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Human Capital Matters 2013/6: Shared services

Editor’s Note to Readers

Welcome to the sixth edition of Human Capital Matters for 2013—the digest for leaders and practitioners with an interest in human capital and organisational capability. This edition focuses on shared services.

There is no single definition of shared services or shared service arrangements.  However, it generally refers to the consolidation of existing business functions, primarily, back office or corporate support roles into a separate organisational unit i.e. the practice of business units, companies and organisations deciding to share a common set of services rather than having a series of duplicated services. A wide range of collaborative models can be used to underpin shared services, including the use of Shared Service Centres (SSC). Similarly, a wide range of support services including HR, finance, payroll, procurement, marketing, information services, legal advice etc. can be provided through shared service arrangements.

New leadership directions and seeking improved efficiency are often given as the reasons for the adoption of a shared service approach. However, the articles in this edition show that there are mixed results in the implementation of shared services. Nevertheless, adopting and improving shared service approaches continues to be a part of both the private and public sector landscape.

About Human Capital Matters

Human Capital Matters seeks to provide APS leaders and practitioners with easy access to the issues of contemporary importance in public and private sector human capital and organisational capability. It has been designed to provide interested readers with a monthly guide to the national and international ideas that are shaping human capital thinking and practice.

Comments and Suggestions Welcome

Thank you to those who took the time to provide feedback on earlier editions of Human Capital Matters. Comments, suggestions or questions regarding this publication are always welcome and should be addressed to: humancapitalmatters [at] apsc.gov.au. Readers can also subscribe to the mailing list through this email address.

Borman, M. “A multidimensional framework to assist in the design of successful Shared Services”  Australasian Journal of Information Systems vol.17:2, 2012, pp. 5-33,

Organisations are increasingly looking to realise the benefits of shared services yet there is limited guidance available as to the best way to proceed. Borman undertakes research to determine what attributes might be commonly associated with successful shared services. The specific dimensions of the multidimensional framework identified are task, strategy, structure, management processes, individual skills, information technology, environmental conditions, history and organisational resources. Case studies in 11 organisations in Australia in a range of sectors including Government, Power, Transport, Building, Mining and Telecommunications were then used to determine what specific attributes from each dimension are associated with success. It is concluded that there appears to be broadly standard patterns of attributes across the dimensions that differentiate between successful, moderately successful and limited success shared services centres (SSCs).

The more successful SSCs sought to manage or own a process end-to-end. In addition they saw the benefits of undertaking all of an organisation’s transaction processing activities. The most successful SSCs however also tended not to provide so-called expert services. It was recognised though that the categorisation of activities as being transaction based – or not – was not absolute but depended upon definition and perspective. For the more successful SSCs the use of shared services was mandated – optional use was seen as leading to potential problems and a dilution of the benefits achievable. Standardisation to make sure that all parts of the business were following the same process was also seen as key. External benchmarking in order to assess performance and progress was seen as critical. The most successful SSCs also had a charging mechanism in place that formed the basis for regulating user demand, behaviour and expectations.

Borman attempts to summarise the characteristics required for a successful SSC in narrative form:

The SSC should be given responsibility for demonstrably reducing costs through economies of scale and process improvement of multiple transaction oriented tasks across multiple organisational functions. An organisation wide IT platform is key to realising those savings and should be put in place before the transition to shared services. Use of the SSC should be compulsory and charged for. The organisation should have a standard modus operandi, recognise the importance of focusing on core competencies and have a strong centre that iscommitted to shared services and willing to invest in the SSC for the long term. SSC management should understand the requirements and volume of each task, standardise them and develop a human resource base with the variety of skills and flexibility required to meet demand.

Mark Borman is a Senior Lecturer at the University of Sydney Business School. Prior to joining the University of Sydney, Mark worked for a number of years in senior consulting and executive roles in the UK, USA and Australia; most recently as Head eBusiness Strategy at the Australian Broadcasting Corporation. His current research interest is in understanding the role of information technology in inter-firm collaborations.

ASG, Shared Services for the Public Sector, April 2012

During the course of 2011 Dowling Consulting, in conjunction with the Shared Services and Outsourcing Network (SSON), conducted a public sector specific research study regarding current trends, inhibitors and behaviours in respect to shared services activity in Australia.

