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Shared services: a strategy for reinventing government.

Governments face a widening gulf between the rising expectations of those they serve and their ability to deliver. Right now, funding shortfalls and the looming retirements of baby boomer-generation civil servants are putting tremendous pressure on governments to achieve higher performance with significantly fewer resources. If rising expectations of government are to be met within constrained budgets and with fewer personnel, then productivity must increase.

Many governments have begun the process of improving productivity by making significant investments in technologies such as enterprise resource planning (ERP) systems. However, the technology focus of these projects, rather than a focus on business process and organization transformation, has meant that few governments have realized the full benefits of their investments.

Shared services is an operating model for back-office functions that not only incorporates the use of the latest labor-saving technologies, but also addresses the organization model and the underlying processes of back-office business functions. The essence of shared services is the consolidation of administrative functions into stand-alone organizational entities whose only mission is to provide administrative functions as effectively and efficiently as possible. Shared services is the leading method for reducing back-office operating costs while at the same time reallocating the time employees spend on low-value routine functions to higher-impact strategic tasks. Typical cost savings from moving enterprise-wide administrative processes to a shared services delivery model range from 25 to 55 percent. While shared services is just coming onto the public sector radar, it is a concept that has dramatic promise for government performance and productivity.

SHARED SERVICES BENEFITS

In contrast to the public sector, few large private sector companies have invested in new ERP systems without also moving to a shared services operating environment. As a result, these companies are achieving significantly greater benefits from their ERP investments than their government counterparts. Moving to a shared services model yields a wealth of operational improvements--including economy of skills and technology investments, economy of scale, flexibility, and standardization--and an increase in service quality. These benefits have not only economic value in the form of cost savings, but far-reaching strategic implications as well.

Economic value arises from a lowering of total costs of the existing back-office support functions. There are immediate economies of scale, as consolidated functions and processes eliminate redundancies and minimize the cost of transaction-processing activities. Facilities costs are lowered because there is typically an aggregation and reduction of what previously may have been many separate locations providing the same function.

The move to shared services also allows an organization to rationalize the salary mix. As workforces are pooled, high-performing individuals can be leveraged across the entire shared services organization instead of focused on an individual agency or department. The automation and standardization of labor-intensive, low-value functions will yield cost savings by removing inefficiencies, eliminating process steps and leveraging technology investments across a larger customer base. Finally, using service level agreements--a standard practice in a shared services model--will allow an organization to standardize the costs of services received.

Shared services experience in the private sector has produced consistently positive results. For example, the introduction of shared services models in finance organizations has correlated with a significant decrease in the cost of their operations (the average decrease over a 12-year period was 52 percent). Exhibit 1 illustrates the ways in which facilities and personnel costs are reduced in a shared services model, yielding a significant overall economic benefit.

While the economic value alone argues a strong case for shared services, cost savings is only half of the picture of the potential benefits of shared services. At least as important are the significant strategic benefits a government will realize in implementing shared services.

Shared services is built around the concept of developing "centers of excellence" for the functions to be performed. These centers allow for people to develop highly specialized skills that can be leveraged across multiple government organizations. The end result is higher employee productivity, reduced error rates, increases in processing speed, and reduced cycle times. There is an associated increase in customer responsiveness, as a focused, specialized, service-oriented support organization ensures that the supported entities' needs and issues are addressed in a timely manner. In the organizations that have moved their back-office functions to the shared services center, management and key employees are freed from the burdens of routine administrative tasks and can focus on strategic activities that add value to the government's citizen-centered program goals.

Taken together, the economic value and strategic value of shared services add up to governments being able to meet increased demand with fewer resources. A shared services reform agenda can assist a government in achieving its strategic objectives by freeing up funding--and executive leadership--from back-office functions and redirecting these resources toward initiatives that have greater direct citizen impact.

SHARED SERVICES VS. CENTRALIZATION--IS THERE REALLY A DIFFERENCE?

