It’s out with outsourcing and in with “insourcing”, as state governments explore the benefits of shared services.
Six years after the Commonwealth government began its widely debated and hotly criticised outsourcing program, several state governments are planning an equally fundamental restructuring of their information and communications technology (ICT) strategies in a quest to lower costs and improve sharing of support resources.
This time around, the word “outsourcing” isn’t being mentioned; insourcing is the focus as state funding and administrative bodies lobby department heads to encourage cooperation. The ultimate goal is to introduce a shared-services model that will eliminate service redundancy between multiple departments, providing single centres of excellence from which services like ICT can be delivered to multiple agencies at lower cost.
Interest in the shared-services model has grown steadily after observations that the model has often been successful within private enterprises, where services like payroll and human resources have been consolidated and offered back to different business units. In that model, elimination of redundant business processes has freed up staff to focus on other elements, while the cost and inconsistency involved in maintaining multiple services have been improved dramatically.
Shared corporate services have already been running in some states for several years, albeit at much smaller scale. Current initiatives substantially extend the scope of shared services by addressing core administrative functions and the ICT infrastructure underlying them.
It’s hardly surprising that ICT, which in recent years has become the poster child for wasteful spending and uncertain return on investment, would become an early target for shared-services initiatives. Yet as the Commonwealth outsourcing initiative demonstrated all too painfully, bringing ICT under control is far from simple. Attempted across an entire government, it’s downright Herculean.
Queensland Takes the PlungeUndeterred, state governments are pressing forward with their shared ICT initiatives. South Australia already has a form of shared-services agreement in place due to its wholesale commitment to EDS, while Western Australia, Victoria and Tasmania have each explored shared services in separate, ongoing inquiries.
Queensland is the latest state to commit to the paradigm after its decision to initiate its Shared Service Initiative (SSI, http://sharedservices.govnet.qld.gov.au). Authorised by the state government after it endorsed the Corporate Services Review in December, the project is a response to the findings of ASAP (Aligning Services and Priorities) — encompassing four whole-of-government service reviews conducted last year (see www.asapreviews.qld.gov.au).
After 12 months of consultation with CEOs and heads of corporate services, ASAP’s ultimate deliverable was a three-part business plan outlining the myriad steps necessary for shared services to become a reality. SSI is focused on transactional systems in the areas of finance, procurement, HR/payroll, document and records management, property and facilities management, and “the corporate systems that support these functions” — in other words, IT.
SSI will involve the clustering of common expertise into technology centres of skill and shared service providers; reporting relationships will be restructured to allow service units to meet the needs of multiple departments simultaneously. The technology centres of skill will include the Corporate Applications Support Unit (CASU) — which will “develop, tailor and pilot standard software applications” — and Corporate Infrastructure Services Unit (CISU), which will “consolidate the infrastructure for [ICT]”.
The first transition will take place on July 1, when staff will begin reporting to the new support units; full transition is expected by sometime in 2006. By then, SSI will encompass every state government department, with an early hierarchical diagram grouping 21 main departments into Justice & Attorney-General, Employment & Training, and Natural Resources & Mines clusters.
Three smaller offices will form an additional Parliamentary Service cluster, and the existing Corporate Administration Agency will service its existing clients under the auspices of the Arts Queensland cluster. Each cluster will be serviced by a yet-to-be-appointed shared service provider (SSP), with Queensland Health and Education Queensland each having their own SSP because of their size. Under the initial scope of SSI, the services to be shared include finance, procurement, human resources and payroll, document and records management, property and facilities management, and the systems that support these functions. ICT, as its own entity, will remain in the conceptual background — seen as an enabler of these corporate services but not as an end in its own right.
Avoiding Outsourcing’s LegacyThe decision to insource ICT-based services, rather than simply focusing on ICT itself, illustrates the Queensland government’s recognition that virtually every core business process is now underscored by ICT. The clustering of systems by function, rather than on the fact they are driven by computers and telecommunications, represents a marked — and likely intentional — departure from that underlying the Commonwealth outsourcing effort, where ICT was elevated to undeserved status by being outsourced without regard to the processes it was enabling.
The named business functions are common to most government departments. By framing the initiative solely in terms of those business functions, SSI is forcing departments to find commonalities of function that can be better served by an internal or external SSP. SSI explanatory documents, for example, note that there are 17 versions of SAP R/3 (for finance and procurement) and 11 versions of Aurion’s HR/payroll application within the state government.
However, these variations have come about for a reason. Shared services effectively calls for the commoditisation of complex business systems, but efforts to make this happen may be painfully rebuked as the reasons for existing discrepancies emerge down the track. Despite their outward support for the shared services philosophy, individual department heads may well baulk at giving up application modifications that were made to make their own department run more smoothly.
“What typically causes pain in a lot of organisations is sharing things and centralising,” says Chris Ganly, director with analyst firm Gartner Consulting. “It’s really about doing a lot of work in understanding what the current processes are, and alleviating some of that pain. One of the keys is to make sure that you’re addressing all of the elements [of the service] and not just the technology. It certainly can be a bumpy ride, but a lot of organisations have gotten there.”
Most of the past success with shared service has been in the private sector, where top-down mandates from CEOs can encourage department heads to work through their differences. The complexity of government — with its dozens of departments — will make these changes extremely difficult to implement in practice. This is particularly the case given that the initiatives are being run first and foremost as cost-saving measures. Without adequate treatment of differing philosophies and cultural differences between individual departments, shared-services initiatives could well engender conflict and resentment despite best efforts to the contrary.
Revolutionary change within government is extremely difficult to impose, and it may take somebody to wield a big stick in order to make the change work. In the Queensland government’s case, that stick will be carried by the Treasury Office, which is closely watching the program’s progress and driving support for it throughout the other departments.
