interdependence requires

managers to weigh the benefits of resolving ex-ante interdependencies against the

problem of creating new ones. As Chisholm (1989, p.58) explains, “when

mechanisms for coordination [between organizations] are overly complex relative to

the extent and type of [ex-ante] interdependence, the causal flow may be reversed,

with the mechanisms themselves creating higher levels of [ex-post] interdependence,

linking organizations more tightly than before.” In international relations, this is

described as “self-reinforcing interdependence” (Hale et al., 2013). Ultimately, if ex-

post interdependencies become more damaging than the ex-ante interdependencies

that are being resolved, the decision to collaborate may have been incorrect.

Task and Scale Interdependencies

Ex-ante and ex-post interdependence occur in sequence, as indicated on the vertical

axis in Figure 1. But, substantively, there are also different types of interdependence,

found on the horizontal plane. These help to distinguish the complexity- and

efficiency-driven forms of public-sector collaboration.

Task (or “workflow”) interdependence describes how employees, teams,

departments and whole organizations relate to one another in the process of providing

goods and services that ultimately deliver an organization’s goals (Thompson, 1967;

March & Simon, 1993). If one element is missing or underperforms, the effectiveness

of the whole undertaking is jeopardised. Such task interdependence is the prompt for

mainstream, complexity-driven collaboration in the public sector. Specialist agencies,

unable to achieve cross-cutting policy goals individually, must coordinate their efforts

(Peters, 2015). They are interdependent because, without each other’s coordinated

input, the desired policy outcome cannot be achieved satisfactorily.

11

Scale interdependencies, by contrast, concern productive efficiency, rather

than effectiveness. Given the relationship between output and cost, described above,

they arise when different units of organization depend upon one another to generate

sufficient volume of work for efficient utilization of resources (Mintzberg, 1979,

pp.115-124) – for instance, sharing x-ray equipment or laboratory expertise between

different hospital departments. Scale interdependencies thus describe two or more

parties that are mutually reliant on one another’s demand for a particular function so

that efficient levels of output are reached, making the function affordable to all.

It is these ex-ante scale interdependencies, not interdependencies of task, that

trigger efficiency-driven collaboration. As discussed, small public agencies can

suffer from inefficiencies if they are unable to deliver services at the optimum point

on the cost curve. But if there is overlap in the technologies operated in separate

organizations, economies of scale and scope can be realized through joint provision,

which increases output and so reduces that inefficiency. Collaborators depend upon

one another to achieve this up-scaling, which is not possible individually; and yet may

become subject to a series of ex-post constraints in return.

Strength, Intricacy, Direction and Recognition

Besides the temporal distinction between ex-ante and ex-post interdependence, and

the substantive contrast of task and scale interdependence, organization theory

identifies a number of other variables relevant to comparing the formation, operation

and outcome of public sector partnerships. These are summarized as bullet points in

Figure 1. Note their applicability to interdependencies in both the ex-ante and ex-post

positions.

Strength. Firstly, interdependencies vary in strength, measured by the

number of interconnected activities, the number of actors involved, or the opportunity

12

cost of acting autonomously (on the latter, see Baldwin, 1980). Stronger

interdependencies require greater coordination. Thus, Keast et al. (2007) find

different “intensities” of inter-organizational relation corresponding to different

degrees of interdependence between public organizations, ranging from partial

“cooperation,” through more active “coordination,” to intensive “collaboration.”

Intricacy. The intricacy of an interdependence also affects coordination

method. March and Simon (1993, p.180) focus on its predictability. If “contingencies

… cannot be predicted perfectly in advance,” there must be real-time communication

and mutual adjustment between interdependent actors, rather than simpler (and

cheaper) coordination through pre-planned rules and work schedules. Similarly,

Thompson (1967) categorizes interdependencies as “pooled,” “sequential,” or

“reciprocal.” Pooled is simplest, describing autonomous contributions to the

workflow. Sequential demands greater coordination between workers, with a chain of

output-input relations across the organization. Reciprocal interdependence is most

intricate, occurring when there is a two-way, dynamic relationship between units.

