Exploring Shared Services Options

If you're a government entity with five agencies all requiring payroll, do you need a payroll department in each agency? Do you need five software applications? If you do payroll at one organization across all agencies (ideally with one application), you're engaging in shared services, an increasingly popular way for governments to cut costs while increasing efficiency.

The business model known as shared services involves taking similar processes and operations for numerous agencies and bringing them together under one central organization. The result is less redundancy, more efficiency and lower costs. What's shared most often is administrative or back-office work, but the shared services model can be applied to numerous activities, such as e-mail, help desk, Web applications, IT infrastructure and server management, to name a few examples.

Shared services has been practiced for a long time in the private sector, and even in the public sector in many countries, such as Canada, Australia and Germany, but it's fairly new in the U.S. public sector. Its popularity is rising as public agencies face the demand for more services with limited funding.

Improved efficiency coupled with lower costs was the impetus behind shared services for the private sector. It works that way in the public sector too, and the results can be eye-opening. For example, Nebraska is centralizing its e-mail system across 14 agencies, sharing hardware, software, people and best practices. Estimated savings over six years is $1 million, said Brenda Decker, state CIO.

"Government wants to become more like business, and does need to - in certain areas," Decker said. She points out, however, that governments must carefully decide where to apply shared services. For some processes it makes sense, and for others it does not.

Finding a Fit

In general, sharing services applies best where economies of scale can be achieved. In Nebraska, people from more than 80 state agencies pooled their ideas, brainstorming a list of more than 40 processes where shared services might work. For most governments, shared services is a new business model, but it offers flexibility in how it's set up. Many of the "usual" ways can be combined into a hybrid that fits the specific needs of any one entity.

Usually shared services can be one or more of the following:

1.      a new in-house agency that provides services to other agencies;

2.      an arrangement where each agency owns a part of something, and they buy services from each other;

3.      services are bought by one agency from a private provider and then resold to other government agencies;

4.      a co-op in which agencies buy together from a private provider; and

5.      a joint venture between a government agency and a private provider - a relatively new model.

Some governments find success by starting small, using a pilot approach to prove methods on a limited scale before tackling larger shared services projects.

When deciding where and how to use shared services, Nebraska used a process-driven approach. The state's Information Technology Commission (ITC) oversees four councils (for state, community, education and e-health issues). Those councils drive the shared services activities. Once they decide to explore a shared services approach to a specific area, a workgroup is created to define expectations, infrastructure and agreements. From there it flows back toward the top, up to the ITC for review and exploration.

Keep It Centralized

If you like the idea of a shared services center, don't have more than one, experts say. With government being quite familiar with decentralization, the temptation could be to set up a few different centers, perhaps one for finance, one for HR, etc., but it's not a good idea, according to Rowan Miranda, senior executive in the Public Service Operating Group at Accenture. "We typically recommend one stand-alone organization, one management hierarchy over those diverse functions," said Miranda.

Whatever types of services are shared, it's critical that all agencies involved have a clear, written agreement as to what is involved. Service-level agreements (SLAs) are the most common form of contract. When setting up the agreement, people must remember it works both ways, said Decker. It's not all about what the service provider does; buyers need to know their responsibilities too. Sometimes, it's mostly about setting clear expectations for everyone.

As a service buyer, be sure the provider is dependable and can deliver what it promises. Both sides, of course, must protect their interests and ensure they get what they need.

As the shared services landscape matures, governments are becoming more familiar with the agreements. "I think it's getting easier to get those done," said Decker. "I think they're becoming more and more expected."

While setting up shared services can sometimes be a complex undertaking, the results can be very positive. If you have to boil it down, Miranda said, it's mostly about getting everyone on the same page. The key factor is "getting agencies to achieve a common vision and establish one business process that works for everyone," he said. Although getting that done takes a lot of work, shared services has proven successful for many once in place.