Can shared services do more than just cut overheads?

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Shared services in all but name have been around longer than most social media CEOs, but as a result of tough times they're being pushed to the fore. 

But can they be more than just putting servers from a group of organisations into the same building and actually add value on top of cost cutting?

It is not a step into the unknown for many organisations but a refresh of an old concept.
As early as the 1960s bureau services were set up to provide mainframe resources to complete particular technology based businesses processes for financial services firms.

But today technology advances mean shared services can go a step further and innovate. But this is where the sharing aspect might lose its charm and where the public and private sectors need to share with care.

The public sector in particular has seen shared services rise to the top of current IT debate as organisations face steep budget cuts.
 
Many public sector organisations in central government, local government as well as services such as the police and health have identical IT processes. Sharing these processes makes sense.

For example the Chartered Institute of Public Finance and Accountancy says 96% of local councils are moving to shared service. And Ovum predicts 50% of European public sector bodies will use shared services in two years.

Because public sector organisations do not compete, the business case for sharing services appears obvious at first glance. So compelling that one industry source recently told Computer weekly that "anyone with an ounce of intelligence can see that shared services are a good idea in government."

But some intelligence is certainly required for anyone selecting a shared service, which can come in different forms in the public sector. They can be partnerships between public sector organisations or public and private sector joint ventures, for instance.

Organisations should approach shared services with caution, according to Rod Matthews, a veteran CIO and transformation expert in the public sector. Matthews has worked at Knowsley Metropolitan Borough Council, the Cabinet Office and the London Borough of Barnet. 

"Any organisation should go into shared services with their eyes wide open," he says.

He says sharing commodity IT services in any sector is straightforward but he warns that organisations must look into the future before signing shared services contracts for technology enabled business processes. 

"Shared Services have significant advantages, but this delivery route needs to come with a bit of aforethought. If you only specify continuing things as-is, or you think it is a magic bullet, you might find adapting around your shared service to be labour intensive."
 
"Seated above the commodity are the technology enabled business processes. These are often bespoke and will likely have a range of possible forward plans."

He said future developments such cross public sector data sharing or process changes, which could come as a result of new government policies, could mean a shared service may no longer be appropriate.
 
Matthews says many shared services are in the form joint ventures, with suppliers taking overall management responsibility. The government has also revealed, in a leaked document, that joint ventures could be the way forward in cutting costs rather than wholesale outsourcing .

But Matthews warns organisations to take care when signing deals to ensure that the supplier can share and support their long term plans, even when things change.

It is not only communities in non-competitive sectors, such as those in the public sector, that can benefit from shared services. And it is not just about cost cutting either with shared knowledge and requirements also stimulating innovation.

Perhaps the most competitive of all sectors, the banking sector, provides an example of competitors sharing technology successfully.

The Society for Worldwide Interbank Financial Telecommunication (Swift) is a not-for-profit cooperative that provides a network that sends an average of 17 million financial transaction messages every day across 209 countries. It is used by over 8000 finance firms.

It began in 1973, with 239 banks on board from the start.

Swift demonstrates how even companies engaged in cut throat competition can share core business processing resources to cut costs. But it also demonstrates how a shared service can go further and innovate.

Kosta Peric, head of innovation at Swift, says his team, which is in constant contact with member organisations, proposes and pilots new.

Swift, for instance, is currently proposing Swift as a vehicle to provide cloud-based services. These include a financial services app store, identity management applications and mobile banking software.

But there could be a limit to this. Celent analyst Gareth Lodge says there is a fine line between cooperation and competition and, as a result, Swift's community model could limit its potential in providing additional services. "If banks use the same platforms there will be no way to differentiate unless the supplier provides enough tools to allow them to do so," Lodge added.

But he believes there is a role for an organisation like Swift. He says there is an opportunity for a service provider to become a "trusted cloud broker", and this kind of supplier will validate the services available in the cloud and check that suppliers are meeting service level agreements (SLAs). 

James Martin, former IT COO Europe at Lehman Brothers, says there is a boundary between the commoditised back-end and the bespoke front-end at banks. "I still have the feeling banks believe they can differentiate on things like websites, but if someone can push the boundary between commodity and bespoke services by adding functionality to commodity services it could change this," he said.

The latest economic slowdown has left an indelible mark on the business sector, one which has sharpened the focus on using technology to cut costs and differentiate. Technology-enabled shared services have the backing of cost conscious decision makers, while technologies such as cloud computing provide a potential vehicle for them. Could this be the perfect storm for shared services to evolve into more than just a reducer of the costs of hardware and people?

1 Comment

QUOTE

... one industry source recently told Computer weekly that "anyone with an ounce of intelligence can see that shared services are a good idea in government."

UNQUOTE

That may well be true.

The question is, would anyone with two ounces of intelligence agree?

If you go the extra ounce, you might question whether shared services are guaranteed to reduce costs. Suppose that shared services increase costs?

Take another ounce, and you might question whether it's true that public sector organisations don't compete. Hypothesis: public sector organisations compete like mad – discuss.

The debate won't really get off the ground, though, until "shared services" is defined.

It may also help to get out some old copies of Computer Weekly, say 1975-85, and remind ourselves why everyone gratefully abandoned timesharing. Do we really want to go back to it? Have we forgotten so much?

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This page contains a single entry by Karl Flinders published on June 29, 2011 1:50 PM.

Everything Everywhere cloud computing project will have implications for an industry was the previous entry in this blog.

Union fears Lloyds Banking Group will offshore huge IT consolidation project? is the next entry in this blog.

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