The 2011 study had a total of 83 unique organisation’s responses which were collected in accordance with market research convention for primary research data gathering. A confidential questionnaire instrument was used. As this is the inaugural study in the series there is limited running trend analysis available, however, Dowling Consulting has provided experiential insights where possible from their public sector client base.

These results show that State Governments are working in or towards shared services. Federal Government is still committed to further investment into shared services; however, the focus so far hasn’t been on a Shared Service Organisation (SSO) delivering services to multiple departments as is typically done at the state level.

The overarching reasons an organisation would consider moving or has moved to a Shared Services model has been identified with 48.1% of respondent’s rating new leadership as their key consideration. The next most important driver was to lower cost with 43.1% citing this reason as their next most important driver.

The three most positive impacts in a shared services approach for their business were identified as: Service delivery efficiency, effectiveness and quality; level of governance; and better customer experience.

The main services offered through a shared services model are payroll represented with 69.8% of respondents followed by Information Technology at 62.3% and Finance at 58.5%. Logistic services are the least frequent services with only 5.7% of respondents attempting logistics through a shared services delivery approach.

Nearly 40% of respondents don’t believe there is any best practice framework, models or approach that can assist and support an SSO. This result is in contrast to the general trends being observed across the sector as a whole (public and private) where models and frameworks are prevalent. Some of these include:

  • ITIL (registered trade mark of the UK Cabinet Office) which is a set of practices for IT service management (ITSM) that focuses on aligning IT services with the needs of business
  • LEAN which is a production practice that considers the expenditure of resources for any goal other than the creation of value for the end customer to be wasteful, and thus a target for elimination,
  • Six Sigma which is is a set of tools and strategies for process improvement.

The cost and funding required to pursue and/or expand on shared services is always a major inhibitor as the payback period is long and the list of unsuccessful initiatives, particularly in the government sector, is even longer. Resistance to change, is also commonly observed in almost all of the “unsuccessful” shared service initiatives.

The top 3 improvements, organisations are looking to implement in their current shared services offerings are: stronger governance; better reporting; and increased focus on customer experience.

The survey has shown that 42.9% of the respondents reported a less than 5% reduction in cost to serve. In many cases the comments suggested quite a lot less than 5%. Some of the related reasons why this is the case are highlight throughout the findings discussed in the report: lack of process efficiency and effectiveness; inappropriately selected services and or customers for a SSO; poor service request handling and lack of fulfilment automation; resistance to change (i.e. business process reforms).

Dowling Consulting is a Management Consulting Organisation specialising in the establishment, management and operation of Shared Services environments in Australia. The Shared Services & Outsourcing Network (SSON) is a community of shared services and outsourcing professionals.

AIM Insights, Shared Services in the Public Sector, A triumph of hope over experience? White Paper, August 2012

The White Paper includes research conclusions and observations about behavioural issues at the heart of getting shared services right. These centre on the right change imperative; appropriate and sufficient political sponsorship; strong collective leadership and a realistic business case.

It also acknowledges that in every large scale public sector shared services initiative, there are other issues around maintaining the necessary level of standardisation required to deliver shared services benefits. These have been labelled “mechanical”, to distinguish them from the behavioural issues. Realising the benefits may take some time and depends on a strong relationship being forged between the shared service provider and the client organisations.

Achieving economies of scale in transaction processing requires standardised business processes, and these can only be truly achieved when a single technology platform is used. The dilemma for every shared service initiative is when to move to a single platform—at the beginning of the implementation or after processing has been consolidated into the centre.

There is emerging interest in alternative “back office” service delivery models, which are neither pure shared services nor pure outsourcing. In the UK, an often-cited and long-standing model is the Xansa (now Steria) partnership with the Department of Health. Known as Shared Business Services, this opt-in shared services model was assessed by the UK National Audit Office in 2007 as being on track to deliver financial benefits amounting to 160 million GBP over nine years. In Australia, similar (albeit smaller scale) partnership and alliancing models have been trialled by local councils.

The White Paper notes the experience of the United Kingdom and Canadian Governments approach to shared services. It also describes the experience of Australian state and territory governments. In practice, large-scale public sector shared services implementations have almost invariably been problematic. The reviews describe overly optimistic business cases, poor governance, bad technology choices and lack of ongoing political sponsorship. Unlike the experiences of other jurisdictions, the shared service arrangements of the ACT Government are widely viewed as a success. Some of the reasons cited for the success include: existing common systems; ICT and procurement had already been centralised; strong leadership and the support of the Ministers who have multiple portfolios; the size and geography of the ACT; strong existing relationships and similarities; the ability to easily meet face to face.