This level of intricacy creates high coordination costs.

Direction. A third variable is whether goals are aligned or conflicting

between interdependent actors. As Tjosvold (1986, p.524) explains: “In positive

interdependence … one’s movement toward one’s goals facilitates others’ goals. …

In negative interdependence … one’s goal movement interferes with and makes it less

likely that others will reach their goals.” Public organizations competing for limited

funds are in negative interdependence, since outcomes are mutually contingent but

benefits distributed zero-sum. Conversely, agencies under pressure to achieve a

cross-cutting policy target, for which they are both rewarded, experience positive

interdependence. Defection problems are a specific type of negative interdependence

13

noted in the economic literature, describing one party’s reneging on their agreed

commitments to the detriment of the others (Feiock, 2013). Since defection occurs

after collaboration has begun, it is also an example of ex-post interdependence.

Recognition. Lastly, there is an epistemological question about cognition and

social construction. Often there is a “lack of perfect correspondence between

‘objective’ and ‘perceived’ interdependence” (Deutsch, 1949, p.138), meaning that

organizational actors overlook crucial interdependencies, exaggerate them, or even

invent them. Strength, intricacy and direction of interdependence might also be

interpreted differently by different (groups of) actors (Litwak & Rothman, 1970;

Tjosvold, 1986). Given the aforementioned need to carefully weigh ex-ante and ex-

post interdependencies to ensure a net gain from collaboration, such contestable and

imperfect information is problematic. Indeed, Litwak and Rothman (1970, pp.150-

151) find that, “[often] there is a stress on interdependence where in fact none exists.

… Agency personnel meet with each other and attempt to coordinate their activities

when … there is not sufficient interdependence to warrant it.”

Governing interdependent organizations

How can policymakers coordinate public agencies to deliver valued outcomes that are

subject to interdependencies? It is here that “governance,” in the sense of giving

direction to a social system, provides an answer. Following the classic distinction

between hierarchy, market and networks (Thompson et al., 1991; Bouckaert et al.,

2010), three ideal-type methods of inter-agency governance can be envisaged. These

apply, firstly, to the identification of the ex-ante interdependence and the decision to

collaborate. We refer to these initial processes as “reform governance”. Secondly,

the on-going relations between partners, including decisions about how to manage

14

emerging “ex-post” interdependencies, are termed “operational governance.” These

two stages are labeled in boxes in Figure 1, along with the feedback loop.

Hierarchical governance. In the hierarchical mode, actors interact on the

basis of dominance and authority, achieved through administrative orders, rules and

planning. Collaboration begins when higher authorities recognize potential

interdependencies between subordinate agencies and instigate top-down reforms to

correct them (reform governance). Thereafter, control of the collaboration rests at a

higher administrative level or with a “lead” organization, rather than individual

participants co-deciding how interdependencies are to be addressed (operational

governance). Thus, service specifications, budgeting, resource allocation and the

resolution of grievances (including problems of ex-post and negative

interdependence, indicated in Figure 1 with the feedback loop) are largely removed

from direct control of individual organizations.

Market-based governance. Market governance is based on competition,

bargaining and exchange between actors. The price mechanism, incentives and self-

interest coordinate actors through the “invisible hand.” Thus, reform ideas are “sold”

to governments by management consultants, private sector providers and public

agencies offering paid-for services, who generate efficiencies not only from up-

scaling, but also from competitive pressures and entrepreneurialism. Operationally,

coordination is achieved by different providers “reading” the market and developing

appropriate solutions to sell to informed and mobile “clients.” This mode of

governance relies on detailed contracts and performance-dependent funding.

Network governance. Finally, governance through networks involves

voluntary cooperation between actors. This rests on common knowledge, values and

strategies between partners. Networked reform governance means self-recognition of

15

potential synergies within the group, and voluntary determination of a collaborative

response. Networked operational governance means partner organizations co-

governing the collaboration, designing services and monitoring performance together,

and resolving any ex-post interdependencies through dialogue and compromise.