When first introduced to the concept of shared services, many people ask the same question: "What's the difference between a centralized model (in which components of individual administrative support organizations are consolidated into one existing department) and shared services?" Often, the underlying question they really are asking is, "Aren't we doing shared services already?"

While the two models share some superficial characteristics, they differ significantly. Most importantly, centralized models fall short of the organizational culture and service-focused aspects of shared services. In shared services, the only function of the shared services organization is to run the shared administrative functions as effectively and efficiently as possible. Shared services elevates the importance of administrative functions to the highest management levels. Traditional back-office responsibilities take on a front-office perspective, increasing customer focus and employee motivation and ownership.

Additionally, a shared services model emphasizes customer service in a way centralized models do not. In a centralized model, end users typically are not treated as customers or partners. In contrast, shared services ensures that parties on both sides of the service (that is, the provider and the customers of the service) have clearly defined responsibilities to get the task done. Finally, shared service organizations, unlike centralized ones, typically operate under service level agreements that promote a clearly defined standard and cost of delivery. Exhibit 2 provides a useful comparison of the approaches.

IS SHARED SERVICES RIGHT FOR YOUR GOVERNMENT?

Moving to shared services means committing to organizational transformation. While the benefits are striking, the changes can be wrenching for those affected, and the potential workforce challenges are considerable. Some useful questions to guide the decision include:

* Does your organization face budget constraints and need to divert funds from back-office to citizen-focused activities?

* Does your organization face critical staffing shortages from impending retirements?

* Does your organization suffer from a scarcity of specialized skills and/or is there unnecessary duplication of skills in multiple departments or locations?

* Does your organization have operations in multiple locations with independent support organizations?

* Does your organization have above-average processing costs for transaction-processing capabilities?

* Do your organization's administrative support functions process large volumes of transactions?

* Does your organization have a high management-to-staff ratio in a number of locations?

* Are a high proportion of your employees located in high-cost areas?

* Are there increasing demands for services?

* Is your organization facing significant investments to make necessary enhancements to the systems and processes associated with your support services?

* Are stand-alone entities within your organization foregoing investments in labor-saving technologies because they lack the economy of scale to justify the costs?

* Does your organization suffer from inconsistent delivery of satisfactory service levels?

Organizations that will benefit from implementing shared services typically answer yes to the majority of these questions.

THE SCALE OF GOVERNMENT SHARED SERVICES

Once a government has decided to make the transformation to a shared services model, it needs to determine the scale of the shared services organization. The scale can vary considerably for governments--from supporting a single agency, supporting many or all agencies within a government entity, or supporting multiple internal and external government entities.

While expanding the scale of the shared services center generally increases the overall value a government is likely to receive, it also increases the complexity of the shared services implementation. However, scale can be added over time and should not be a showstopper. In fact, the greater the scale of the shared services center, the greater the cost savings, as the investments in technology and people skills are leveraged across a larger number of customers. Organizations need a vision of the ultimate scale of their desired shared services centers, but the implementation program itself can begin small, incorporating just a few functions. Even on a limited scale, the shared services model provides significant value.

SHARED SERVICES CANDIDATES

What functions are best suited to shared services? Eligible administrative activities can be found within a broad range of skill areas, including:

* Finance and accounting

* Human resources and payroll

* Logistic/materials management

* Purchasing and supply chain

* Customer service/call centers

* Training and education

* Information technology infrastructure

* Litigation support

* Communication services

* Regulatory compliance

Ideal candidates for shared services are those with high volumes of transactions--and thus high potential for economies of scale--and low strategic impact on the organization. Strategic processes typically remain within agencies, while transactional processes go to shared services centers. Exhibit 3 is a decision matrix for determining whether or not to move a function into a shared services center.

[GRAPHIC OMITTED]

MAKING SHARED SERVICES A REALITY

It takes very little time for public sector executives to understand the potential benefits of adopting shared services. Determining the best implementation approach, however, is no simple matter. When it comes to implementation, there are two critical questions that executive sponsors must address to get on the proper path to implementing shared services in their organizations:

* What is the business case for implementing shared services?