The Australian Institute of Management (AIM) is a professional body for managers. The sole purpose of AIM is to promote the advancement of education and learning in the field of management and leadership for commerce, industry and government. It is not for profit entity with branches in every Australian state and territory.

Government of South Australia, Auditor-General’s Department, Annual Reports of the Auditor-General 2011–12

Since the implementation of the shared service initiative in South Australia, the Auditor-General’s Department has reported on the implementation progress. The initiative involved transferring human resources, financial and procurement transaction processing from all government departments and agencies into a single shared service centre known as Shared Services SA. The original business case estimated that the implementation of shared services would save $130 million over four years to 2009–10, offset by implementation costs of $60 million over the same period. The reported savings for this period were $87 million. To 30 June 2012, costs of the reform process have exceeded savings. The major measure for effecting savings has been the direct reduction of agency budgets.

Pricewaterhouse Coopers, Review of Shared Services Model for Queensland Government, September 2010

Successfully introducing shared services within a public sector environment is typically a longer process than within the private sector, due to:

  • the increased complexity of stakeholder relationships
  • public ownership and scrutiny of government activities
  • a lower appetite for risk.

In summary, PwC recommended that:

  • shared services remains a valid option for Queensland Government, and that an optimised shared service model is implemented to enable Government to focus on delivery of its ‘Toward Q2’ priorities
  • Queensland Government implement an integrated shared operating model which combines the benefits of central control, standardisation and scale with a flexible, service-centric approach. The three components of this model are separate shared service provision for each of Queensland Health (QH), Department of Education and Training (DET) and to the rest of Government.
  • the governance of shared services be characterised by clarity, inclusive representation, open communication and joint performance improvement.
  • standardisation of systems remain a long-term objective for the improvement of shared services. It is important to recognise that while standardisation of technical solutions is appropriate, benefits will remain limited without standardisation of associated business processes.

The key change for QH and DET is that responsibility for the management of their finance and HR/payroll business applications should move from CorpTech to QH and DET respectively.

For both QH and DET, it is their view that this transfer would remove inefficiencies out of the separation of applications management from transaction processing, improve clarity and increase the proximity to the business. The benefits, costs and risks associated with this transfer will need to be quantified and managed. Alternative approaches, of moving transaction processing into a single whole-of-Government centre or of a multi-agency decentralised model, would incur substantial costs and risks, disproportionate to the potential benefits.

It is PwC’s view that the transfer is appropriate as the substantial size of the QH and DET customer base means that no material additional economies of scale are likely through operation via a central shared services model.

The key features of the recommended operating model are that it:

  • operates through a department with a commercial focus. The key characteristics of this are a clear commercial mandate from Queensland Government and a focus on overall improvements in productivity and value for money. These improvements should be measured and monitored as part of six-monthly progress reporting to Cabinet
  • mandates services. For the benefit of both the provider and the customer, there has to be certainty about the composition of the portfolio of services. Longer-term certainty in this respect enables service providers to drive towards increased efficiency and economy
  • funds mandated services through an annual capacity charge which is agreed between the service provider and the customers based on expected demand, and reviewed quarterly. To avoid micro-management and improve the client/supplier relationship, core funding should not vary unless usage falls outside of agreed tolerance levels
  • ensures fee-for-service options are only used for cost recovery beyond the agreed tolerance usage levels for mandated services, and for non-mandated service charging. Fee-for-service should remain the exception rather than the rule.

Pricewaterhouse Coopers (PwC) was appointed by Queensland Government to conduct a review of their shared services model. The Terms of Reference for the review were released on 13 July 2010. This report presents the findings in relation to the review.

State Government Victoria, Community Sector Shared Services, Why consider Shared Services? The advantages, disadvantages and challenges, October 2012

This publication provides an introduction to the benefits of shared services designed for the Not-For-Profit (NFP) sector. The purpose is to communicate the benefits of shared services for organisations that need more information on how they might help their organisation financially and also with access to expertise.

