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April 2012
Shared Services for the Public Sector
INTRODUCTION
The Australian Shared Services landscape in the public sector has had many challenges in the last year or two with
a number of reviews, re-alignments, and examinations of their relative merit against their original mandates. Some
State Governments are overhauling their Shared Service models and looking for better outcomes. It was of interest
to investigate the drivers of shared services in the public sector in order to test the intent versus the expected
outcomes. By understanding the overall drivers of change and the subsequent value derived, we can best
understand the successes and failures of shared services in the public sector overall.
We can see from the data that original drivers of cost reduction or executive mandates have yielded improved
service and standardisation, but not had the cost reduction effect that was anticipated. However the betterment of
customer service and experiences has been rated the most successful outcome, which in itself would have been
one of the main reasons why organisations should seek to form shared service operations.
Interestingly the cost or funds for the broadening of shared services is seen as a major inhibitor, which is contrary
to the original drivers of shared service establishment. This is pointing to a “self funding” situation which in itself
would be difficult to attain given the respondents have affirmed that the anticipated cost reductions were not there.
If you disregard the use of ITIL for the IT component of shared services, the Shared Service operations in the
public sector have not been seen to leverage best practice frameworks due to the belief that they do not exist for
shared services. This is an opportunity for more formal networking and peer group comparisons of successes and
failures.
OVERVIEW
During the course of 2011 Dowling Consulting, in conjunction with SSON, conducted a public sector specific
research study regarding current trends, inhibitors and behaviours in respect to shared services activity in Australia.
In working with numerous public sector organisations, Dowling Consulting and SSON identified a commonality of
trends across a number of organisations and in response to a need for information sharing a decision was made to
survey the Public Sector shared services community to determine the validity of these trends. The aim of the
exercise was to deliver facts and insights into the questions being asked by those in the public sector, working in
Shared Services or thinking about moving towards a Shared Service.
This research study forms the baseline for what will become an annual study. 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 extensive public sector client base.
The purpose of this study, differing from typical Shared Services benchmark reports takes a more strategic look at
the some of the emerging behaviours underlying trends in Shared Services. Our aim is to continually refine and
add to the questions year on year, change requests can be sent through to [email protected]
WHAT IS YOUR PUBLIC SECTOR CATEGORY?
These results present an overwhelmingly view that State Governments are working in or towards Shared Services.
However, what isn‟t shown in the trend is the fact that many State Governments are devolving their investment and
responsibilities in Shared Services back out into the agencies. For example, Queensland and Western Australian
Governments have made significant steps towards pushing back responsibility for Shared Services into the
agencies.
Federal Government based on our experience 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 it typically done at the state level.
Though Local Governments haven‟t historically had the scale to warrant investing in Shared Services, the council
amalgamations of the past 10 to 15 years has created scale in some areas and the opportunity for councils to
partner is also presenting some interesting opportunities for councils.
Federal Government 21.0%
State Government 51.9%
Local Government 25.9%
Education Institution 1.2%
WHAT IS THE SIZE OF YOUR CUSTOMER (END-USER) COMMUNITY?
In this study the majority of respondents tended to services either over 100,000 users or less than 5,000 users.
This statistic will be monitored year to year to identify any salient trends.
Less than 5,000 23.5%
Between 5,000 and 20,000 21.0%
Between 20,000 and 50,000 11.1%
Between 50,000 and 100,000 3.7%
Greater than 100,000 40.7%
PLEASE SELECT AND RANK THE TOP FIVE REASONS WHY YOUR ORGANISATION IS CONSIDERING
MOVING OR HAS MOVED TO A SHARED SERVICES MODEL. RATED FROM 1 (TOP) TO 5 (LAST REASON)
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
pressing reason was to lower cost with 43.1% citing this as their next most important driver.
It is a well accepted assumption that a Shared Service model can have a positive impact on an organisations ability
to reduce the total cost to serve. Thus, the linkage between internal, political and or a mandate as the driver is
inextricably linked to lowering the cost to serve.