* How much change is the organization willing or able to take on to accomplish its objectives?

Once executive sponsors know what they want to accomplish, they can determine how to proceed. There is no one right answer. The potentially large scale of shared services implementations for governments and the relative newness of the model in the public sector may up the scale toward choosing a phased approach. However, governments that are smaller in size or those that need more radical change and faster returns on their efforts may pursue a big bang approach and still be successful. Key to either approach is careful planning, competent execution, and team members who have shared services implementation expertise.

The sourcing spectrum. The options for sourcing employees for a new shared service center fall on a spectrum defined by four different strategies: in-house sourcing, co-sourcing, public/private joint venture, and business process outsourcing. Each of these options is discussed below.

With in-house sourcing, government employees staff the shared services center. In-house sourcing is attractive because it may minimize some of the political, union, and internal workforce issues typically associated with transforming the workforce model. However. governments usually lack personnel with experience creating and managing a shared services center and therefore must learn as they go. Thus, what began as a cost-containing endeavor may end up costing more if the implementation is flawed or is never successfully completed.

In co-sourcing, the government contracts with a vendor that links its remuneration to the achievement of benefits. Co-sourcing typically involves a long-term relationship with the vendor. The decision-making, the transformation process, and the subsequent running of the shared services centers are all a joint effort. The government typically retains ultimate control and oversight of the organization, although the vendor has significant involvement in making decisions. Governments may find co-sourcing an attractive option because it gives them the benefits of private sector skills without requiring the employee transfer typically associated with full outsourcing. It also provides governments a way to pay for the move to shared services, as co-sourcing typically is a value-based arrangement. By getting an infusion of private sector skills and by linking remuneration to agreed-upon delivery levels, governments also reduce the risk of failure.

In the public/private joint venture model, a public sector organization mitigates risk and reward by sharing responsibility with a private sector partner. This sharing can be accomplished either by contractual arrangements or by setting up a jointly owned third-party organization. It is similar to co-sourcing, but the legal construct is different, with control more equally shared between the partners. A joint venture is a relatively new model in the public sector, and is generally undertaken when a government wants to be more entrepreneurial. For example, a government may want the shared services organization to actively solicit and bring on external government entities to further drive down its own costs by spreading the infrastructure and labor costs across multiple organizations.

In the business process outsourcing model, the employees in the shared services center are employees of a private sector provider. Typically, employees of the organization implementing the shared services center will become employees of the vendor providing the outsourcing services. While this model is common in the private sector, in the public sector, business process outsourcing brings with it a number of government-specific challenges, particularly in the form of workforce transfers to the private sector, keeping jobs local, and labor union issues.

Business process outsourcing has great potential for governments facing intense pressure to enhance performance and economize in a short timeframe. It may be the most effective way of ensuring a transformational outcome by providing a clean state from the start. Using an experienced outsourcer gives a good measure of assurance that the typically complex technology investments inherent in a shared services implementation will get done correctly. Additionally, the outsourcer may already have administrative systems infrastructure in place and thus can achieve shared services implementations at a much faster pace. The outsourcer can bring industry and process specialization that drives continuous cost reductions and increases in service levels. What is back office to a government is a core business--worthy of significant research and development investments--for the outsource provider. Finally, an outsourcer can often provide greater financial incentives and more career options to employees.

An implementation road map. No matter how the work to move to a shared services model is sourced, the typical shared services program progresses through a series of five phases. Exhibit 4 illustrates the major activities within each phase.

LEADING PRACTICES IN SHARED SERVICES

The considerable gap between average shared service centers and top performing centers is directly related to the extent to which center leadership employ the following critical practices:

Garner and sustain executive management sponsorship. Moving to a shared services model affects an entire government. Do not try to lead a shared services implementation through an IT department. Rather, a high-profile executive steering committee made up of key participating organizations focused on driving the business case must champion the cause.

