Early adopters of shared services are reporting some significant benefits — but can they keep building the momentum for change?
Introducing dramatic structural change in government is never easy, and the failure of whole-of-government outsourcing has left many in government reluctant to commit to wholesale change. However, positive returns reported from the country’s first statewide shared ICT services initiatives suggest that the paradigm could actually deliver on expectations.
Frances Howat, general manager of strategic direction, governance and corporate service reform within the New South Wales Department of Commerce, knows how good shared services can be. Previously housed in the NSW Office of the Coordinator General of Rail, Howat moved into the Department of Commerce in 2003. There, she has watched — and is now guiding — shared services’ emergence as a major driver for change within the NSW government.
In that state, shared services kicked off in 1996 with the formation of the CCSU (Central Corporate Services Unit), which met expectations by delivering A$2 million (US$1.5 million) in savings in its first two years. In the years since, Howat says the promulgation of the shared services mentality amongst government agencies has delivered significant benefits from both ICT and non-ICT related initiatives. At a May forum for 130 NSW public-sector shared services practitioners, data from 69 agencies confirmed that corporate services costs had been cut by A$53 million during the 2003-2004 fiscal year, representing a 12 percent decrease over the previous year.
Much of those savings has come from identifying and encouraging functional synchronicity amongst departments. The NSW Legal Aid Commission, for example, is now sharing a call center with the NSW Department of Community Services. And during, a recent upgrade, Howat’s team helped the state Departments of Juvenile Justice, Corrective Services Commission and Powerhouse Museum all standardize on an identical configuration of Mincom’s Ellipse ERP system.
“Our focus is assisting agencies to make sure whatever they’re doing is consolidating with their business drivers to streamline delivery,” says Howat. “We’re looking to see whether there are opportunities to revisit purchasing of corporate services applications, with a view to developing more government standard systems – where there are enhancements or modifications made that are consistent across the public sector. We’re moving more towards a life cycle procurement strategy rather than just an acquisition strategy.”
Catching Shared Services Fever
As a potential source of considerable cost savings, the shared services idea has gained momentum in governments around the world. A recent Accenture survey of 140 senior government executives in 13 countries found that 85 percent believed shared services would play a role in supporting their organizations’ strategic goals. Fully 66 percent of respondents had already, partially or in full, implemented shared services arrangements — and only 6 percent of respondents said they would not even consider the model.
Clearly, early runs on the board have convinced government strategists around the world that shared services are the next key wave of government business process re-engineering (BPR). Within Australia, the success of the shared services model in NSW paved the way for reviews of possible shared services arrangements in other states, with Western Australia’s Functional Review Task Force and Queensland’s ASAP Reviews focused on exploring potential ways to adopt shared services.
The ASAP Reviews led to the implementation of Queensland’s Shared Services Initiative (SSI) which, on 1 July 2003, saw the creation of six shared service providers (SSPs) and CorpTech, a Center of Excellence clustering ICT support skills. The SSPs, managed by an SSI Office set up underneath the Queensland Treasury, now employ nearly 5000 people and service 26 Queensland government departments. SSPs include PartnerOne, Corporate Solutions Queensland, CorporateLink, Queensland Health, Education and the Arts, and Parliamentary Services.
SSI’s first annual report, lodged last July, lauded significant benefits already returned from the initiative, including a claimed A$8m in savings realized ahead of forecast – putting the SSPs and CorpTech in the black after just a year of operation.
As the initiative continues to mature, initiatives are being framed within four key areas: benefits, customers, improvement and capability. With these targets in mind, SSI activities undertaken during 2004-2005 include development of a regional shared services strategy (including pilots); development of whole-of-government service delivery solutions with the assistance of the Department of Public Works; improvement of customer feedback and performance reporting mechanisms; and roll out of common HR, finance and records management systems.
Next off the bat is Western Australia, which completed its FRT in 2003 and found similar problems of redundancy and disunity to those found in Queensland and NSW. In WA, for example, the state’s 49 largest agencies were using 21 different finance systems, and 12 different payroll systems, between them.
“Many smaller agencies were also found to be operating below a scale which supports cost efficient processing or the retention of specialized people in high-value support roles,” FRIT reports. “There was significant duplication of overheads, including supervisory positions, ICT infrastructure and systems maintenance.”
