“I think many [agencies] would greatly benefit from a top-to-bottom efficiency analysis . . . done by people who understand government. The results of such an analysis . . . can provide a menu of choices for . . . officials as they work through the real nitty-gritty issues of efficiency in government.” – John R. Bartle, dean of the College of Public Affairs & Community Service at the University of Nebraska at Omaha
In all but name, Shared Services have been around much longer than most people realize, but as a result of limited budgetary options they are now being pushed to the fore. Can they be about more than just pulling servers from a group of organizations and sticking them into a single building? Can they add value to the cost efficiencies gained by centralizing data centers? Shared Services should not represent a step into the unknown for many organizations. Instead, they should be considered a refresh of an old concept. As early as the 1960s bureau services were set up to provide mainframe computing resources to speed up specific businesses processes for financial services organizations. Today, technology advances mean that Shared Services can be an innovative means to transform lethargic business operations, especially in government organizations. Indeed, the public sector has seen Shared Services emerge at the head of current IT debates, as agencies struggle with increasingly difficult investment choices.
Shared Services Defined
“Shared Services” is the consolidation of business operations that are used by multiple parts of the same organization [1]. Shared services are cost-efficient because they unify “back-office[2]” operations that are used by multiple business units of the same enterprise, thereby eliminating resource redundancy. Some organizations use a chargeback system to bill consuming units that consume a business service on a per-use, per-quarter, or per-year basis. Others absorb the enterprise-wide costs of shared services as part of the continuing cost of running the business. In the private sector, most companies employ a shared services model for delivering services such as financial management (FM), human capital management (HCM) and information technology (IT). The goal of a shared services delivery model is to allow each business line to focus its limited resources on activities that support its core competencies. Technology has often been the driver for shared services within an organization because it can be expensive to purchase and maintain.
A Shared Service unit of an enterprise functions as a provider of a particular business service to as many of the organization’s other business units that derive a benefit from consuming the offered service. The “owner” or “director” of a shared service provider, within the enterprise, is held accountable – by consumers of that service — for delivering business value (by balancing cost and service levels), as well as identifying ways of further maturing the offered service and improving service quality. The operating model is based on three capability types: People, Process, and Technology. While centralizing may be an option for assuring the effective delivery of a Shared Service, the objective is to improve the quality of consumed services by consistently applying best practices in a systematic way, to achieve continuous improvement that results in more efficient and standardized business policies, processes, and rules, with much of the associated business activity automated by technologies that are typically enhanced (or replaced) over time, at a faster rate than the processes and people they enable.
Centralized Services tend to be more effective when compliance and control are a significant business priority. Shared Services, on the other hand, have proven to be more effective where higher levels of accountability for value-creation is prized by leaders of an enterprise, and the consistent delivery of vital business enabling services can be demonstrated by managing to assure the achievement of mutually-agreed service levels.
Key Benefits of a Shared Services Model
There are many potential benefits to be realized by implementing a shared services model, including these:
- Standardization of Business Processes and Best Business Practices
- Enhanced Quality and Flexibility of Available Business Services; Shared Services can be Sourced through Multiple Delivery channels and/or Geographic Locations
- Improved Accountability for Agreed-Upon Service Levels, Enabling Informed Value Decisions on What and How Many Services to Provide
- Securing Cost Savings and Sustainable Efficiencies through Economies of Scale
- Releasing Human Capital from “Commodity” Tasks to Better Value / Customer Service Activities; Operating Units Free to focus on their Core Operations
- Ensuring the Use of More State-of-the Art, Technology-intensive Solutions
- Improving the Scalability of Deployed Solutions, Which Can Be Readily Scaled for Geographic and Service Scope Changes
- Improved Cooperation and Collaboration with External Partner Organizations to Foster Strategic Development of Cross-institution Support Services
- Reducing the Geographic Footprint of IT-Systems, Applications, and Infrastructure, thus Improving Business Continuity and the Resilience of Business Services
- Addressing Corporate Needs for Collaborative Learning, Research, and Knowledge Transfer; People with the Skills and Desire to Optimize the Model Beyond the Back-office
- Leaders Free to Focus on Strategy, While Relying on Shared Services for Statutory and Regulatory Compliance
- Timely Decision Support, Enabling Analyzed Data to be Delivered as Reliable and Actionable Business Intelligence
Challenges to Implementing Government-Shared Services
People familiar with military operations may thing that Government agencies function as one huge enterprise, where change can be imposed and orders are invariably understood, accepted, and followed. This is not the way most Government departments, bureaus, and agencies have operated in the past. The typical agency is established, even when “incorporated” under a larger department of Government, as a standalone organization with a certain amount of autonomy – and independent authority –, derived from Congressional legislation that charters and funds the agency’s mission. The main responsibility of the agency’s leader is to manage it well enough to achieve the priority goals and objectives of that agency, pursuant to its Congressionally-mandated mission. Participation in inter-agency, whole-of-Government types of initiatives is often seen as an unfunded-mandate situation, often taking a back seat to a leader’s primary duties and obligations.