Collaborative Efficiency Measures in Practice  

Having distinguished the complexity and efficiency motives for collaboration in the

public sector, and constructed a framework for studying collaborative efficiency

arrangements, this section illustrates how that abstract model can be applied to a real-

life situation. The aim is to clarify the framework, summarized in Figure 1, by

demonstrating the concepts in action. Our example is an arrangement for joint

delivery of back-office support services by three independent public agencies in the

English county of Hampshire. These “shared service centres” are increasingly

popular in local, regional and national government in many countries (Paagman et al.,

2015; Elston & MacCarthaigh, 2016).

Background: Creating a Shared Service Centre in Hampshire1

Hampshire is a rural county in the south of England, with 1.32 million

residents. Like the rest of the UK, its public services faced severe spending cuts after

2010, when central government began a major program of retrenchment (Hastings et

al., 2015). In 2011, the leaders of three of the county’s largest public service

agencies, the County Council, the Police, and the Fire and Rescue Service, pledged in

a joint “Statement of Commitment” to work together to tackle some of the funding

shortfall by developing a county-wide shared service centre. The aim was back-office

1 In compiling this illustration, we analysed internal partnership documentation from the period 2011-
2015, including: the Strategic Case, Business Case, nine-month report to Hampshire Council Audit
Committee; six-month and one-year reports to Hampshire Fire Service; and Note to Cabinet
(Oxfordshire County Council). Unless otherwise stated, all quotations in this section are sourced from
these documents.

16

savings of 20 per cent, as well as increased operational resilience for smaller partners,

digitization of manual administrative processes, and significant upgrades to

information technology.

This decision came at a time of general enthusiasm for administrative

efficiencies in the UK, given the need to limit cuts to frontline services. A number of

consultancy reports, management books and government-commissioned analyses had

advocated shared service centres for several years (Gershon, 2004; Accenture, 2005;

Tomkinson, 2007). The Cabinet Office was implementing the model in central

government (Cabinet Office, 2012; National Audit Office, 2016). And, in published

advice to council managers, the Department for Communities and Local Government

(2012) ranked shared services first among fifty ways to make “sensible savings in

local government.” Uptake of this approach was widespread: by 2016, three-quarters

of local authorities in England participated in one or more shared service, although

generally across rather than within council areas (Elston & Dixon, 2017).

In Hampshire, the council, police and fire services had a track record of

collaborating “to meet shared visions, aims and objectives in a cross-cutting and

joined-up manner.” One example is Hampshire County Strategic Group for Crime

and Disorder. The council also sold a number of back-office services to other,

smaller public agencies. The working relationships and collaborative ethos fostered

by these existing partnerships were critical to instigating the new back-office

consolidation project, which was branded “H3.” This would create: (i) a single

administrative processing entity for the three partners, with responsibility for

transactions like payroll and payment of suppliers; (ii) a series of centralized

functional departments to undertake more complex, advisory work; and (iii) a single

17

leadership team, with, for instance, one Head of HR serving the council, police and

fire service simultaneously.

During project design and implementation, the council (as the largest partner)

hosted the H3 team, with secondees from police and fire services. External

consultants were commissioned to provide support. The “three chiefs” – that is, the

council’s Chief Executive, the Chief Constable, and the Chief Fire Officer – retained

a close interest throughout, and the partnership’s legal structure was selected to

“[ensure] co-ownership and control with a genuine partnership ethos.” Upfront

investment and expected annual savings were distributed between partners according

to a pre-agreed ratio (73%, council; 22%, police; 5%, fire). Central-government

funding also assisted with start-up costs.

From the outset, the intention was for other agencies within and beyond the

county boundary to gradually join the three “founding partners,” further increasing

the economies generated. In 2015, Oxfordshire County Council became the first to do

so, contributing additional work volumes and personnel. Oxfordshire used the same

management consultants to oversee the transfer. Other “operational partners” are

currently being sought.

