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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.
Public Management Review
Peer reviewed version
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Download date:22. Mar. 2020
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
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.
Efficiency; organization theory; shared services
Part of this research was funded by the Leverhulme Trust, Grant No. ECF/2014-069
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
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
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
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
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
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
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
>>>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
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.
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.
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
Strength. Firstly, interdependencies vary in strength, measured by the
number of interconnected activities, the number of actors involved, or the opportunity
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
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
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
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
savings of 20 per cent, as well as increased operational resilience for smaller partners,
digitization of manual administrative processes, and significant upgrades to
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
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
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)
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
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.
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.
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
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
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
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.
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
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
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.
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
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.
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,
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
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
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.
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Figure 1. Conceptual framework