Shared services

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Shared services is the provision of a service by one part of an organization or group, where that service had previously been found, in more than one part of the organization or group. Thus the funding and resourcing of the service is shared and the providing department effectively becomes an internal service provider. The key here is the idea of 'sharing' within an organization or group. This sharing needs to fundamentally include shared accountability of results by the unit from where the work is migrated to the provider. The provider, on the other hand, needs to ensure that the agreed results are delivered based on defined measures (KPIs, cost, quality etc.).

Contents

Overview

Shared services is similar to collaboration that might take place between different organizations such as a Hospital Trust or a Police Force. For example, adjacent Trusts might decide to collaborate by merging their HR or IT functions.

There are two arguments for sharing services: [1] The ‘less of a common resource' argument and the ‘efficiency through industrialization' argument. The former is ‘obvious': if you have fewer managers, IT systems, buildings etc; if you use less of some resource, it will reduce costs. The second argument is ‘efficiency through industrialization’. This argument assumes that efficiencies follow from specialization and standardization – resulting in the creation of ‘front' and ‘back' offices. The typical method is to simplify, standardize and then centralize, using an IT 'solution' as the means.

Shared services is different from the model of outsourcing, which is where an external third party is paid to provide a service that was previously internal to the buying organization, typically leading to redundancies and re-organization. There is an ongoing debate about the advantages of shared services over outsourcing. [2] [3] [4] [5] It is sometimes assumed that a joint venture between a government department and a commercial organization is an example of shared services. The joint venture involves the creation of a separate legal commercial entity (jointly owned), which provides profit to its shareholders.

Traditionally the development of a shared-service organization (SSO) or shared-service centre (SSC) within an organization is an attempt to reduce costs (often attempted through economies of scale), standardized processes (through centralization). A global Service Center Benchmark study [6] carried out by the Shared Services & Outsourcing Network (SSON) and the Hackett Group, which surveyed more than 250 companies, found that only about a third of all participants were able to generate cost savings of 20% or greater from their SSOs. At NASA, the 2006 switch to a shared services model is realizing nearly $20 million of savings annually. Further, by the end of 2015, the NASA Shared Services Center is expected to save the organization a total of over $200 million, according to NASA's Director of Service Delivery. [7]

A large-scale cultural and process transformation can be a key component of a move to shared services and may include redundancies and changes of work practices. It is claimed that transformation often results in a better quality of work life for employees although there are few case studies to back this up [ citation needed ].

Shared services are more than just centralization or consolidation of similar activities in one location. Shared services can mean running these service activities like a business and delivering services to internal customers at a cost, quality, and timeliness that is competitive with alternatives.

Commercial structures

A shared service can take a variety of different commercial structures. The basic commercial structures include:

Unitary
A single organization consolidating and centralizing a business service
Lead department: An organization consolidating and centralizing a business service that will be shared by other organizations
Joint initiatives
Agreement between two or more organizations to set up and operate shared services

Location variations

It is sometimes argued that there are three basic location variations for a shared service including:

On-shore
Work is carried out in the same country but at a different location
Near-shore
Work is carried out in a close location (e.g. continental Europe relative to the UK)
Off-shore
Work is carried out anywhere in the world that is not on-shore or near-shore

This is not just to take advantage of wage arbitrage but to appreciate the talents of particular economies in delivering specific service offerings.

The difficulty with this argument is that near-shore and off-shore are normally associated with the outsourcing model and are difficult to reconcile with the notion of an internally shared service as distinct from an externally purchased service. Clearly, the use of off-shore facilities by a government department is not an example of shared services.

Benchmarking and measurement

In establishing and running a shared service, benchmarking and measurement is considered by some as a necessity. Benchmarking is the comparison of the service provision usually against best in class. The measurement occurs by using agreed key performance indicators (KPIs). Although the amount of KPIs chosen differs greatly it is generally accepted that fewer than 10 carefully chosen KPIs will deliver the best results.[ citation needed ]

Organizations do attempt to define benchmarks for processes and business operations.