Box 1 summarises main achievements of the H3 collaboration during the

initial nine months of operations.

Box 1. H3 Achievements in Nine Months from April 2014

 Three founding partners fully “on-boarded,” involving the largest change
to council administrative processes and ICT in a decade

 Services sold to 500 schools in Hampshire

 Oxfordshire County Council slated to join as new “operational partner”
in 2015 (bringing 200 additional schools)

 250 staff working in the administrative processing centre, drawn from
three founding partners and working in single location

18

 Over 55,000 individual users supported by the processing centre, which
received 91,000 customer contacts via telephone and online

 94 per cent of council staff registered for online employee “self-service,”
compared with 55 per cent of fire service staff

 434,113 salary payments made through payroll

 107,600 leave requests, 10,700 sickness absences, 59,947 employee
expense claims, and 2,665 recruitment requests processed

 433,583 invoices paid (85 per cent on time) to over 10,000 suppliers

(Source: Project documentation)

Analysing “H3”

Below, we consider Hampshire’s cost-cutting reforms using the analytic framework.

The analysis is structured around the key headings in Figure 1.

1. Ex-ante interdependence. In general, the shared service centre model

assumes that all organizations, whatever their primary purpose, have certain basic

administrative needs in common with one another. The cost curve for these functions

is believed to mean that in-house provision is inefficient. Inter-agency collaboration

should overcome that inefficiency (Elston & MacCarthaigh, 2016).

This general logic certainly reflects thinking in Hampshire at the time H3 was

established. Under significant budgetary pressure, and encouraged by prior joint

working to resolve task interdependencies in policy areas like crime prevention, the

partners undertook high-level analysis in 2011 that revealed numerous “organizational

fits” between them, including “back office functions [that] provide a similar type and

level of support.” This duplication presented a “basket of opportunity” for

rationalization. Collaborative provision would bring “an increase in economies of

scale, a greater critical mass” in administrative functions, and enable “attraction and

retention of core capacity, skills and resources.” The “three chiefs” considered these

size-contingent benefits to be unavailable to each organization individually. As they

wrote in the Business Case: “What we can achieve collectively will be far greater than

19

what we can achieve on our own.” Thus, H3 was motivated by positive scale

interdependencies between partners. Significantly, nothing had occurred

organizationally to create these ex-ante interdependencies in 2011. In fact,

administrative duplication is simply a corollary of decentralized arrangements for

public service delivery – in Hampshire as elsewhere. Yet the national salience of the

shared services model at this time made for an environment in which potential scale

interdependencies were brought to the fore and easily recognized by officials.

One method of gauging the strength of ex-ante interdependence between

council, fire and police is to consider the opportunity costs of not collaborating to

resolve the interdependency (Baldwin, 1980). H3 emerged at a time when significant

cost-saving programmes were already underway internally in the founding partners.

The H3 Business Case took those savings as given, and then estimated the further

efficiencies – approximately 20 per cent – “that could not be achieved without

working jointly.” These benefits of up-scaling would be an opportunity cost if

partners chose to continuing acting autonomously. Similarly, for Oxfordshire County

Council, joining H3 in 2015 allowed it to vacate a building leased for administrative

operations, cancel a software license for its enterprise resource management platform,

and make a series of staff redundancies and redeployments. Again, these savings

were not thought possible without collaboration. Nonetheless, for all collaborators,

initial assessment of interdependence was subject to bounded rationality and

subsequent revision. In particular, their precise level of administrative similarity was

unknown at the outset, as was the ability of these complex, multi-department and

multi-site organizations to move into greater alignment. These uncertainties led to an

evolving perception of the strength and intricacy of ex-ante interdependence as the

reform progressed, as described below.

