Shared Services: Less Costly than "Free" Services

Would you be willing to pay for your administrative services if you are already receiving them for "free?" But what if, by making a shift...
by | December 6, 2009

Would you be willing to pay for your administrative services if you are already receiving them for "free?" But what if, by making a shift to fee-based shared services, your organization could cut costs by about 30 percent? Maybe free doesn't look so good anymore.

Erie County, New York, took the plunge in late 2000. According to researchers Timothy Burns and Kathryn Yeaton at Ramapo College of New Jersey, Erie County reorganized its technical infrastructure to create shared IT services across the county's departments and agencies. As it implemented this effort over the following five years, it not only saved millions of dollars, but also improved services. For example, it integrated 26 police service answering points into one, reducing costs and increasing the quality of its 911 emergency response system.

In the past decade, the private sector has quickly embraced the use of shared services for competitive reasons. Companies found that consolidating administrative or support functions into a single, stand-alone entity with the sole goal of providing efficient and effective services has led to cost saving averaging 30 percent, coupled with improvements in user satisfaction.

What Are Shared Services?

In their paper, Burns and Yeaton define shared services are a "consolidation of administrative or support functions (such as human resources, finance, information technology, and procurement) from several agencies into a single stand-alone unit." The goal is to provide such services as efficiently and effectively as possible. The shared service provider and the customer of the shared service enter into a joint service-level agreement on a "for fee" basis.

Importantly, shared services are not the same as centralization. Centralization implies one central authority. Shared services, on the other hand, implies that one provider is responsible to multiple units and multiple authorities. Oftentimes, a shared services unit is governed by a board comprised of customers. The customers could potentially go elsewhere if not satisfied with cost or service quality. This is an important distinction in the overall design of any shared service initiative. In fact, in the federal government, there are multiple shared services centers that compete with each other to provide good service to agency customers at reasonable costs.

In addition, shared service arrangements make the costs, and the value, of the administrative services provided far more transparent to the users. Sometimes users use less, as a result. Other times, users demand that the providers become more efficient.

When successful, shared services permit organizations to operate at greater economies of scale with improved business rules, while ensuring greater user satisfaction through a strong governance framework, metrics, and benchmarks.

Why Is It Hard to Do In Government?

According to Burns and Yeaton, a shared services model tends to be harder to implement in the public sector than in the private sector because of:

· A lack of up-front investment in the transition process

· A lack of commitment to long-term change

· Shifting the philosophy from a "free" to a "fee" service is counter to most government agency cultures.

· A fear of loss of control, since the staff no longer belong to the unit.

But even though it is considered harder to do, Burns and Yeaton cite a 2005 survey showing that "more than half of government agencies have already implemented or are in the process of implementing a shared services initiative."

Success Factors for Shared Services Implementation

What are the factors that lead to a successful implementation of shared services in government? Burns and Yeaton conducted interviews, focus groups, surveys, and participated in discussion boards that focused on shared services implementation in the private and public sector. They identified a series of lessons about the most effective ways to successfully implement a shared service model in a public sector environment. They found:

  • Shared services initiatives were undertaken mostly at the request of top agency leaders
  • The goal of most shared service initiatives is cost savings, and the majority of participants achieved their goals
  • The most positive result of implementing shared services was improved service
  • The most negative result of implement shared services was "people issues" (e.g., job loss, culture change)
  • The most significant lesson learned from implementing shared service was that investing in "change management is key"
  • The thing most organizations did well was "project management"
  • The greatest challenge came from people issues and were overcome with communications

Many research participants identified five areas for successful shared services implementation:

1. Strong project management skills. Project management is comprised of the tools and techniques used to organize and manage resources so a project is delivered within scope, on time, and within cost constraints. It is critical to unambiguously define an appropriate governance structure and assign responsibilities to ensure a successful projection implementation on time and on budget.

2. Senior-level support. You have to have someone in senior management who is willing to champion the shared services project and sell the concept to stakeholders and customers. Senior level support was consistently identified as the most critical element of success.

3. Effective communication. Communication needs to be part of the initial planning and executed throughout the implementation. Communication channels such as emails, newsletters are convenient. However, experienced implementers recommend face-to-face communication with and among the strategic leadership, the mid-level management, and the technical/operational personnel. The communication plan should address three-elements:

· The audience and their communication needs

· The most effective means of communicating with this audience

· Who should deliver the message

4. Strong change management. Change management provides a structured approach to moving an organization from its current state to the desired future state. Change management efforts should be developed from the project's inception in the planning stage. The change management framework should include four stages:

· An assessment of the organization's readiness to undergo change

· A strategy for change

· Implementation of the plan and tracking progress

· Evaluation of experiences and address lessons learned

5. A phased approach to implementation. Most participants recommend an incremental approach rather than a "direct cut over" to the new shared services system. They see this as more manageable and less risky. It takes more time, but allows services to be implemented in modules. It allows the team to learn from its experiences so later modules can be implemented more smoothly.

Some states have found the use of shared services so valuable, that they have created programs to help their localities. For example, New Jersey's SHARE program provides financial assistance to localities to implement shared and regional services. They've even developed a "how to" handbook for navigating the process! Is you state or locality ready for the plunge?

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Jonathan D. Breul is the executive director of the IBM Center for The Business of Government and a partner with IBM Global Business Services. He is also a fellow of the National Academy of Public Administration and can be reached at jonathan.d.breul@us.ibm.com.

John M. Kamensky is a senior fellow with the IBM Center for The Business of Government. He is also an associate partner with IBM Global Business Services and a fellow of the National Academy. He can be reached at john.kamensky@us.ibm.com.

For more on this topic, read: "Success Factors for Implementing Shared Services in Government" (IBM Center for The Business of Government) at http://www.businessofgovernment.org/pdfs/BurnsYeatonReport.pdf

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