Benchmarking can be used to achieve different goals including:
1. To drive performance improvements using benchmarks as a means for setting performance targets that are met either through incremental performance improvements or transformational change.
- Strategic: with a focus on a long-term horizon; and
- Tactical: with a focus on the short and medium term

2. To focus an organization on becoming world class with processes that deliver the highest levels of performance that are better than those of its peer group.

In the private sector

The private sector has been moving towards shared services since the beginning of the 1980s. Large organizations such as the BBC, BP, Bristol Myers Squibb, Ford, GE, HP, Pfizer, Rolls-Royce, ArcelorMittal, and SAP are operating them with great success. According to the English Institute of Chartered Accountants, more than 30% of U.S. Fortune 500 companies have implemented a shared-service center, and are reporting cost savings in their general accounting functions of up to 46%.

The conventional accounting practice used to generate these figures is disputed however by management thinker Professor John Seddon, who argues that the measurement known as 'unit cost' tells you nothing about overall costs. Overall costs include 'failure demand', which is defined as a failure to do something or do something right for the customer.

In the public sector

The public sector has taken note of the benefits derived in the private sector and continues to strive for best practice. The United States and Australia among others have had shared services in government since the late 1990s. However, the failures of these projects are increasingly being reported by the press [8] and exposed by opposition politicians. [9]

UK

The UK government under a central drive to efficiency following from the Gershon Review are working to an overall plan for realizing the benefits of shared services. The Cabinet Office has established a team specifically tasked with the role of accelerating the take up and developing the strategy for all government departments to converge and consolidate. The savings potential of this transformation in the UK Public Sector was initially estimated by the Cabinet Office at £1.4bn per annum (20% of the estimated cost of HR and Finance functions). The National Audit Office (United Kingdom) in its November 2007 report [10] pointed out that this £1.4bn figure lacked a clear baseline of costs and contained several uncertainties, such as the initial expenditure required and the time frame for the savings.

There are reports of UK government shared service centres failing to realise savings, such as the Department of Transport's project, described as 'stupendous incompetence' by the Parliament's Public Accounts Committee. [11]

The Northern Ireland Civil Service (NICS), has implemented shared services for a number of departments and functions. For example, IT Assist (the ICT Shared Service Centre) provides common infrastructure and desktop services to NICS staff in the office, at home or when mobile working. [12]

Canada

The government of Canada instituted Shared Services Canada on August 4, 2011, with the objective of consolidating its data centres, networks and email systems. [13] This followed a tendency to centralize IT services which had been followed by the provinces of British Columbia, Québec, and Ontario, as well as the federal government of the United States of America and some states like Texas. PriceWaterhouseCoopers recommended integrating government data centres in a report ordered by Public Works and Government Services Canada, revealed in December 2011. [14]

Ireland

In the Republic of Ireland, the health service nationally has been reorganized from a set of regional Health Boards to a unified national structure, the Health Services Executive. Within this structure there will be a National Shared Services Organisation, based on the model developed at the former Eastern Health Shared Services, where procurement, HR, finance and ICT services were provided to health agencies in the Eastern Region of Ireland on a business-to business basis.

Organizations that have centralized their IT functions have now begun to take a close look at the technology services that their IT departments provide to internal customers, evaluating where it makes sense to provide specific technology components as a shared service. E-mail and scanning operations were obvious early candidates; many organizations with document-intensive operations are deploying scanning centers as a shared service.

Many large organizations, in both the public and private sectors, are now considering deploying enterprise content management (ECM) technology as a shared service.

See also

Related Research Articles

Benchmarking is the practice of comparing business processes and performance metrics to industry bests and best practices from other companies. Dimensions typically measured are quality, time and cost.

Outsourcing is an agreement in which one company hires another company to be responsible for a planned or existing activity which otherwise is or could be carried out internally, i.e. in-house, and sometimes involves transferring employees and assets from one firm to another. The term outsourcing, which came from the phrase outside resourcing, originated no later than 1981. The concept, which The Economist says has "made its presence felt since the time of the Second World War", often involves the contracting out of a business process, operational, and/or non-core functions, such as manufacturing, facility management, call center/call center support.

<span class="mw-page-title-main">Energy conservation</span> Reducing energy consumption

Energy conservation is the effort to reduce wasteful energy consumption by using fewer energy services. This can be done by using energy more effectively or changing one's behavior to use less service. Energy conservation can be achieved through efficient energy use, which has some advantages, including a reduction in greenhouse gas emissions and a smaller carbon footprint, as well as cost, water, and energy savings.