Similarly, new leadership will also look for opportunities to make an immediate impact on cost and delivering
business efficiency, where shared services don‟t exist, the opportunity for many is clear. Finally, but not at all
surprisingly, agency mergers and Machinery of Government changes can bring about the scale necessary to make
the business case for shared services stand-up.
Though the results were not overly surprising, they do reinforce the focus on change and drive to reduce cost as
the primary function of a SSO. Surprisingly though drivers such as improved customer satisfaction and attracting
and retaining staff rated quite low particularly as these are often the most significant pain points that drive the
development of a SSO in the first place.
New Leadership 48.1%
Merger 45.8%
Lower Cost 43.1%
Internal/political pressure/mandate 40.8%
Improved customer experience 35.7%
Flexibility in staffing 34.1%
Infrastructure/Larger scale 32.6%
Attracting & retaining staff 32.1%
Expertise/Centres of excellence 25.9%
WHAT HAS BEEN THE MOST POSITIVE IMPACT(S) OF A SHARED SERVICES APPROACH ON YOUR
BUSINESS?
Service delivery efficiency, effectiveness and quality 23.6%
Better customer experience 20.8%
Ability to sustain/control compliance requirements 20.4%
Developing new talent 20.4%
Cost reduction 19.6%
Removal of distractions from core business/front line services 19.6%
Level of Governance 18.2%
Platform to support growth/flexibility/scalability 17.9%
Ability to benchmark 16.7%
The 3 most positive impacts in a Shared Services approach for their business were identified as:
1. Service delivery efficiency, effectiveness and quality;
2. Level of governance; and
3. Better customer experience.
In contrast to the primary driver to move towards Shared Services being cost efficiency (i.e. typically reduction), this
doesn‟t even make it into the top 3 positive impacts of a Shared Services approach. Notwithstanding this, cost
reduction does come in as a close number 4, but also equal in importance to removing distractions from core
business and or front line service delivery.
In reviewing the results as a whole what is evident, as it has also been the experience of Dowling Consulting, is
that an SSO can deliver benefits in all these areas (i.e. variance from the highest to lowest rating is only a few
percent). With the levels of maturity increasing in SSOs cost reduction is no longer the single point of focus, quality,
customer experience, etc. are critical success factors that are of equal or greater importance to both the SSO and
its customers.
HOW HAVE YOU FUNDED OR PLAN TO FUND SHARED SERVICES INITIATIVES?
Direct appropriation 39.2%
Chargeback 19.6%
Allocation 21.6%
User Fee 19.6%
Centralised 15.7%
Combination 29.4%
Other 5.9%
Direct appropriation is the main method by which respondents fund Shared Services initiatives. This method is the
simplest way for non-commercial entities such as Government agencies to recover the service costs.
This demonstrates the common maturity trends visible in public sector SSOs, with the more newly established and
or less mature entities utilising direct appropriation verses a lesser number of higher maturity and or longer
established entities using subscription and usage based charge-back models.
There is also the question of life cycle and what stage a SSO is at in their life cycle. Typically, public sector Shared
Service initiatives will be centrally funded in their set up phase and may go through a “discounted” phase prior to
moving to full fee for service charging later in the life cycle (i.e. in years 3 and beyond).
Experientially it has been found that an effective way to operate is by using a combination or hybrid approach, the
aim of which is to ultimately provide customers with a degree of cost transparency into the services they are paying
for. This doesn‟t imply fee-for-service or chargeback, as transparency can be delivered within direct appropriation.
The benefits of which include an ability to benchmark as well as provide evidence based justification to the SSO
stakeholders for the SSO existence.
WHAT SERVICES ARE CURRENTLY BEING OFFERED BY YOUR SHARED SERVICES ORGANISATION?
Finance 58.5%
Human Resources 43.4%
Payroll 69.8%
Information Technology 69.8%
Procurement 47.2%
Sales/Marketing Support 7.5%
Real Estate/Facilities 17.0%
Legal/Risk 13.2%
Fleet/Risk 13.2%
Logistics 5.7%
Other 24.5%
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.
