Shared services organisations in Australian government have mixed track records, but senior executives from around the nation say they feel the concept has turned the corner.

By conventional metrics, the Western Australian government’s move to centralise its agencies' core business functions within a shared services organisation (SSO) has been an unmitigated failure.

It is, after all, now 10 years since a Gallop government functional review floated the idea of shared-services reform; seven years since a business case for creation of an SSO was taken to government; and six years since Oracle and ASG Group were contracted to transition 90 state government organisations to an SSO that was originally expected to save the state $55 million per year.

The project has outlasted two Premiers and a change of government, and survived the axe despite the fact that in December 2006 – when the project was originally expected to have been completed – the WA Shared Service Centre (SSC) was servicing exactly zero agencies. This led to the SSC being relocated from the Department of Premier and Cabinet to the Department of Treasury and Finance (DTF), which has ways of being more forceful about driving change through the government.

“In the early days, we did a lot of damage in terms of not meeting expectations, and perhaps not winning hearts and minds by delivering,” Executive Director of Shared Services Brian Roche told an audience at IQPC’s recent Shared Services & Outsourcing Week conference.

“It was all about achieving efficiencies, reducing staff headcount and, through economies of scale, generating savings. But a number of agencies were given their roll-in dates, then given roll-in dates again as we worked through it. Many saw this as Treasury just finding another way to take money out of their budgets – and that was counterproductive to getting this thing done.” Yet things are looking up since the DTF intervention. Last year, the 300-staff SSC processed over $4 billion worth of transactions for over 55 agencies in areas including finance, HR, payroll, recruitment, financial reporting, tax, procurement and more. There is greater accuracy at a lower cost per transaction; automation has improved, with purchase-order clearance rates up from as low as 6 per cent to as high as 40 per cent; and the team has completed complex tasks such as the creation of a whole-of-government chart of accounts and centralised modelling of over 100 agency-specific industrial agreements.

The project is, however, still way off its original cost-savings estimates, which were based on a full roster of 90 agencies, and won’t be realised until the transition is complete – if it is ever completed. The shared-services rollout was paused in January after a DTF-commissioned independent review began evaluating progress to date and plans for the future.

Whether or not the review heralds the end of the SSC, Roche feels the effort has been intensely positive for a state government that was, like most, heavily fragmented and over-reliant on outdated, inefficient and expensive administrative processes.

This produced predictable problems including what he calls “problematic middleware”; the need to accommodate and migrate agencies’ in-house processes within the vanilla Oracle platform; and integration work and custom developments such as project-based accounting for the Department of Agriculture and Food, and asset management for the DTF.

“We’re building in all the functionality and awards the agencies need, then transitioning them in,” says Roche. “In the past, our organisational structure was not aligned with end-to-end processes and was more traditionally aligned with finance and HR. Now we’ve aligned it very much with the Oracle end-to-end processes. It has come a long, long way.” The hard truth about SSOs WA’s experience with shared services is by no means unique: business line managers and ICT executives may immediately recognise the benefits of the efficiencies SSOs provide, but government is a complex beast and the ever-present desire for political expedience often conflicts with the long-term change that shared services involves. Also, as governments across Australia pause to reconsider their sharedservices plans, it’s clear that this mismatch of goals and expectations has already claimed some scalps.

Queensland, for example, expected to save $100 million per year when it embarked on an aggressive $125 million shared-services strategy in 2006, but came under the microscope last year after revelations the plan had only saved $13 million over its lifetime and had caused major problems, including a disastrous Queensland Health payroll implementation.

Premier Anna Bligh sharpened the budget axe for the CorpTech shared-services arm after a report attacked its poor project management and poorlydefined business requirements, while an outside review by PricewaterhouseCoopers recommended an overhaul of the model – with a mixed approach that better catered for specific needs of different organisations.

Individuality was never a selling point of SSOs for bean-counting governments that were already drowning in infrastructure diversity and duplication. If anything, it’s seen as expensive: a survey by research group Ovum recently found 29 per cent of Asia-Pacific public-sector CIOs felt one-size-fits-all shared services didn't offer enough financial benefits to make the effort worthwhile (in North America, the figure was 46 per cent; in Europe, 49 per cent). Nearly one-third of regional respondents were concerned about losing control of their key business operations in an SSO move.

Asia-Pacific Ovum analyst Jessica Hawkins, who authored the report analysing the survey's findings, says the benefits of shared services are there for the taking – but that projects need to dovetail with broader initiatives and resource availability.

