IT Drives Shared Services

What's the quickest way to make $1,900 a year for each man, woman and child in the country? Use technology to implement a cost-effective shared services model.
August 11, 2010
Jerry Mechlin
By Jerry Mechling  |  Contributor
A consultant and former faculty member of the Harvard Kennedy School

For state and local governments, the fiscal picture is going from tough to really tough. Governors, county executives and mayors are desperately searching for ways to balance their budgets.

Fortunately, one move -- enabled largely by technology -- could save roughly $1,900 a year for each man, woman and child in the country, given the political will and leadership to see it through. The approach has been possible for decades, and has been applied here and there in governments and extensively in corporations. Under the ambiguously inoffensive name "shared services," its logic is driven by: IT-enabled economies of scale, implementation challenges and the benefits of success.

IT-enabled economies of scale. The shared services model involves consolidating the back office functions of government -- payroll, human resources and building maintenance, for example. Advances in IT make this approach easier than ever before.

For the past half century, digital processing, storage and communications have grown explosively more productive. Instructions per dollar, bandwidth per dollar and users reached per dollar have been doubling or better about every two years. That has made many digital devices 32 times more cost-effective than they were in 2000 -- laptops and cell phones are now cheap enough to be consumer purchases. But what is often missed in noting this unique ability to reach individual buyers are the huge economies of scale in networks and the growing ability to coordinate specialized work from a distance.

The cost-effectiveness of networks enables coordinated specialization that used to be uniquely available only in large cities. Over the Internet, you can reach the best "X" from almost anywhere in the world. You can also find a "good enough X" from a location much less expensive than downtown. You can coordinate dispersed workers via rich real-time information including outputs and outcomes as well as the standard government controls that depend mostly on inputs and whether or not procedures were followed.

With digital networks, the impersonal steps in the value chain are key targets for organizing at larger scale. Shared services will make sense mostly for back-office operations in areas such as IT, payroll, personnel, accounting and building maintenance rather than in areas that include teaching, law enforcement and other essential in-person professions. They also make sense for those answering our phones and managing our networks. Pulling such workers into larger units has many advantages: it allows for in-depth specialization, makes workers part of their organization's core (i.e., directly serving the mission) and standardizes procedures for visibility and accountability. Training to perform in such units also gives workers skills that are transferrable to other opportunities inside or outside government.

The basic move is taking such workers and organizing them within free-standing support service units coordinated via service requests and service level agreements. The new units can be established either within government or the private sector, and can serve clusters of departments, entire jurisdictions and/or agencies from multiple jurisdictions. The potential efficiencies grow as the units get larger, but the problems of transformation and control also grow with increasing size.

Implementation challenges. Key implementation issues include:

  • Technology. Getting the hardware and software to work appropriately is always a problem. But it's rarely a show-stopper. Today's technology is much more cost-effective and easily applied than what was available a decade ago.
  • Economics. Many -- especially those in departments losing staff to the new venture -- doubt that the government will ever truly save the money involved. What's important at the beginning, and again at the end, is rigorous benchmarking to understand the starting point and what was actually achieved in improving unit costs. (Careful studies, like those recently undertaken in Ohio, have consistently shown productivity improvement exceeding 20 percent.)
  • Confusion. Moving people to new jobs and organizations requires that they understand what is required in the new environments and how to do it. This requires planning, education, training and serious investments to build individual and organizational capacity.
  • Conflict. Many will see the move to consolidated or shared services as an unhappy game of "musical chairs." And for some it may be true. What's required in response is effective negotiation and governance to make timely decisions that are -- in both reality and perception -- as objective as possible. Reasonable buyouts are sensible, but letting a minority unduly delay and cost the community its future is not. Service level agreements are needed to meaningfully measure and control service responsiveness.

These problems can be solved via internally shared service units, as has been done in Michigan and Ohio. Or they can be solved via outsourced units as in San Diego County and now planned for Georgia. What's essential is credible and sustained commitment of elected and civil service leaders.

The benefits of success. What's at stake with shared services? Failed projects are truly unpleasant. So are the results of ignoring the new possibilities. On the other hand, success in a variety of settings has demonstrated productivity improvement in excess of 20 percent. Apply this to the roughly 20 percent of government work that could be reached, for example, the IT work at 5 percent, with financial management, human resources, building and vehicle maintenance, and call centers rounding out the other 15 percent. That makes a target of 4 percent of current government costs, which runs to roughly $1,900 per capita, per year.

That is a surprisingly large target. We're now in an extended crisis that should put these possibilities on the front burner for virtually every government. It's a job whose time has come.