20

2. Reform governance. Once the potential for joint back-office

administration between police, fire and county council was established in broad terms,

the decision to proceed was taken locally by the governing bodies of the

organizations, advised by the three chiefs. There was no top-down instruction from

central government. The project thus developed with a network style of reform

governance, involving “joint direction, governance and control of resources.” Yet,

from the beginning, the intention was for H3 to provide both “shared and sold

corporate services,” attracting new customers to enlarge the economies of scale and

scope. For instance, if H3 could sell to another police or fire organization, this would

expand the enterprise considerably, capitalizing on investments already made in

understanding the administrative needs of these particular services. To do so, H3

needed to position itself “alongside the best performing and lowest cost operations in

the private sector.” This was a key motivation for appointing external consultants. It

also suggests that, over time, reform governance will shift towards a market-like

approach, with managers actively approaching new customers, highlighting areas in

which scale interdependencies can be exploited, and competing on cost and quality

with external public and private providers. This style of shared service centre is

already underway in other contexts, including US federal government (see Partnership

for Public Service & Deloitte, 2015).

3. Ex-post interdependence. According to the analytic framework,

partnership formation brings the possibility of new, “ex-post” interdependencies

between members. These are constraints placed on organizations as a result of the

collaboration, including reduced autonomy, increased bargaining time for group

decisions, and vulnerability to the actions, mistakes and opportunism of other parties.

21

The overall effect may be self-reinforcing, where ever-greater pursuit of ex-ante

interdependencies leads to ever-greater ex-post connectivity.

Beginning with loss of autonomy, from the outset it was recognized that

significant, co-ordinated change would be required to bring the H3 organizations into

alignment administratively – although the three chiefs stressed that their agencies

would retain distinct public-facing identities. The challenges of standardization

became more apparent as the project developed. Administrative activities previously

performed at suboptimal scale but under direct control of managers in each

organization would now be undertaken at more efficient scale but at arm’s-length and

in standardized fashion. This would make task completion for day-to-day activities

(ostensibly) cheaper but multi-step and multi-party, involving any combination of:

users, the administrative processing centre, centralized functional teams, and/or H3

project managers. Thus, while H3 was motivated by scale interdependencies in the

beginning, the effect was to produce new task or “workflow” interdependencies

between separate teams, departments and organizations.

The significance of these ex-post task interdependencies varied, as the

schedule for implementing H3 reveals. Heavily professionalized services, like

strategic finance and occupational health, were transitioned early into H3. Little

effort was required to arrive at a single service suitable to all partners; and, once

consolidated, each organization could use the new service with relative ease.

Conversely, creation of the single administrative processing center involved “a more

complex reconfiguration of ICT infrastructure,” as well as considerable process

mapping and standardization between partners. This was more complicated to

arrange, and the coordination burden was significantly higher. Thus, it seems that the

intricacy of the connections being formed ex-post – their straightforwardness and

22

predictability – influenced the scheduling of the reform, with those activities requiring

greatest coordination taking longest to align.

As for increased decision and bargaining time, aligning administrative

processes across organizations required extensive deliberation and information

exchange. Consequently, as described below under operational governance, multiple

consultative and decision forums were established which, prior to the collaboration,

were unnecessary. Agencies also recognized their new vulnerability to each other’s

actions during this process. Each founding partner had a track record of “consistently

strong performance,” reflected in national league tables, which reassured the others

about the intent and ability to make the collaboration a success. Nonetheless, the

legal vehicle chosen for the partnership contained “binding and enforceable

contractual arrangements,” allowing for means of redress if necessary. Moreover, as

a latecomer to, and subordinate member of, H3, Oxfordshire foresaw risks in joining a

partnership that operated on a “cost share basis” without enjoying equal say in its

strategic direction. Contractual assurances were sought.

4. Operational governance and feedback. Finally within the analytic

framework, “operational governance” refers to on-going management of the

collaboration, including dealing with negative and ex-post interdependence between

partners (labelled with a feedback loop in Figure 1).