Articulate a well-defined mission, vision, and future operating model. The project should be organization-focused rather than systems-focused, resulting in a greatly improved service delivery capability for internal government operations.

Clearly define the business strategy, objectives, and scope of services. Once the mission and vision have been defined, develop a shared services strategy that is designed to get the organization to the visionary end point. Abandon extraneous objectives.

Build a strong business case. There must be a compelling business rationale before undertaking the magnitude of change implicit in the shared services operating model. A strong business case will allow the steering committee to make sure the shared services program is on track. Leadership will reference the business case to prove that the implementation is delivering value. A strong business case will be a constant--helping the shared services implementation weather ups and downs that may arise from leadership turnovers, changes in organizational strategy, or budget crises.

Focus on improving customer service. Improved customer service is a huge, often overlooked benefit of shared services. If service quality suffers, customers gradually move back to their old ways of doing things. Focus on service from day one and keep it a priority.

Collaborate closely with unions. Governments frequently point to union issues as the greatest roadblock to implementing shared services. To build union support for organization/position changes, involve unions early in the process. Build a workforce model that anticipates the major sticking points and have a solid plan for dealing with each one of these points.

Put quality shared services center leadership in place. The shared services leadership team refers to the person with overall responsibility for the shared services center and his or her direct reports. These leaders should have deep end-to-end knowledge of the shared processes and functions, a customer-oriented mindset, an entrepreneurial flair, strong interpersonal skills, an ability to delegate effectively, and a process improvement mindset.

Acquire quality shared services center personnel. To serve a diverse customer base, the people at the heart of a shared services center should bring a strong "team player" skill set, significant breadth of experience, and a diversity of perspectives.

Implement rigorously standardized and automated processes. The path to shared services excellence is through rigorous process standardization and automation across the entire government. Any data that comes into the transaction-processing shared services center should be normal, standard, and expected. Making the customer share responsibility for the process helps catch errors and motivates the customer to get it right the first time.

Emphasize change and journey management. Successful shared services project leaders emphasize change management techniques to ensure acceptance and traction of the outcomes. They invest considerable time in communicating the changes to come and developing training to ensure a smooth transition.

Build a solid technology platform. The technology infrastructure of the shared services program is the basis for all automation improvements and for supporting additional organizations. Therefore, it is the key to realizing additional value over time. Make sure the technology platform chosen is equipped to add scale and enhanced technologies over time.

Use a "greenfield site" if possible. A "greenfield site" is a shared services center that is built from scratch as an entirely new entity separate from the parent organization. Greenfield sites can take advantage of lower-cost facilities and lower-cost personnel who are not tied to the old way of doing things.

Build a call center in the shared services center. The very best implementations include building a call or contact center that acts as the front door to the shared service center. Call centers provide a way to track demand, manage workload, provide best service, and, most importantly, keep transaction processing workers from being distracted from their core duties by not having to answer the phone.

IT'S TIME TO START

Governments need shared services. The combined forces of increased citizen expectations, fiscal constraints, and workforce demographics require governments to do much more with much, much less. Shared services is a key to turning governments into the high-performing organizations they must become.

Implementing shared services is ultimately about undertaking government-wide business transformation. As such, it involves making political decisions that many government executives would rather avoid. Yet the economic and social environment is pushing governments to make transformational change. Government organizations simply have to become higher-performing organizations to meet rising expectations with shrinking resources. When done properly, with an acknowledgment of the issues and a carefully considered strategy to manage them, shared services can deliver benefits that will silence critics and naysayers--benefits such as higher productivity, lower costs, better customer service, and greater opportunities for employees. The time is right for governments to seriously consider how to make the promise of shared services a reality.
Exhibit 1: How Shared Services Reduces Facilities and Personnel Costs
for Overall Economic Benefit