Treasury has gagged other Queensland departments from discussing SSI, referring CIO Government’s enquiries to the Treasury Office. The Treasurer is the only person authorised to discuss the SSI project, but his office declined the opportunity to comment on the SSI review. Clearly, the project is seen as extremely sensitive and will be kept close to the government’s chest.
What detail has emerged comes through the government’s SSI Web site (www.asapreviews.qld.gov.au/sharedservices), where a series of fact sheets outlines the program’s goals and timeline. However, this information is noticeably vague about some of the details still being worked out. Most notably, the Queensland government estimates SSI could save about $100 million a year — but it’s not clear how much of that will come from staff cuts, certain to be a politically contentious issue.
So far, the Treasury Office has only said, euphemistically, that the plan offers “training and development opportunities” and “opportunities for workforce mobility across government”. In the long term, the Queensland government will have to clarify its retrenchment and redeployment plans to avoid ministerial and worker revolt.
Other areas have not, outwardly at least, been addressed at all. For shared services to function effectively, those services require a business process infrastructure of their own. Knowledge management, internal billback arrangements, performance reporting and change management are all crucial. So too is the ability to set and enforce service level agreements (SLAs) — a challenge that becomes more difficult when the SLAs mandate performance levels from internal delivery units, which are harder to threaten with sanctions than outside providers.
Ironically, too, these processes are all enabled by ICT systems: managing the SSI will created an additional requirement for complex ICT systems, in turn introducing an additional layer of complexity and management.
Old Is New Again in NSWIn NSW, shared services have been running since 1996 in the form of the Central Corporate Services Unit (CCSU), which reported savings of $2 million in its first two years of operation. That’s just a fraction of the $100 million annual savings forecast by the Queensland government, yet NSW serves a larger population than Queensland. Given CCSU’s relatively modest success so far, the Queensland initiative may struggle to save 100 times as much.
Numbers aside, CCSU’s success demonstrated that the approach can work when carefully managed. Until now, CCSU (managed by the Department of Public Works and Services) has been focused on a few specific types of support: providing HR, financial services, ICT, records management, procurement and research assistance to some 30 state departments as and where it was requested.
But with concrete proof of shared services’ benefits, NSW is moving ahead with a plan to broaden the scope of its shared services and mandate their use by government agencies.
In a 2001 review, the NSW Premier’s Department noted the success of the initiative so far, and gave in-principle approval to fast-track the state’s shared-services migration. The strategy specified that government agencies apply the shared services approach to “key corporate services” including HR, finance, ICT, and office services; goals include consolidating corporate services, utilising available technology, business process re-engineering, and cutting employee-related costs by three per cent.
Departments are given three options: (a) to organise sharing arrangements with other agencies; (b) set up an internal shared services unit within the agency; or (c) utilise the services of CCSU. Small organisations (fewer than 350 full-time equivalent staff) can choose from (a) or (c); medium-sized organisations (350 to 1000 FTES) can choose (a), (b) or (c); and large organisations (more than 1000 FTES) will consolidate internally. To cope with the increased demand, CCSU’s repertoire of services will be expanded, particularly in the areas of electronic service delivery and business process re-engineering.
Commonality: An Uncommon VirtueWith shared services evolving into a whole-of-government initiative, the key to continual success is to make sure that state governments don’t get carried away as the Commonwealth did with its outsourcing. Commonalities of function often emerge in the most unlikely places, but with buy-in from all involved it’s possible to realise significant benefits.
“It’s important to view government as a range of enterprises,” says Warwick Watkins, director general of the NSW Department of Information Technology and Management (DITM). “Too much of the promulgation of the benefits of IT has been singularly sold on cost reduction; success is in ensuring that the way in which we analyse the way forward doesn’t follow a mandated approach like outsourcing, but pitches one [option] against another to see what is best. It’s important that the appropriate application of IT facilitates better outcomes as a result of process engineering and transformation within agencies.”
Watkins, a four-year veteran of DITM and Steering Committee member for the current shared services initiative, points to several different projects as illustrating the success of the approach. When he came onboard at DITM, for example, one of his first priorities was to consolidate separate finance and human resources systems, used in five previously separate agencies, into a single SAP R/3 system. Combined with an intranet and wide area network, the project consolidated common functions and reduced the complexity of systems maintenance.
Other projects include the consolidation of spatial data about NSW into a common cadastral database; increased utilisation of the state’s supercomputing capacity; a major review of business licensing that will consolidate the process of issuing nearly 200 business licences, currently spread across 25 government agencies; and establishment of a common-interest group in which the Department of Housing is hosting corporate service applications for use by related agencies.
By keeping scope relevant, applying careful governance techniques and maintaining senior buy-in, it’s possible to make such initiatives work without compromising your goals, says Watkins. “Allowing for flexibility doesn’t mean you lessen your approach to common enterprises, server consolidation and common systems,” he explains. “But it means those things have to come from a business orientation, not just from spiritual preaching that ‘we’re going to have this and that’. You have to establish the management agreement that clearly identifies who’s got responsibility for what, and what outcomes are expected.”
This advice will sound familiar to anyone who’s championed organisational change before. And while the move to shared services may be fundamentally disruptive, it’s clear that it is a transition that can be made. The key is to deliver positive change that introduces efficiencies instead of chaos.
Contemplating shared services raises many questions that cannot yet be answered. Can Queensland, NSW, and the other states exploring shared services successfully turn complex ICT-driven business processes into commodities? Will a complete commitment to shared services handicap later efforts to change departmental strategies? How will departments handle their own skill sets and avoid turning over their entire destinies to central shared-services organisations? As with all change, ultimately time will tell.
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