The network style of H3’s initial reform governance continued into the

implementation phase, albeit with greater formalization. A Programme Delivery

Board was formed, chaired by the Council Treasurer but comprising representatives

from each partner and reporting to the three chiefs. Beneath this, separate

workstreams focused on specific functional areas, like HR. Similarly, to manage

Oxfordshire’s transfer in 2015, there was “On-Boarding Project Board,” a project

23

team, and eleven separate workstreams. As an operational partner, Oxfordshire

joined H3’s “operational forum,” but also used financial and non-financial metrics for

performance management, again indicating a more market-like governance regime.

To manage ex-post interdependencies emerging from the consolidations, the

team combined elements of networked governance with the hierarchical authority

granted by H3’s senior backing. On the former, following one partner resisting an

aspect of process automation, a workshop was scheduled for an “honest

reassessment” of progress made and the damage being caused to the overall business

case realization. The need for this review demonstrates the strength of the ex-post

interdependence: everyone’s finances were adversely affected by one partner’s

actions. Conversely, when an investigation into repeated late payment of invoices by

the administrative processing centre actually blamed “a combination of poor user and

supplier practice, who are not following agreed processes,” the response was to

“reiterate the correct procedures” to offending parties.

Both the automation and invoicing cases illustrate how ex-post connections

can be negative in direction, even when the motivating ex-ante interdependence is

positive. All partners want maximum up-scaling of administrative output to achieve

the greatest efficiency possible; and yet, given the disruption involved in changing

working methods and processes, each would prefer the others to adapt to their current

way of working.

On rare occasions where the combination of networked and hierarchical

governance failed to overcome the hurdles of inter-agency standardization and ex-

post interdependence, there was reluctant adjustment of reform ambitions. After nine

months of trying to alter processes in hundreds of schools in Hampshire, a new,

“least-change” option was discussed, involving less automation and “in essence

24

return[ing] … to the previous operating model.” This was acknowledged as reducing

the benefits of collaboration, but was necessitated by implementation difficulties.

Similarly, as Oxfordshire worked through the process of joining H3, it reduced the

scope of the services to be transferred as it became apparent that overlap between

parties was less than initially thought, and/or the cost of alignment too great.

These modifications return us to the earlier point about the evolving

recognition of interdependence during H3’s implementation. Economies of scale

arise from delivering the same services in greater volume – not simply from

performing dissimilar activities in one location. Consequently, the strength of ex-

ante interdependence motivating the back-office partnership is, in practice,

conditioned by the degree of administrative alignment between partners and their

willingness and/or ability to implement coordinated change. Both of these factors

were uncertain at the outset.

Reflections on the illustration

We conclude this illustration with several observations.

First is that the orthodox explanation of public sector collaboration as a

“rational response to the complex, untidy sprawl of social problems [that public

organizations face]” (Challis, et al., 1988, p.2) is clearly inadequate to provide an

account of H3. It was not the need for joined-up public policies that motivated the

partnership, but the belief that suboptimal organizational size led to inefficient

administrative functions. As such, Hampshire’s reforms epitomize our definition of

“collaborative efficiency measures.” Individual cost-cutting programmes were

already underway in the three separate agencies, and yet it was the search for higher-

order savings, beyond what could be achieved individually, that triggered the project.

Improved productive efficiency was the motivating interdependency.

25

Secondly, whereas most existing evaluations of collaborative cost cutting

focus on major frontline public services delivered by decentralized local governments

(Zafra-Gómez, et al., 2013; Bel, et al., 2014; Blåka, forthcoming), H3 demonstrates

the logic’s applicability to non-frontline services. Indeed, the assumption that

organizations, no matter their primary function, have certain basic administrative

needs in common expands the range of possible inter-agency partnerships

considerably, including to the national level which has hitherto been overlooked in

studies of collaborative cost-cutting. In the same vein, procurement cooperatives

involve two or more agencies, at the central or local level, jointly buying goods and

services from the market in order to achieve bulk-buy discounts and lower transaction

costs compared with autonomous purchasing (Walker et al., 2013). The model

developed in this paper helps explain such practices, regardless of their level of

implementation.