Offshoring is the relocation of a business process from one country to another—typically an operational process, such as manufacturing, or supporting processes, such as accounting. Usually this refers to a company business, although state governments may also employ offshoring. More recently, technical and administrative services have been offshored.

Procurement is the process of locating and agreeing to terms and purchasing goods, services, or other works from an external source, often with the use of a tendering or competitive bidding process. The term may also refer to a contractual obligation to "procure", i.e. to "ensure" that something is done. When a government agency buys goods or services through this practice, it is referred to as government procurement or public procurement.

<span class="mw-page-title-main">Performance indicator</span> Measurement that evaluates the success of an organization

A performance indicator or key performance indicator (KPI) is a type of performance measurement. KPIs evaluate the success of an organization or of a particular activity in which it engages. KPIs provide a focus for strategic and operational improvement, create an analytical basis for decision making and help focus attention on what matters most.

Business process outsourcing (BPO) is a subset of outsourcing that involves the contracting of the operations and responsibilities of a specific business process to a third-party service provider. Originally, this was associated with manufacturing firms, such as Coca-Cola that outsourced large segments of its supply chain.

In the United States, a group purchasing organization (GPO) is an entity that is created to leverage the purchasing power of a group of businesses to obtain discounts from vendors based on the collective buying power of the GPO members.

A purchasing cooperative is a type of cooperative arrangement, often among businesses, to agree to aggregate demand to get lower prices from selected suppliers. Retailers' cooperatives are a form of purchasing cooperative. Cooperatives are often used by government agencies to reduce costs of procurement. Purchasing Cooperatives are used frequently by governmental entities, since they are required to follow laws requiring competitive bidding above certain thresholds. In the United States, counties, municipalities, schools, colleges and universities in the majority of states can sign interlocal agreements or cooperative contracts that allow them to legally use contracts that were procured by another governmental entity. The National Association of State Procurement Officials (NASPO) reported increasing use of cooperative purchasing practices in its 2016 survey of state procurement.

<span class="mw-page-title-main">Business process outsourcing in the Philippines</span> Overview of the process of outsourcing of various business processes

One of the most dynamic and fastest growing sectors in the Philippines is the information technology–business process outsourcing (IT-BPO) industry. The industry is composed of eight sub-sectors, namely, knowledge process outsourcing and back offices, animation, call centers, software development, game development, engineering design, and medical transcription. The IT-BPO industry plays a major role in the country's growth and development.

Global sourcing is the practice of sourcing from the global market for goods and services across geopolitical boundaries. Global sourcing often aims to exploit global efficiencies in the delivery of a product or service. These efficiencies include low cost skilled labor, low cost raw material, extreme international competition, new technology and other economic factors like tax breaks and low trade tariffs. A large number of Information Technology projects and Services, including IS Applications and mobile phone apps and database services are outsourced globally to countries like India and Pakistan for more economical pricing.

An energy service company (ESCO) is a company that provides a broad range of energy solutions including designs and implementation of energy savings projects, retrofitting, energy conservation, energy infrastructure outsourcing, power generation, energy supply, and risk management.

Public water supply and sanitation in Denmark is characterized by universal access and generally good service quality. Some salient features of the sector in the Denmark compared to other developed countries are:

Water supply and sanitation in the Netherlands is provided in good quality and at a reasonable price to the entire population. Water consumption is one of the lowest in developed countries at 128 litres per capita per day and water leakage in the distribution network is one of the lowest in the world at only 6%.

Cost allocation is a process of providing relief to shared service organization's cost centers that provide a product or service. In turn, the associated expense is assigned to internal clients' cost centers that consume the products and services. For example, the CIO may provide all IT services within the company and assign the costs back to the business units that consume each offering.

The Commission on the Reform of Oklahoma State Government, also known as the Nigh Commission, was a committee that in 1984 recommended sweeping changes to the government of the State of Oklahoma to improve efficiency, economy and service. It is named after former Governor of Oklahoma George Nigh, who appointed the Commission.

