Getting clever about shared services

By Greg Field*

Reduced costs and increased efficiency are the big sell of public sector Shared Services, but the benefits can fast evaporate when leadership and cultural obstacles arise. Former senior public servant Greg Field opens the bonnet to examine what works well – and what doesn’t.

In its simplest form, shared services refers to a function within an organisation, previously carried out by all parts of the business, which then becomes wholly undertaken by only one part of that organisation. The providing department then becomes like an ‘outsourced’ services provider, and the funding and resourcing of the provided service is then shared among all other departments in the business.

Over the last decade, governments in almost every Australian jurisdiction have seized upon shared services as a cost saving option. This is primarily due to the perception that the sharing of ‘back office’ services by public sector organisations will offer a range of obvious and concrete benefits.

The adoption of shared services has become increasingly popular within the wider public sector as departments seek to operate more efficiently in the face of economic downturn and increasing public scrutiny. The greatest incentives for governments to adopt shared services is the operational and cost efficiency that is achieved through economies of scale, consolidation of functional expertise, the promotion of regional policy objectives and overcoming geographical skills shortages.

The cost savings and additional benefits associated with shared services initiatives have been demonstrated. However putting shared services initiatives in place across large-scale public sector organisations is extremely complex and cannot be instigated without expecting to encounter a number of complications and setbacks.

The Australian Institute of Management (AIM) has undertaken a study to better understand the root cause of the issues that have been encountered with previous public sector shared services implementations. The ‘Shared Services in the Public Sector’ White Paper explores these issues in depth, and suggests ways to increase the success of shared services initiatives within the public sector so that the positive outcomes, already established in principle, can be achieved in practice.

The Shared Services White Paper highlights that behavioural issues, referring to the way people work together and their openness to collaboration, are at the core of issues relating to the implementation of shared services. The principal areas where behavioural issues have emerged are – instilling the right change imperative; having appropriate and sufficient political sponsorship; the backing of strong collective leadership and, most importantly, a realistic business case.

A major issue was that the importance of leadership, both collective and political, was often undervalued. The use of unrealistic business cases also proved to be a primary reason for the failure of these shared services initiatives in the public sector.

The Right Change Imperative Put simply the primary reason that shared services implementations are instigated is
the perceived cost saving benefits. What is interesting to note is that senior public sector executives interviewed in the development of the white paper observed that a focus on service improvement firstly and cost reduction secondly would likely have resulted in more successful shared service implementations.

Within a public sector context, the use of savings to generate service delivery improvements is more highly valued by employees over the delivery of cost savings for cost savings sake.

For a large scale public sector shared services program to be successful, it is critical that its implementation has visible toplevel political sponsorship. This is particularly imperative if the shared services program spans multiple departments and agencies and there are, as a result, large numbers of employees involved.

A political sponsor, in this context, is the person who champions the initiative, and who is well known and visible to all parties involved. In order to be successful in this position, this person must remain the champion of the initiative and be able to sustain the sponsorship over a long period of time, even if the implementation becomes problematic.

Selecting the right person to become the political sponsor is of supreme importance. While in Australia, Treasurers
or Finance Ministers have historically been nominated, it has been shown that the financial orientation of these particular players lead to a greater focus on cost reduction benefits, resulting in the other benefits being down-played.

Whilst it goes without saying that cost saving is an important component, it should not negate or be perceived as outweighing the other benefits.

The positive support of leaders, their willingness to collaborate and their effective management of the risks involved in implementation are crucial for the success of shared services initiatives.

Government agencies are typically created as standalone organisations with a degree of autonomy afforded to them by legislation. Therefore implementing shared services initiatives across agencies in the public sector can be compared to setting up the same initiatives across a number of different private sector organisations, as those involved don’t all share the same issues and objectives.

It is for this reason that many whole-of government initiatives in other domains have not always met with great success. In order for shared services to be successful within the public sector, the leaders of each participating agency must be wholly supportive of the initiative.

Research participants involved in the AIM research generally agreed that the leaders involved should, ideally, have their performance judged on achievement of the collective outcome.

Collective leadership has proven problematic in shared services implementations in the public sector, primarily due the managers of these different agencies fearing loss of control – loss of control over their administrative functions, loss of staff, and loss of funding. While it is their primary responsibility to ensure their agency is well managed, they also have a responsibility to participate in mandated whole-of-Government initiatives, and this may be met with resistance. This fear thus plays against their natural tendency to work collaboratively and help make the initiative a success.

Undoubtedly a major concern with implementing shared services initiatives in the public sector is the gap that  appears between principle and practice. i.e. what is anticipated will happen based on comparison against other successful campaigns, and what actually happens within the context of the public sector.

The decision to implement a shared services initiative is primarily based on an initial high-level business case and when a more detailed analysis is completed, the actual metrics and context tend to be significantly different. Typically, the major issues were that the financial benefits were overstated, the service improvements were understated and the implementation timeframe was underestimated.

It seems that in many instances the original business case studies relied too heavily on private sector benefits benchmarks and do not properly account for the factors relevant to the implementation within the context of the public sector.

Costs and risks in particular were often not properly considered, such as the complexity of the implementation process, degree of change management required and availability of resources. In order to combat this, the Australian Institute of Management research suggests that before shared services initiatives are commenced, they should be required to show a proven net benefit, once all these factors have been taken into account.

Regardless of the reasoning behind the introduction and implementation of shared services, no program will be completely successful without adequate consideration placed on each of the four components. What is an ideal starting point is ensuring that government departments work together as effectively as possible – sharing and showcasing best practice in terms of processes and systems and sharing ‘back office’ services, where possible.

*Greg Field, Head of Public Policy and Thought Leadership, Australian Institute of Management NSW & ACT (AIM) Before joining the Australian Institute of Management, Greg Field was Managing Partner of Ernst & Young in Canberra. Prior to that, he was Chief Finance and Information Officer of Austrade at the SES Band 3 level, and a Partner at PricewaterhouseCoopers. Greg has professional expertise in shared services, having undertaken public sector shared services scoping and design studies in almost every Australian jurisdiction.

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