Shared services: a strategy for reinventing government.

• Author: Wilson, David A.

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...