Resolution of this inefficiency was the key purpose of the establishment of the Functional Review
Implementation Team (FRIT). FRIT has now moved to new premises and become a state government agency, with shared services to be delivered through three Shared Services Clusters (SSCs).
The first, the Health SSC, is slated to go live in the middle of this year, while the Education & Training SSC is scheduled to come online in the third quarter.
The final WA SSC, a “general agency” SSC intended for all other government departments, will enter the pilot phase in January 2006, with all agencies shifted to the SSCs between April 2006 and approximately October 2007.
While WA, Queensland and NSW have pursued shared services with vigor, the other states have been quietly watching and waiting. South Australia, for one, has its proverbial hands full focusing on plans to restore competition in government service provision after deciding to end its landmark agreement with EDS.
For its part, Victoria entered shared services in 1996 after Accenture was awarded a contract to consolidate human resources operations between the Departments of Premier and Cabinet, and Treasury and Finance; last year, the contract was renewed and the Department for Victoria Communities added to its scope. Other initiatives within Victoria – such as its Project Rosetta integration project and the Telecommunications Purchasing and Management Strategy – have been stand-alone initiatives with specific goals. However, the shared approach has yet to be transferred into functional domains such as ICT, something that will no doubt be high on the agenda of recently installed state CIO Jane Treadwell.
The push towards improving functional efficiency through shared ICT services reflects many states’ efforts to centralize ICT strategy through the creation of state CIO offices. Here, NSW and Victoria have led the way, with South Australia already well down the track towards selecting its own chief ICT strategist.
Paul Edgecumbe, the NSW CIO appointed earlier this year, sees capitalizing upon the state’s success with shared services as a major part of his role. However, such efforts could well be hindered by a major difference in NSW shared services policy as compared with that in WA and Queensland, where shared services adoption has been mandated.
In NSW, however, no such mandate exists; Edgecumbe sees his role more as one which will involve holding out carrots than brandishing a whip, with his planned CIO Executive Council uniting around two dozen CIOs from NSW state agencies to collectively determine ICT strategy.
Whether such a body can be truly democratic, or simply highlight the relative clout of large agencies such as the Departments of Health and Education, remains to be seen. “They seem to be going back to the concept of larger departments,” observes Steve Amesbury, project management consultant with Island Consulting and former CIO of NSW shared services unit BusinessLink.
“I think the political side and potential perceived loss of independence frightens people off. It’s about change management and fiefdoms, to a certain degree. If heads of government have the guts, they can make it work, and get the savings and benefits they want.”
Queensland’s experience shows how fundamentally difficult it can be to force a shared services culture into a large and distributed government There, a staff survey after the first year of SSI found that nearly 30 percent of SSP and CorpTech employees didn’t support the change that shared services had introduced. Although it’s obviously hoped that ongoing maturity will win over critics, the SSI has also attempted to encourage sharing and collaboration between agencies through the creation of collaborative Cluster Partnering Forums.
Edgecumbe believes the collaborative approach will foster buy-in from NSW departmental CIOs through open discussions, but acknowledges that vested interests may make the process rocky at first.
“It can be a problem simply because different agencies have different systems,” he concedes. “But I think some CIOs would like things to be mandated, and [that will effectively happen] as a council if they feel that it needs to be done. What I need is to have an infrastructure that doesn’t prohibit agencies from implementing shared services.”
Accenture’s survey on shared services found a major concern of respondents was the lack of managerial skills necessary to tackle a transformational change program, or the lack of a top-level commitment to change. Appointment of a well-supported state CIO certainly addresses the latter issue, but resolution of the former requires that shared services programs be wrapped in a comprehensive education and training program. SSI, for one, spent more than A$2m on training during 2003-2004, including the training of over 300 staff in business process re-engineering (BPR) skills.
Although shared services promises considerable benefits, the nature of its implementation – and attention to ancillary issues such as skills development and change management – will determine just how far the model can be taken in Australia. Richard Harris, Asia-Pacific vice president and government research director with Gartner, believes the appointment of state CIOs will be a major benefit for those states with shared services ambitions.
“The reality of the fact is that these are large, complex and politically charged initiatives,” Harris says. “These sorts of things tend to run into difficulty; if they’re not seen to be in the individual interests of the agencies, it becomes very hard to keep up the momentum for the relatively long time frame that’s needed. An effective CIO role in government is one of the critical issues to help marshal it through [despite differences of opinion]. And it’s not about having a bigger stick than someone else; it’s about being able to work cooperatively with the CEO or director-general of various agencies to be able to move these things forward on a mutually beneficial basis.”