“The drawbacks or disadvantages can potentially lie in issues of governance and complexity,” she explains, “as well as a perceived lack of choice and potential bottlenecks in service delivery. Timing is also an issue: often cost savings aren’t realised immediately; choosing to do this at a time when a legacy upgrade can no longer be delayed will minimise extra costs.” Growing momentum behind cloud computing initiatives could add legitimacy to shared-services efforts, adds Hawkins, who recommends a sensible approach focused on technological reform rather than political expedience.

“Necessity is forcing these barriers to be overcome,” she explains. “The standardisation and multi-tenant nature of cloud deployments mean they are a natural fit with shared-services concepts. Beginning fairly low down on the technology stack is a good place to start, and ensuring clear governance from the outset is key.” Dollars and sense Australian government organisations’ lingering scepticism towards cloud computing may not foster love for shared-services initiatives. In the end, of course, government’s core goal is service delivery – not necessarily pouring more budget into the ICT black hole.

Yet this isn’t an excuse to ignore ICT, says Stephen Payne, Finance Director for Corporate and Shared Services within the NSW Compensation Authorities Cluster and a veteran of four private and publicsector shared-services initiatives. “If you get the ICT or communications wrong, you will suffer badly,” he warns. “Not only will you demoralise the team because nothing works, but you’re making life really difficult for yourself.” Many SSOs are finding that a commercially structured service mentality – with all its emphasis on data, monetising the cost of service, and customerservice improvement as ROI – can foster change better than the top-down, prescriptive public-service models.

“A lot of SSOs are run passively as cost centres and not really run proactively as businesses,” says Mike Andrews, Practice Manager for Operational Excellence with Dowling Consulting. “They have good data on running their operations, but not on the cost of particular services. They can't provide accurate prices, don't have the data to support decision making, and don't have a strong understanding of their customers – which means their KPIs don't align with customer objectives.” Those sorts of words are unusual in policyfocused government bodies, but par for the course in performance-based companies. Recognising the limitations of traditional philosophical dichotomies, some SSOs are straddling – or even crossing – longdrawn lines.

In NSW, for example, the BusinessLink shared-services body – which handles over 300,000 transactions annually for a broad range of government organisations – is a registered Pty Ltd company, with all the structure and governance requirements that entails. This approach has allowed the organisation to build commercial reporting around its operations while allowing a performance-based board of directors to monitor customer satisfaction and unit-based cost of delivery using commercial performance metrics.

“We actually generate our own capital and can borrow to actually build new things,” says Chief Executive Albert Olley. “This gives us the flexibility in the government sector to actually invest and choose to build, rather than going cap in hand with submissions for limited resources. But to do that, we’ve got to be very diligent and transparent about what we’re doing, and how we’re doing it, and why.” Unlike most companies, BusinessLink is focused not on increasing profit margins, but on translating whatever savings it can generate into improving front-line service delivery. This requires great visibility of the organisation’s costs and unit-pricing models, a willingness to assume a degree of departmental risk in return for higher putative benefits, and the continuous engagement of departmental stakeholders who – despite common initial scepticism of SSOs as heavyhanded political instruments – can become productive partners if engaged correctly.

“Over time, we’ve gotten to a point where we’re able to start having shared objectives,” says Olley.

“We’re now in a partnership with the departments, clients, and agencies to get the outcomes for the community. It’s not that shared services is a waiter coming in, taking orders, and delivering; it’s actually about working together, sharing the responsibility and partnering as we go forward.” Partnering for success Despite BusinessLink's success to date, not every government is jumping onto the commercial bandwagon. A commercial structure was a bridge too far, for example, for the ACT Government Shared Services (GSS), which came to fruition within just eight months of its May 2006 wannouncement, complete with an aggressive target of $20 million in annual savings.

Four years later, the initiative has been a raging success, with the $20 million target hit in its first year and nearly 90 per cent satisfaction with GSS services including HR, finance, regulatory, mailroom, courier and publishing. In fact, the initiative has actually worked too well: the SSO has worked so hard on customer satisfaction, for example, that many transaction-processing jobs are turned around within two days despite the SSO expecting it could take up to five. This makes for great customer satisfaction but has created its own problems: “In some cases we need to ease back a bit because we're becoming a bit costly through the high effort we're putting into some areas,” admits Executive Director of Shared Services Jill Divorti.

