Finetuning shared services

In today’s world of public sector administration, shared services represents an increasingly popular approach for improving the delivery of corporate administrative services such as human resources, finance, procurement and information technology. Touted for years as a way to save money and to improve internal service delivery in the private sector, it has attracted public sector organizations around the world – very much including Canadian provinces and the federal government.

There are several definitions of shared services. Accenture describes it as “the consolidation of administrative or support functions from several departments or agencies into a single stand-alone organizational entity whose only mission is to provide services as efficiently and effectively as possible.” The Information Technology Association of Canada (ITAC) adds to this definition the notion of creating a supply and demand relationship between the organization and the client, noting that a “shared service unit is a stand-alone, dedicated operation that contracts services out to the organization’s business units via service level agreements on a fee-for-service basis” [italics added].

Whatever the exact definition, as a concept shared services can be summed up as a business strategy aimed at improving the efficiency and cost of administrative service delivery. Shared services is based on enterprise-wide thinking regarding the management and delivery of administrative services, elevating the importance of these tasks to a professional level in order to ensure that customer needs shape priorities, that services are tailored to meet their needs, that performance is measured against targets, and that business units are charged based on their actual use of services.

Typically, the implementation of a shared services initiative consolidates services into a stand-alone organization whose only job is to provide administrative services efficiently and effectively. There is a transformation in the way services are delivered, including the standardization of processes in order to improve efficiencies. There is a strong client-focused culture that includes the creation of Service Level Agreements between the client and the shared services office; these agreements outline the responsibilities of both parties, the services to be delivered and key performance indicators.

Public sector shared services organizations seem to have had a harder time making a success of shared services than those in the private sector. The reasons are unclear, although a lack of both up-front investment and commitments to long-term change have been cited. As well, the creation of a demand rather than a supply driven service culture, in which services are purchased based on agreed prices, volumes and standards, can be difficult to implement at both the service provider and client levels. Strong leadership is required; the Queensland state government in Australia, for example, has reported that the reasons for its success in implementing shared services include the forced mandating of shared services across the government, the creation of standardized processes and a government-wide performance and service management approach.

As noted, it is a challenge to create a client-centric or customer service approach to doing business. A difficult shift, for both clients and the new organization, is the change in relationship from colleague to customer. Experience suggests that the service vision of the new organization should be at the core of its change management approach so that the transformation of the organization is linked to a clearly defined and focused view of what the newly defined service culture really means to both clients and service providers. This means that although the challenges of change management will apply as the organization moves through the transformation phase, the creation of a shared understanding around what the outcome or “service vision” will mean to clients and to employees may mitigate them somewhat.

Shared services is designed to “elevate” the delivery of administrative services. Thus, when creating a public sector shared services organization, a distinction is required between those who perform a policy (strategic) function and those who do the transactional (shared services delivery) work. It is virtually impossible to save money through process efficiencies on policy preparation, one argument goes, so therefore it should not be put into shared services.

One challenge for public sector organizations implementing shared services lies in ensuring compliance. One could argue that traditional administrative service delivery in government can be slow because those performing the function have two goals: providing service and ensuring compliance with the multiple rules and regulations related to the task. Questions need to be resolved regarding who needs to be controlled and who should be doing the controlling. What becomes clear is that client service in the public sector does not mean that the customer is always right; joint stewardship of the public interest plays a role.

In the first year of operation, shared services organizations may face organizational change, changing culture, implementing technology and putting in place service standards – often without adequate investments and high expectations from clients for immediate improvement. As well, in order to improve service there is a need to calculate costs, assess processes and determine who is doing what. All this can be a time and resource consuming process that can overwhelm managers who are struggling to build the new organization and maintain service. Strong leadership and an agreed strategic plan that outlines clearly defined and affordable operational priorities are needed to deal with impatient senior management/clients. A strong case can be made for re-engineering in order to standardize processes before creating the new organization.

Shared services differs from centralization of services because it results in a demand-driven model in which the organization charges clients an agreed price based on a calculated cost for each service. This approach was cited by Barbara Quinn and Robert Cooke, who wrote Shared Services: Mining for Corporate Gold in 1999. Interestingly, at a conference held in Ottawa in 2005, it was suggested that chargebacks have not in fact succeeded in encouraging shared services management to think about the value for money they are spending on services and that they have become “bureaucratic nightmares,” the focus of “client rage.”

The challenge in the public sector is to distinguish between the calculation of the precise cost of the service and the billing processes put in place. Typically, in a government organization, accurate costs are not reflected in price. In a shared services model, there is no reason to prevent billing that is administered through an allotment process, for example; however, there is also no reason why it could not be based on a precise calculation of cost. Put differently, it may be that the bigger challenge for a shared services office is not in charging for services based on an accurate cost, but in instituting reasonable methods for collecting the real expenditures of clients.

Governance of the shared service organization can send a signal regarding the role that clients will play in shaping the direction of the organization. A board of directors made up of senior representatives of client organizations, at the Deputy Minister or Assistant Deputy Minister level for example, can be set up to provide broad oversight and direction on issues such as service offerings and investments. Other methods of accountability include client forums at the user level and Service Level Agreements.

Service Level Agreements (SLA) outline the responsibilities of both clients and the shared services office. Signed by both parties, they indicate what quantity of what service will be provided under what service standards and at what cost. Best practice is clear that SLAs should be tools for dialogue and improved management, not instruments of audit: The temptation is to turn them into complicated and time consuming documents that become ends in themselves. A master agreement briefly outlining broad principles, followed by appendices outlining services and standards as well as any client specific issues, is a reasonable approach that encourages simplicity, flexibility and shared ownership.

A performance and reporting framework is key. Senior managers will have signed on to shared services because of its promise of improved service at lower cost,and will expect to see indications of progress. As well, they will want to know that the service standards outlined in the Service Level Agreement are being met. It will be necessary to design performance measurement strategies, client relationship management approaches, reporting procedures and technology in an integrated framework that both informs clients and assists managers in making decisions regarding service improvement. Such a framework will let the organization identify opportunities for improvement and focus on meeting customer service expectations.

So why would public sector governments consider implementing shared services? The need to save money through the consolidation of dispersed resources and the desire by departmental clients to improve efficiencies in corporate administrative services often convince management to take this step. Similarly, the promise of a client-focused culture may convince management that administrative priorities will get dealt with, based on promised standards, more efficiently and more cheaply, while they focus on their core programs.

Toby Fyfe (tofyfe@NRCan.gc.ca) is senior director of planning and business development with the Shared Services Office at Natural Resources Canada.