"As is" Cost Structural changes in
structure cost base "To be" cost stucture

Facilities costs Facilities costs
 * Co-location with other Economic value/savings
 facilities realized
 * Switch to low-cost
 locations
Systems costs Systems costs Facilities costs
 * Systems rationalization
 * Greater process
 automation
 * Investment in leading- Systems costs
 edge IT capabilities
 * Maximum Interfacing
Personnel costs * Personnel costs Personnel costs
 * Switch to low-cost
 locations
 * Rationalize salary mix
 within staff
 * Better leverage of high
 performers within a
 larger team
 * Automation of core
 processes
 * Rationalization of
 services provided via
 definition of service
 level agreement
 * Continuous improvement/
 service culture

Exhibit 2: A Comparison of Shared Services and Centralization

 Traditional view of Objective of shared
Attribute centralization services

Customers treated End users Clients (can include
as ... departments, end
 customers, vendors,
 etc.)
Governance Department manager Independent unit--
 Client Advisory Group
 (organizational
 construct varies with
 organizational
 objectives)
Location Capital, central High skill, low-cost
 administrative office area
 (typically)
Primary focus Cost control Service excellence,
 high performance,
 cost control, con-
 tinuous improvement
 (service and cost)
Service responsibility Central administration Shared between shared
 service center and
 clients as stated in
 service level
 agreements
Service management Optional Service level
 agreements, key per-
 formance indicators,
 performance reporting
Customer contact Ad hoc Multiple channels
management (voice, e-mail, web);
 contact center
 staffed with customer
 service reps; contact
 management software;
 client relationship
 managers
Typical management Recruiting, workload Performance measure-
processes management, cost ment, continuous
 management improvement, client
 relationship manage-
 ment, communication,
 people development

Exhibit 4: A Shared Services Road Map

6-8 weeks 2-4 months

Phase 0 Phase 1
Opportunity assessment Operating strategy

* Internal data collection * Scope of shared services
 surveys and interviews * Current state analysis
* External benchmark * High-level operating
 comparison model
* Opportunity identification * Change strategy
* High-level value * Implementation plan
 proposition * Business case
* Final report and
 stakeholder review

3-5 months 6-12+ months 3-4 weeks

Phase 2 Phase 3 Phase 4
Design Build and test Rollout

* Site selection * Application/
* Organization and technology build
 process design * Shared services
* Training design centers build
* Service management * Shared services
 framework design organization build
* Workforce transition * Detailed rollout plans
 planning * Training build
* Technical architecture and delivery
 design
* Shared service center
 facility design
* Rollout strategy
* Business case validation


BUILDING SHARED SERVICES: BEFORE, DURING, OR AFTER AN ERP IMPLEMENTATION?

There is no standard approach to sequencing implementation of technology versus the implementation of the organization and business process changes inherent to shared services. Timing the implementation of shared services either before or after an ERP implementation has its own advantages. Some consider implementing the ERP technology last as more efficient, because the exact requirements of the new shared services center will have been defined before system building begins; all that is necessary is to map the right technology back to those requirements. On the other hand, starting a shared services project after an ERP implementation has been completed is advantageous because knowledge of the ERP system capabilities will be much greater and can be incorporated into the shared services business process designs. Either way, implementing shared services is key to ultimately delivering the business case for an ERP investment.

Simultaneous implementation (building the shared services center at the same time as the ERP implementation) enables the fastest path to maximum benefits and the least amount of rework; however, moving to a shared services operating model and implementing an ERP system all in the same program can be overwhelming from a change management perspective. The ultimate decision will rest on such factors as the business imperatives for undertaking the project, organizational readiness to adopt the changes, and total cost.

DAVID A. WILSON is global managing partner, Government Finance and Performance Management, Accenture. This article is adapted from an Accenture white paper entitled Focus on Value: The Case for Shored Services in the Public Sector. The full paper can be found on Accenture's Web site at www.accenture.com/government.
COPYRIGHT 2004 Government Finance Officers Association
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 2004 Gale, Cengage Learning. All rights reserved.

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Author:Wilson, David A.
Publication:Government Finance Review
Geographic Code:1USA
Date:Aug 1, 2004
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