To resolve the issue, the SSO spent the past 18 months liaising with agencies through one-on-one interactions, focus groups and other interactions. The consensus echoed PricewaterhouseCoopers’ Queensland recommendations: the SSO should stop providing generic services at high levels of performance, and work in partnership to spread risk and better tailor its offerings to help agencies innovate in ways that are important for them.

that have torpedoed many other SSO initiatives. “You can get conflicts with agencies where they're not necessarily happy with the loss of control that shared services can bring,” Divorti explains. “There's always that 'I could do it better myself if I had control' attitude. In fact, it is the partnership model agencies are seeking, and we need to take our operations to the next level. We're trying to re-deploy staff to other areas, where we can add more value that agencies can truly appreciate.” This sort of partnership model can be compromised by the ever-present spectre of – and suspicion of – underlying commercial imperatives, which serve the SSO's purpose, but risk sidelining departmental nuances and idiosyncrasies.

In the long term, government agencies will weigh up the balance between commercial and non-commercial interests, says John Wadeson, outgoing CIO of the Department of Human Services, who has watched years of efforts to consolidate governmental ICT with varying results.

“We realise this is probably too big for us to manage on our own,” he explains, suggesting a greater role for private industry as SSOs come to grips with their promise and limitations. “We’re trying to work through the issues around what cosourcing means, and we think we’ll probably need to invent a new model working alongside industry people. We’ll be going to market saying we want them to work with us in [a certain] way.” Commercial models’ heavily managed, highly-granular cost models also offer invaluable ways of driving a culture of efficiency through a traditionally changeresistant public service. In some cases, this includes offering performance incentives that might seem unorthodox to many: “I believe you should pay commercial bonuses for commercial performance, even in a government space,” says Payne.

“If you can foster internal competition within the teams, you can build a meritocracy. But you are not going to be able to introduce new technologies to new processes, get people to volunteer to make things happen, or get them involved in improving the organisation and processes unless they’re remunerated appropriately.

Otherwise, for them it’s just a job.” Holding internal employees to commercial-styled incentives offers one other advantage: it creates a healthy competitive tension and reminds those within shared services organisations that there are myriad external organisations with the skills and desire to do what they may not be motivated to do.

Olley sees this challenge in terms that sound like something out of a dot-com playbook. “If you don’t bring energy, your people don’t innovate and don’t think about what they’re doing,” he explains. “They don’t challenge the status quo, and the workplace environment doesn’t start to buzz as it does where you get high productivity. [Maintaining] energy was a key aspect for us, as we were driving forward our values and focusing on greater levels of customer-centric operations.” Corporate risk Words like ‘innovation’, ‘buzz’ and ‘energy’ may seem incompatible with many public-service cultures, but this is where SSO architects say government bodies need to step in and get on the ball. Treating positions at internal SSOs as inviolable public-service entitlements simply devalues the spirit of shared services – but a culture of competitive tension, backed by appropriate methods for driving and supporting cultural change, will nurture the possibilities posed by treating departmental clients as partners rather than risk-averse overlords.

“If I were doing it again, I’d try to play down the savings aspect,” says WA SSC’s Roche. “I’d do a lot more selling about how this is modernising government, and how moving to a consistent workflow is more important and better for government than staying in paper-based processes.” Taking another leaf from the commercial model, agencies like the ACT government and NSW BusinessLink have approached this goal by assigning departments with relationship managers to provide long-term continuity – and projecting a sense that the SSO is there to meet individual departments' needs rather than just foisting a politically-driven technical agenda on them.

Trust can be hard-fought and harder-won, even in organisations where corporate-styled competitive tension has become the norm. It took four years, Olley concedes, before the executive members of the organisation’s Going Forward Forum – a monthly gathering of SSO representatives and their clients – could get to the point “where we weren’t fighting over issues and backstabbing, and [realised] we’ve got shared responsibility to take this forward”.

Just be sure you’ve taken a radical enough approach to ensure real change – and real accountability. “When you’re dealing with people and governance, you need reporting lines, need senior management to be accountable, and performance contracts and agreements that work, and make sense – and don’t nitpick on people’s inability to deliver on poor senior management decisions,” says Payne, whose experience includes a stint at a big-four bank where a unilateral management move towards shared services was resisted and sabotaged by line managers at every opportunity.

“It’s easy to drive these projects from a textbook, but you wouldn’t believe how many people get this wrong. If cutting expenses is your raison d’etre, it just won’t work in the long run. I have seen this done really badly on a large scale, and it was diabolical at the end of the day.” Wadeson, for one, believes the government SSO field has turned a corner, despite chequered early results. “A lot of territorialism has really broken down in recent years,” he says. “People are really into the business that makes sense, and there’s a lot of sharing going on. I don’t think we’ll go backwards.”