Shared services offer big potential for government.
Most Australian government agencies are considering or implementing some form of shared services arrangement. These have often arisen as a solution to the acute cost pressures facing government agencies and even as a means of delivering inter-agency integration required for e-government initiatives.
Shared service arrangements involve the aggregated provision of services between multiple, largely autonomous entities. Shared services aim to achieve benefits by using a single group to provide a service to multiple agencies or units, rather than each agency having its own capacity to provide that service. Benefits eventuate from aggregated economies of scale or scope, the ability to negotiate from a stronger aggregate base and through adoption of streamlined, common business processes, particularly where significant simplification and standardization are involved.
Cost economies in shared services are particularly effective with routine, high-volume transactions in areas such as finance, accounting and human resources. Many governments focus on these corporate or back-office processes, particularly where this allows for standardization and consolidation between multiple agencies, but other areas for sharing are also potentially available. A prime shared services example is the Queensland Shared Services Initiative that is now being implemented.
Shared services are different from centralized services. In shared service arrangements, the service delivery capacity is with an entity over which the customers have a degree of ownership, which differs from centrally-imposed or externally-purchased arrangements for service provision. In some shared service arrangements, customers are even the legal owners of the service-providing entity. As a minimum, shared services customers must have a high level of governance influence over the service provider.
To work well, shared service arrangements need to be implemented on clearly defined commercial principles, with each service being defined in terms of activity and deliverables. Costs are measured and agreed upon, with arrangements documented in service level agreements that define the requirements and obligations of both customers and service providers.
There is also a view that greater cost benefits can be achieved with shared service arrangements because a profit component does not have to be paid to an external commercial service provider. Shared services are often preferred to outsourcing, especially where strong political or other considerations apply. And internal ownership can overcome many of the difficulties associated with outsourcing, such as achieving a more customer oriented and aligned culture for service delivery.
Shared service arrangements are not new. Organizations in other industry sectors have been using shared service centres for a decade or more to achieve economies of scale and drive for greater process consistency, especially where they have geographically or organizationally dispersed business units. And there are many examples of local government groups using shared arrangements to provide internal and external services to their constituents, such as garbage collection and library services, where pooling of limited resources means they can provide acceptable services despite severe funding limitations.
Most attention with shared services relates to transactional, back-office corporate processes. By focusing on commodity corporate services — where not much differentiation between agencies is needed — governments are “picking the low hanging fruit” in improving efficiencies and reducing overall cost. But the potential scope for sharing is much wider than this.
A useful way to address this point is to consider the spectrum of services that are potentially sharable. We can split this into two broad areas: processes and enabling capabilities.
As we have already seen, sharable services are typically found with corporate service processes. They also exist in agency supply-side processes, most commonly in supplier selection and procurement. But there are also sharing opportunities with constituent interaction processes — an example being the Australian government’s Business Entry Point service that simplifies and improves interfacing with the business constituency.
Furthermore, there are many untapped sharing opportunities in processes that encompass the various “domains” of government, such as social services, education, justice and public safety. These areas are especially interesting — and challenging — because they cross over federal, state and local jurisdictions and offer significant potential to improve value and efficiency for agencies and constituents. Expect to see much more attention in these areas in the future.
The other broad area of sharable services involves enabling capabilities, quite a different dimension from processes. Infrastructure capability sharing is perhaps the best known example of this, applying to physical assets like facilities and equipment as well as with ICT systems, networks and resources.
But awareness is growing also with opportunities to share information resources and capabilities. This can occur with constituent directories and databases, land/cadastral information and the like, offering potential benefits through reduced errors, less duplication and having more comprehensive cross-agency views of constituent requirements and interactions. A further capability relates to intellectual property assets and rights that can be shared across agencies and jurisdictions, though at present this is less understood or applied.
A variety of arrangements or models exist for sharing services in government, depending on the degree of autonomy between the participating agencies and the scale or scope of the services that are to be shared. These arrangements can be distilled into four basic models or types.
The first is an enterprise or ‘whole-of-government’ (w-of-g) model that is mandated across a large number of agencies in a single jurisdiction. This is especially favoured by Australian state governments and is typically applied to corporate processes and ICT capabilities across a large number of participating agencies, numbered in the dozens or greater. An example of this is the NSW Central Corporate Services Unit (CCSU), which serves small to mid-size agencies.
On a smaller scale, though still mandated, is the portfolio or cluster model that applies to a set of agencies that have common characteristics in their services, capabilities or constituent requirements. This model aims to overcome the drawback of a “one-size-fits-all” tendency that arises in the enterprise model, and indeed this model is being adopted by setting up multiple clusters in more recent w-of-g models, such as in Queensland and Western Australia.
A third model, the limited partnership, applies where a small number of agencies, typically two to six, decide to voluntarily create a shared services arrangement. This model usually centres on a common ‘pain point’ or funding or resource constraint. It is common in local government where individual councils are quite autonomous but have very similar needs and pressures. In many cases, one of the councils will be the service provider to the partnership, although outside service providers may also be contracted through a partnership entity.
The final model is the joint initiative, in many ways the logical successor to the limited partnership model. While voluntarily formed, it is larger in scale or scope and usually has a more formally or legally owned service-providing entity. It is often created when several founding members, having already established a high level of trust and collaboration, wish to develop an arrangement that will yield greater shared benefit. This model is seen in local government and is arising across multiple federal/state/local jurisdictions, typically among agencies in a single domain such as revenue collection or justice.
So for governments, the shared services arena is evolving. Knowledge about shared services is maturing as experience grows.
It is now clear that a wide range of processes and capabilities offer real prospect for benefit through services sharing. Different models are possible or applicable for services sharing, but no single model suits all situations. Make sure that you and your agency are well prepared and take advantage of the shared services evolution as it continues.
Richard Harris is vice president of Gartner in the Asia-Pacific, where he leads the organization’s business and technology strategic research in the region
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