An accountable care organization (ACO) is a healthcare organization that ties provider reimbursements to quality metrics and reductions in the cost of care. ACOs in the United States are formed from a group of coordinated health-care practitioners. They use alternative payment models, normally, capitation. The organization is accountable to patients and third-party payers for the quality, appropriateness and efficiency of the health care provided. According to the Centers for Medicare and Medicaid Services, an ACO is "an organization of health care practitioners that agrees to be accountable for the quality, cost, and overall care of Medicare beneficiaries who are enrolled in the traditional fee-for-service program who are assigned to it".

The Medicare Physician Group Practice (PGP) demonstration was Medicare's first physician pay-for-performance (P4P) initiative. The demonstration established incentives for quality improvement and cost efficiency. Ten large physician groups participated in the demonstration, which started on April 1, 2005 and ran for 5 years. Previous funding arrangements, like the volume performance standard (VPS) and the sustainable growth rate (SGR) did not provide incentives to slow the growth of services. The Medicare PGP demonstration was intended to overcome that limitation in previous funding arrangements.

<span class="mw-page-title-main">Federal Systems Integration and Management Center</span>

GSA FEDSIM provides assisted acquisition support for information technology systems and services, and professional services, to other U.S. Government agencies on a fee for service basis. FEDSIM’s business lines include system and network operations and maintenance, development of new applications, purchases of hardware and software, and many other IT goods and services, as well as professional services such as logistics. FEDSIM contracts with large and small private sector companies for these systems and services.

Data center management is the collection of tasks performed by those responsible for managing ongoing operation of a data center. This includes Business service management and planning for the future.

References

  1. ↑ Why do we believe in economy of scale?. Thesystemsthinkingreview.co.uk. Retrieved on 2013-07-26.
  2. ↑ Outsourcing vs. shared services | InfoWorld | Column | 2006-05-30 | By Ephraim Schwartz Archived 2008-01-15 at the Wayback Machine
  3. ↑ Shared Services vs. Outsourcing | IT Business Edge Archived 2006-10-29 at the Wayback Machine
  4. ↑ "Capgemini U.S. | Jury Is Still Out On Outsourcing Versus Shared Services As Dominant Service Delivery Model, Says Capgemini Survey". Archived from the original on 2007-02-13. Retrieved 2007-12-31.
  5. ↑ Janssen, M.; Joha, A. (2006). "Motives for Establishing Shared Service Centers in Public Administrations". International Journal of Information Management. 26 (2): 102–116. CiteSeerX   10.1.1.109.6832 . doi:10.1016/j.ijinfomgt.2005.11.006. ISSN   0268-4012.
  6. ↑ SSON and Hackett Group global Service Center Benchmark study | Shared Services & Outsourcing Network (SSON) | Webinar | 2009-03-31 | Presented by Penny Weller
  7. ↑ Kenneth Newton, “Shared Services: Bringing Efficiency from NASA to Higher Education,” The EvoLLLution, October 17, 2014. Accessed at http://www.evolllution.com/opinions/shared-services-bringing-efficiency-nasa-higher-education/
  8. ↑ Government shared services navigate a rocky road - Part 1 - shared services, government services division, queensland health. CIO (2011-07-04). Retrieved on 2013-07-26.
  9. ↑ The Hon. Rob Lucas MLC - Media Archived 2011-08-22 at the Wayback Machine . Roblucas.com.au (2011-06-14). Retrieved on 2013-07-26.
  10. ↑ NAO report (HC 2007-08): improving corporate functions using shared services
  11. ↑ [ dead link ]
  12. ↑ Case study presentation on the IT Assist programme in Northern Ireland Archived 2010-05-11 at the Wayback Machine
  13. ↑ Canada News Centre - Government of Canada to Reduce Information Technology Costs and Save Taxpayers' Dollars Archived January 11, 2012, at the Wayback Machine . News.gc.ca (2011-08-04). Retrieved on 2013-07-26.
  14. ↑ PricewaterhouseCoopers feasibility study provides valuable insight into Government of Canada Data Centre Environment - Features - PWGSC Archived 2012-03-05 at the Wayback Machine . Tpsgc-pwgsc.gc.ca. Retrieved on 2013-07-26.
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