Shared back-of-house services involves two or more organisations working together to manage or deliver non-client services. Back-of-house services include any service that does not directly support clients – for example, human resources (HR), finance, payroll, information and communications technology (ICT), marketing, procurement, legal advice, etc. Sharing back-of-house services generally offers greater opportunities and fewer hurdles to overcome relative to sharing front of house services in the NFP sector.

It presents four typical models used to provide shared back-of-house services. Each of these models sits on a ‘governance continuum’. These governance arrangements range from informal arrangements such as a peer support network to the establishment of a separate organisation with a Board and management that provides services to other NFPs.

It is reported that sharing back-of-house services can be an excellent way for organisations to reduce cost and improve service quality, allowing staff to focus more on their core mission and less on administrative and support functions. However, these benefits should be balanced against multiple potential costs.

The fact that some organisations are less than satisfied with their shared services, demonstrates that the value of shared services is not necessarily guaranteed. It is important to understand the costs, benefits and risks involved in sharing back-of-house services.

NFPs that have shared services in place most commonly say that shared services has allowed them to achieve cost savings, improve the quality of their services (i.e. through workforce development or streamlining of processes) and strengthen existing relationships with other NFPs.

There are, however, three disadvantages from shared services, compared to providing services ‘in-house’:

  1. loss of control/less tailored services
  2. reduced job diversity for staff within the organisation
  3. increased risk from competitors.

In practice, it takes time and effort to establish shared services so it is important that there is a well-identified need for shared services that is jointly understood by all parties.

Depending on the size of the change, and the degree to which staff are affected, changes may be met with varying reactions – shock, denial, anger, worry, amongst others. How this process is managed can make or break a shared service arrangement.

Common pitfalls to avoid include:

  • engaging staff too late in the process - it is important to engage staff early, but be clear about the  purpose for engaging them
  • not giving staff an opportunity to ‘have their say’.

This was published by the Victorian  Office for the Community Sector (OCS) which was established in the Department of Planning and Community Development to support the Victorian Not-For-Profit (NFP) community sector to be sustainable into the future.

CIO Council, Federal Shared Services Implementation Guide, 16 April 2013

This Federal Shared Services Implementation Guide provides information and guidance on the provisioning and consumption of shared services in the U.S. Federal Government. The guide provides agencies with a high level process and key considerations for defining, establishing, and implementing interagency shared services to help achieve organizational goals, improve performance, increase return on investment, and promote innovation. It includes specific steps that should be considered for identifying shared services candidates, making the business case, examining potential funding models, using agency agreements, and discusses some of the key challenges that should be expected along the way.

There are two types of shared services structures in the Federal Government: intra-agency and interagency. Intra-agency shared services include those which are provided within the boundaries of a specific organisation such as a Federal department or agency, to that organization’s internal units. Interagency shared services are those provided by one Federal organization to other Federal organisations that are outside of the provider’s organizational boundaries.

This document was produced by the Shared Services Subcommittee of the US Federal Chief Information Officer Council (CIOC).

HM Government, The Next Generation Shared Services Strategic Plan, December 2012

The UK Coalition Government has stated its determination to target resource to front line services and drive cost out of administrative functions and improve efficiency and effectiveness in public spending.

The Next Generation Shared Services Strategic Plan (NGSS) presents how the UK central government intends to implement, operate and manage a more effective programme of back office shared services across departments and arm’s-length bodies (ALBs), by building on prior investments and successes and learning lessons from experiences to date, most recently documented in the National Audit Office (NAO) report titled Efficiency and Reform in Government Corporate Functions through Shared Service Centres, published on 7 March 2012. A particular finding in the report was that by creating complex shared services over-tailored to individual departments, government had increased costs rather than made savings.

The Next Generation Shared Services Strategic Plan outlines how government departments and arms-length bodies will work together to share functions such as HR, procurement, finance and payroll to deliver potential savings of between £400 and £600 million a year in administration costs.

The strategy sets out a new model of five service centres instead of the current eight – two independent and three standalone.

One independent centre will be run by a private sector partner, built from the divestment of the current Department of Transport function, the structure for the second centre will be announced this year. Three existing government centres, which already have a good economy of scale will continue to provide services.

This Strategic Plan for Next Generation Shared Services describes how the UK central Government will implement, operate and manage an innovative programme for Government shared services.