These results reflect what almost everyone in shared services, public or private sector, would already know. The
„why‟ comes down to several factors:
1. Commonality of the service features;
2. Repeatability of the process; and
3. Volume of transactions.
On the basis of these three basic factors the trend in the chart above becomes more obvious. The challenge for
many Government agencies is where to draw the shared services line in the sand, in terms of the initial assumption
that shared services will deliver cheaper, better, faster services. Thus, when a service becomes unique, requiring
specific business knowledge, and varies from request to request, then this shouldn‟t reside within the shared
service. IT is the functional area of a shared service where this challenge comes up time and time again,
specifically in the applications management space.
WHAT SERVICES ARE LIKELY TO BE OFFERED IN THE NEXT 12 – 24 MONTHS THROUGH YOUR
SHARED SERVICES FRAMEWORK?
Finance 48.9%
Human Resources 33.3%
Payroll 48.9%
Information Technology 40.0%
Procurement 51.1%
Sales/Marketing Support 2.2%
Real Estate/Facilities 13.3%
Legal/Risk 20.0%
Fleet/Travel 31.1%
Logistics 6.7%
Other 22.2%
The trend in the chart above aligns almost directly to the results. As is the common trend in shared services,
procurement is the next highest priority for rolling into the shared service is typically around functions covered in an
ERP implementation. This supports the ERP roadmaps of a majority of organisations and leverages strategies to
not only automate manual processes, but extract as much value as possible from their ERP investment.
WHAT, IF ANY, “BEST PRACTICE” FRAMEWORKS OR MODELS DO YOU USE WITHIN YOUR SHARED
SERVICES AGENCY?
ITIL 38.1%
CobIT 11.9%
Six Sigma/LEAN 14.3%
Value Chain Modelling 2.4%
There is nothing applicable to Shared Services 38.1%
Other 19.0%
The most interesting result here was that 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 stark contrast to the general
trends being observed across the sector as a whole (public and private) where models and frameworks such as
ITIL, LEAN and Six Sigma are prevalent.
The ITIL operating model is the most commonly observed model utilised in the sector, likely as a result of
Information Technology being the second most common shared service offer for most organisations. This is a
legacy of v2 of ITIL being a very IT focused model. However, the wider applicability of ITIL was identified in v3 and
most all references to Information Technology have been removed in the understanding that this model is
applicable to any organisation, delivering any type of service to a customer.
Operational and business excellence was also a commonly referenced “framework/model” under the category of
other. This is also quite an interesting comment as both operational and or business excellence are concepts
typically underpinned by continual improvement methods such as LEAN and Six Sigma. This in many ways has
been pioneered in the banking and finance sector, which presents many opportunities and lessons learned for the
public sector.
WHICH FACTORS ARE MOST LIKELY TO IMPEDE YOUR ORGANISATIONS DECISION TO PURSUE OR
EXPAND ITS ADOPTION OF SHARED SERVICES?
Cost Funding 54.8%
Resistant to change 51.5%
Lack of executive sponsorship 45.0%
Service Level Reliability 41.4%
Macro factors (e.g. MOG, elections) 4.0.7%
Governance 38.5%
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 list of unsuccessful initiatives, particularly in the Government sector, is even longer.
The next factor, resistance to change, is also very interesting and commonly observed in almost all of the
“unsuccessful” shared service initiatives. Though this is likely the single biggest risk to the success of a shared
service initiative, deploying effective change managements strategies to avoid it, is usual the least well-funded.
Hence, the success of a shared service lies in the organisations ability to leverage. Leverage its people, processes
and technology. Sadly, the only leverage most agencies get is in the facilities when they centralise everyone in to a
single building.
Successful leverage is and can only be realised when there is a strong commitment and focus on managing the
resistance to change within the initiative.
WHAT IMPROVEMENTS IS YOUR ORGANISATIONS LOOKING TO IMPLEMENT IN YOUR CURRENT
SHARED SERVICES OFFERINGS?