For inter-agency programs to be successful, all participating organizations must all be pulling in the same direction, and hopefully with similar determination to succeed. While it is true that leaders cannot, by themselves, accomplish major change, the championing of the transformation initiative, supported by effective communication and change strategies, can have an impact on the outcomes of major change agendas. Yet, a program-wide leader still needs a coalition of the willing to achieve transformation on a grand scale. Effective governance is also needed in cross-agency shared-services implementation efforts, to ensure that all participating organizations have a voice in critical decisions. The role of a governance body is to, among other things, to:
- Approve the Shared Services design schema
- Determine the change management approach
- Resolve all critical implementation issues
It is also important to note that subordinate managers (e.g., heads of individual Shared Services units), often rely on their own subsidiary governance bodies, where the calculation of costs and benefits can be different. Both individually and collectively, these key stakeholders are positioned to influence the views of their leaders. The constructive support of all leaders, their preparedness to work together, and their acceptance and management of the risks involved, are all necessary preconditions for the success of a cross-Agency Shared Services Program. Without them, the initiative will be problematic from the start.
The Bottom Line
Game theory [3] seems to provide a helpful lens through which to understand why and how the best collective outcome may not be achieved from a Shared Services initiative that has been mandated at the inter-agency Government level, due to the players’ apparently rational fear of loss of control, and the choices they make in pursuing the best available individual outcome instead. It is probable that each individual leader will be mindful of the risks their organization faces (which they personally face also) from an initiative (like Shared Services) which requires them to place their trust in an external provider to deliver efficiencies and cost savings they cannot guarantee, at an opportunity cost (in terms of loss of control and flexibility) they cannot measure. Subordinate managers, with significant influence on their leaders, may have even clearer personal interests at play. One of the risks with pursuing a large-scale Shared Services initiative in Government, is that one or more parties may adopt a zero sum mindset when the actual structure of the initiative or “game” is non-zero sum (i.e., the best available collective outcome is better than what can be achieved by each agency acting in isolation). Because of this, the leaders involved should, ideally, have their performance assessed, based on achievement of the collective outcome, to give them “skin in the game.” However, this may be difficult to achieve when leaders’ performance is, almost always, assessed on the basis of their contribution in many areas of policy and service delivery, among which a single initiative may not rank all that high.
2 Back office operations refers to the part of most organizations where tasks dedicated to running the company itself take place. The term “back office” comes from the building layout of early companies where the front office would contain the sales and other customer-facing staff, the “middle office” would be those manufacturing or developing the products, and the “back office” would provide administrative, accounting, and other support services (always invisible to business customers). Although the operations of a back office are seldom prominent, they are a vital contributor to business success.
3 Game theory is the study of the ways in which strategic interactions among people (and other forms of agents) produce outcomes that may or may not be matched to the preferences or desired outcomes of those people. In game theory, interactions are considered strategic when the parties to the exchange can take into account the expected actions and reactions of one another. Most often, suboptimal collective outcomes arise due to a lack of trust in one another’s actions, and in the consequent attempts by individuals to optimize their own outcomes directly, in preference to collaborating for achievement of the best available collective outcome.