Too Little, Too Late?
One of the most interesting things about the shared services initiatives to date is how the way their structure and achievements differ from original visions of shared services. Specifically, early discussions on the topic invariably pointed out the importance of shared procurement and ways in which it might be implemented in a post-Humphry world. However, WA’s FRIT strategy doesn’t even include centralized procurement services, instead focusing on HR and finance services – the low-hanging fruit of the shared services world.
ICT procurement, which is worth A$1 billion annually in NSW alone, would seem to be a natural target for shared services initiatives, so its absence is glaring. Rather than pushing specific procurement policies, however, the preferred approach seems to be the kinder, gentler one in which departments are encouraged but left to their own to improve procurement on an incidental and largely ad hoc basis.
Queensland’s CorpTech, for example, negotiated with CITEC for improved service and disaster recovery capability that are expected to save A$4.5 million annually, with capital savings of A$11.2 million. And that state’s Department of Public Works is promising A$12 million in savings from whole-of-government procurement of services such as fleet, document and records management, and telecommunications.
In NSW, Edgecumbe’s very job role has been positioned within a procurement context: he reports to the deputy -director-general of the Office of Government Procurement. This location can’t help but color the perspective that the CIO brings to the table, virtually guaranteeing that procurement optimization stays fundamental to organizational transformation under Edgecumbe’s guard.
Procurement’s evolution away from the explicit scope of shared services begs the asking of an obvious question: how much of shared services’ benefits will come from the actual shared infrastructure, and how much will eventuate as broad discussions about shared services foster out-of-scope improvements that might have happened anyway? By extension, how much of shared services is actually innovative, and how much is simply previously-ignored common sense?
Much of the state’s success has come from simply getting departments to take the time to use the technology they’ve installed as it was meant to be used, according to NSW Department of Commerce’s Howat. “There has been significant investment in ERP systems but the focus then shifted onto something else, and there hasn’t been a focus on optimizing business processes,” she says.
“People haven’t done the proper change management, and [these systems] were just not used to their maximum potential. We see shared service as being just one tool in corporate reform, and we’re finding more and more that by working within the systems we currently have available, there are significant opportunities for savings without bigger investment.”
Howat’s comments suggest that today’s shared services are, in truth, little more than a long-overdue BPR exercise in which departments are weeding out inefficiencies that shouldn’t have been there in the first place. In this light, shared services shine not as drivers of technological consolidation, but as a way of encouraging identification of synergies between government agencies – with shared services organizations little more than insourced founts of consulting advice and mediation between project stakeholders with divergent interests.
If this is the character of shared services organizations, such initiatives should be seen not so much as a revolutionary approach to ICT, but as the method through which governments’ ICT investment strategies are finally catching up with industry best practice of a few years ago. In other words, this is the stuff that government departments should have been doing all along.
This perspective doesn’t diminish the real value being returned from shared services initiatives, but it does highlight just how inefficient government ICT planning and procurement have been in the past. If it has taken 15 years of open-systems purchasing to finally look at ways of squeezing value out of the systems government has been buying, how long will it take before efficiency becomes a core tenet of government ICT planning?
The answer may never become fully clear. As with any change in government, the transition to shared service will be ponderous, full of pitfalls, and a likely source of significant controversy. With early runs on the board, however, the momentum is building for transformational change that will restructure many government organizations’ approaches to ICT – even if it simply gets them to do ICT the way they should have been doing it all along.
Shared services “is a lifestyle”, says Howat. “Reform is going to continue, and the public sector is going to get smarter and smarter about how it buys, builds and streamlines. It’s about getting everybody to realize they’re not all that different, particularly when it comes to corporate services.” 10 Steps to Shared Services Success
An Accenture survey of 140 government executives from 13 countries identified ten key factors in shared-services success:
1. Defining a clear vision, business strategy and operating model
2. Building a strong, detailed business case based on measurable returns
3. Conducting a detail-driven approach to planning
4. Identifying full budgetary requirements at the outset
5. Creating the shared services organization as a stand-alone entity
6. Creating a strong governance structure that includes user departments and service level agreements
7. Managing workforce issues closely
8. Ensuring that the right enablement capabilities are in place
9. Transforming the internal culture
10. Measuring performance