Discussion

We return now to the question posed in the introduction. Does the complexity-

efficiency distinction in collaborative motivation have significant consequences for

how public sector collaborations unfold? New empirical research is required to fully

address this issue, but our framework provides a platform upon which to build.

In terms of partnership formation and sustainability, the distinction

between task and scale interdependence has at least three implications. Firstly, while

a degree of choice accompanies partner selection for most collaborations (Silva,

2017), greater latitude is possible when resolving scale interdependencies.

Collaborators are drawn together not by prescribed externalities in a specific policy

field or locale, but because of overlapping organizational technology. Many options

were open to H3 collaborators looking to up-scale their generic administrative

26

functions. The police and fire services could have approached their counterparts in

neighbouring counties, while Hampshire and Oxfordshire County Councils could

have joined with lower-tier councils in their respective areas. Proximity, reputation

and prior networks were prioritized when forming H3, even though both alternative

scenarios would probably have required less process realignment. Other examples of

shared service centres, however, indicate that more “exotic” partnerships are possible.

And even for joint provision of frontline public services, partner selection could be

more flexible than for traditional complexity-driven collaboration, subject to the

limited mobility of physical assets. Whether that potential is fulfilled, or whether

other considerations such as partner familiarity, cultural similarity and trustworthiness

have a greater impact, remains an empirical question.

Secondly, there is the institutional collective action problem, which describes

why actors often fail to collaborate when doing so would achieve a common objective

(Feiock, 2013). Perceived costs and benefits matter in this context, and could operate

dissimilarly for complexity- and efficiency-driven, although the consequences of this

are not yet clear. Task interdependencies can be positive or negative in direction,

either building on synergies or managing negative externalities (Huxham &

MacDonald, 1992); whereas scale interdependencies appear to be inherently positive,

concerned with mutually-beneficial up-scaling. So the incentive to collaborate is

somewhat different for the complexity and efficiency types, although not obviously

stronger or weaker. Additionally, if significant task interdependencies result from

addressing scale interdependence (as with H3), and if these task connections are more

obvious and easily recognized, this downside to efficiency-driven collaboration may

figure more prominently in decision-making, leading to reluctance to collaborate.

27

This might explain the pessimistic attitudes and actor resistance towards collaborative

efficiency measures often reported in the literature (Boon & Verhoest, 2017).

Thirdly, in terms of partnership sustainability, the impact of partner

disengagement will manifest differently for task- and scale-inspired collaborations,

which might affect “exit” decisions. With the former, failure to collaborate will

reduce the quality of policymaking and public services where a multiagency “joined-

up” approach is required, deteriorating the citizen experience. With the latter,

disengagement will leave a hole in the agency budget if services cost more when

delivered autonomously. This will place additional demand on organizational

revenues, which may or may not be perceived by external stakeholders.

Turning to partnership operations, two areas for research emerge.

Regarding practical management challenges, it seems unlikely that there are intrinsic

operational differences between complexity and efficiency collaborations. Although

driven by scale interdependencies, the H3 project required significant alterations to

internal processes in member organizations. Many ex-post task interdependencies

emerged and needed managing – which, of course, is the raison d’être of complexity-

driven collaboration. So collaborative management may be similar no matter what

the triggering interdependency. Nonetheless, in terms of the “integrative leadership”

required to inspire separate actors to coordinate and compromise (Crosby & Bryson,

2010), there could be distinct challenges. Principally, task interdependencies often

involve a compelling social mandate focused on resolving pressing “wicked issues” at

the frontline. Efficiency gains may seem mundane or low priority by comparison,

leading to reduced interest and prioritization among staff.