Stronger Governance 60.9%
Better alignment between process change and technology change 56.0%
Better Reporting 52.2%
Increased focus on change management 50.0%
Faster decision making/issue resolution 50.0%
Stronger executive support/alignment 47.1%
Customer self service 44.4%
Benefits realisation 43.3%
Increased focus on customer experience 35.5%
The top 3 improvements organisations are looking to implement in their current Shared Services offerings are:
1. Stronger governance;
2. Better reporting; and
3. Increased focus on customer experience.
These are consistently the 3 major priorities of all executives with accountability in the shared service entity, with
the additional one of service quality often appearing.
Each of these top 3 improvement focus areas are actually intrinsically linked with one another. Improved reporting
supports evidence based decision making and thus will support improved governance and highlighting of
weaknesses in governance through transparency. The customer experience is influenced significantly by the
shared services entity‟s ability to provide confidence in its governance and provide visibility into its performance.
HOW DO YOUR CUSTOMERS CURRENTLY REQUEST SERVICES FROM YOU SHARED SERVICES
PORTFOLIO?
Paper 28.6%
Manual form on Intranet 28.6%
Call to Service Desk 81.0%
Automated Actionable Tools 31.0%
Customer contact centres and or service desks are commonly the first, second, third and sometimes even, the
fourth point of contact for individuals requesting service from the SSO. The obvious impact of this to the contact
centre is the high volume and low value add of these activities. Moreover those asking “where‟s my stuff” tend to
become dissatisfied with the lack of transparency into the fulfilment of their individual request. This typically can
reduce the overall satisfaction with the SSO system for both service customer and service provider. Manual
intranet (e.g. SharePoint) forms and paper based requests have a direct relationship to high volumes of calls to
contact centres. The trend towards automated actionable request management technology is being driven through
its ability to directly improve business efficiency outcomes. Though such technology will never eliminate repeat
calls to a contact centre, it will significantly reduce the volume of calls such that resources will be able to focus on
higher value activities including continuous improvement.
WHAT HAS BEEN THE FINANCIAL IMPACT OF SHARED SERVICES (OR EXPECTED) TO THE COST TO
SERVE?
Less than 5% reduction 42.9%
Between 5% and 8% reduction 21.4%
Between 8% and 10% reduction 14.3%
Greater than 10%: 21.4%
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 already discussed in this
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)
However, in identifying these are issues which reduce the ability of the SSO to realise the full business benefits
another key issue that has been observed is the lack of visibility and transparency into the true cost to serve. As
shown above most public sector SSOs tend to adopt bulk apportionment type methods, based a coarse factor such
as number of employees in the customer agency. When aiming to provide greater cost transparency, the „law of
diminishing returns‟ should always be applied to ensure that the effort expended on providing such transparency
delivers maximum value for the minimum effort.
WHERE DO YOU FORESEE SHARED SERVICES FOR THE PUBLIC SECTOR HEADING IN 5 YEARS?
Dropped from government mandate 11.8%
Continue to be driven through all levels of government 39.2%
Taking on high value tasks 9.8%
Strategic partnering with agencies 43.1%
Drive towards citizen centricity 13.7%
Matured to an outsourced/hybrid environment 39.2%
The top three responses are commonly seen in the strategic themes of most public sector SSOS:
1. Strategic partnering with agencies
2. Continue to be driven through all levels of Government
3. Matured to an outsourced / multisource environment
The challenge for public sector SSOs is that each of these objectives requires a high degree of organisational
maturity and most importantly a high degree of trust from within all stakeholders, customer agencies included.
Building trust is the precursor to becoming the public sector SSO of the future. The foundation of trust is built by
doing the simple things well and if possible exceptionally well. Focusing on the basics will see Australian public
sector SSOs become world class, strategic partners whose focus on adopting low cost, high performance customer
solutions is second to none.
SUMMARY
Overall the survey has shown positive results in terms of customer experiences with the cost reductions being
minimal. The opportunity in the future to potentially address the cost issues and further enhance the customer
experience lie in more being able to leverage from other agency and government counterparts and through multi-
sourcing and collaboration. Automation will play a part in both the cost reduction and customer experience stakes
and this may well be delivered through shared (multi jurisdiction) outsourcing or cloud based solutions.
For further information, the authors of this whitepaper (Russell Murphy and David Dowling) can be
contacted on:
© Copyright Dowling Consulting 2012. All rights reserved