Finally, regarding partnership outcomes, there may be differences in goal

specificity, goal congruence and performance measurability when resolving task and

28

scale interdependencies, with a number of important consequences. Demonstration of

good performance improves collaborative legitimacy and encourages participation,

whereas a negative evaluation risks dissention and defection. Difficulty in measuring

performance also increases transaction costs and thus lowers the propensity to

collaborate. On the one hand, mainstream task-complexity collaboration often suffers

from “multiple and competing stakeholder perceptions of how to define results and

outcomes,” making evaluation difficult (Bryson et al.2015, p. 357). By contrast, if

cost-reduction is the primary aim of efficiency-driven collaboration, goal specificity,

goal congruence and performance evaluation might all be improved, reaping the

advantages to legitimacy, participation and transaction costs described above. On the

other hand, partners may still disagree about how to divide investments and savings;

and, if the goal is efficiency, not simply economy, then service quality should still be

measured, which could be conceived differently by different parties. Again, empirical

work is needed to explore these issues.

Conclusions

Productive efficiency is an important but under-researched motive for collaboration in

the public sector. Despite growing interest from policymakers and academics in what

we have termed “collaborative efficiency measures,” there is uncertainty about how

this type of collaboration compares to the more familiar task-complexity form, and

whether this distinction results in significant differences in partnership formation,

operation and outcomes. Consequently, this article has used a multi-dimensional

conceptualization of interdependence, derived from organization theory, to relate the

complexity and efficiency forms of collaboration and develop a framework for future

research. This perspective indicates that interdependencies are both a cause and a

consequence of inter-organizational collaboration, that variation in their strength,

29

intricacy, direction and recognition condition how the partnership unfolds, and that

different governance arrangements are used to handle these interdependencies. We

illustrated these concepts and some of their interconnections with a recent example

from England, and then considered some of the most promising research questions

which might in future draw on the analytic framework to compare complexity- and

efficiency-driven collaboration.

Organization theory provides a nuanced and multidimensional framework for

analysing inter-organizational relations in the public sector, beyond what is currently

available in both economics and public management. Although there is some overlap

with existing theories, for instance in terms of defection, opportunism and negative

interdependence, use of these alone would provide only partial view of the unfolding

of our H3 example – and, crucially, would not distinguish between and relate the

complexity and efficiency motives for the collaboration. Nonetheless, the framework

is not without its limitations. One is the difficulty of operationalizing some concepts,

such as strength and intricacy, in large-N research. Yet quantitative organization

studies demonstrate that this is achievable, and provides some fruitful lessons (see

Price, 1972). Another is that the model is primarily functionalist, explaining

decisions in rational and instrumental terms, and ignoring the politics of collaboration.

We partly address this by including the “recognition” variable, which allows for

social construction and imperfect information about interdependencies. We also

borrow several rational-choice concepts to accommodate self-interest and bargaining.

Future research could go further in this direction. Transaction cost economics

theorizes the “friction” arising in exchange relationships due to individual interests

and bounded rationality (Carr & Hawkins, 2013; Feiock, 2013), and would provide a

30

fruitful complement. Sociological approaches to group interaction and compromise

would also be informative (Banoun et al., 2016).

Empirically, of course, many other possibilities for fruitful development of the

literature on collaborative cost cutting. Given the prevalence of decentralized forms

of public service delivery around the world, and the challenging fiscal environment, it

seems unlikely that collaborative efficiency measures will disappear from the reform

agenda anytime soon – whether in central or local government. Priority questions

include: how do internal and collaborative approaches to cost cutting compare in

terms of results? Can they complement one another, or are there trade-offs – for

instance, if internal reforms require de-regulation and managerial discretion while

collaboration brings standardization and loss of autonomy? To what extent do ex-

post interdependencies dampen the achievements of collaborative cost-cutting

reforms? How can this be measured empirically, and how might public managers

make decisions to ensure a net benefit to collaboration? Finally, what is the non-

financial impact of reform – say, on political and bureaucratic accountability or

responsiveness to citizen preferences? These are all important questions in need of

attention. They can be better tackled once ambiguity about the status of efficiency-

driven collaboration vis-à-vis the familiar complexity type is reduced.

31

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Figure 1. Conceptual framework