Shared services: An old concept excites new interest in public and private sectors

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Shared services: An old concept excites new interest in public and private sectors

 

Shared services past and present

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.

It is not a step into the unknown for many organisations but an old concept dusted off for a new age.

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 advances in technology 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.

 

Growing popularity of shared services in the public sector

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 and public services such as the police (see panel 1) and health (see panel 2) 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.

Public sector organisations do not compete, so the business case for sharing services appears obvious at first glance. So compelling is the logic that one industry source recently told Computer Weekly: "Anyone with an ounce of intelligence can see shared services are a good idea in government."

 

Sharing services requires forward planning

But perhaps a little more than an ounce of intelligence is required when it comes to selecting which services to share, 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. Rod 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," Matthews 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 forethought. 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."

 

Shared services suppliers must support long-term plans

He said future developments, such as 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 revealed, in a leaked document, that joint ventures could be the way forward in cutting costs rather than wholesale outsourcing (see box 3).

But he 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.

 

Outside the public sector: Banks use shared services

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 co-operative that provides a network that sends an average of 17 million financial transaction messages every day across 209 countries. It is used by over 8,000 finance firms.

It began in 1973, with 239 banks sharing the communications services at the start 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 communications projects.

For instance, the company 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 co-operation 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," he explained.

But Gareth Lodge believes there is a role for an organisation such as 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 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," James Martin 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 vehicle to reduce the costs of hardware and people?

 

Case study 1: Cleveland Police Authority

Police authority hopes to save £5m 

 

Cleveland Police Authority became the first customer of Steria's shared services offering targeted at UK police forces.

The police authority is spending £175m over a decade on shared services and expects £50m in savings over that time.

Cleveland Police will be the first police body to use Steria to share services such as finance, HR, payroll, commissioning and fleet management in Steria's dedicated datacentres. When other forces are signed up they will use the same infrastructure.

A total of 470 civilian staff at Cleveland Police Authority moved to Steria with more than 200 remaining at the police authority.

Capgemini also has a shared service tailored to the policing.

 

Case study 2: Department of Health

NHS joint venture pays £1m back 

 

NHS SBS is a joint venture between Steria and the Department of Health. It uses an Oracle platform and a single set of processes to run the back offices of NHS trusts. About 100 NHS trusts now use the NHS SBS service.

It promises trusts up to 30% cost savings and even paid the NHS back £1m last year.

When the service was first set up, half the jobs - some 300 - were immediately offshored to Pune, in India, and this has grown to 1,200 as new business has been added.

Ruth Ormsby, Capgemini's head of public sector BPO operation, used to run NHS SBS for the Department of Health. She describes some of the non-financial benefits of a shared service: "There are several non-financial benefits for the public sector, the first being improved management information and financial control," she said. "There is also a benefit in the commercial relationship between public sector commissioners of service and suppliers, whereby quality improvements can be measured and are enforceable through service level agreements and KPIs."

"In an outsource to the private sector, the shared service centre staff become part of an outsourcing company's core business rather than remaining part of the public sector organisations back office, this encourages cultural change," added Ruth Ormsby.

 

Government open to public sector joint ventures

 Joint ventures – a palatable alternative to wholesale outsourcing?
 

A recently leaked government document suggested the government sees shared services as a favourable means of cutting costs while improving public sector services.

The leaked document said: "The government is committed to transforming services, but this would not be a return to the 1990s with wholesale outsourcing to the private sector - this would be unpalatable to the present administration."

"The government was not prepared to run the political risk of fully transferring services to the private sector, with the result that they could be accused of being naive or allowing excess profit-making by private sector firms."

But there could be a place for joint ventures. "Government is very open to ideas for services currently provided within the public sector to be delivered under a private/government joint venture."

 

Video: Gartner on how CIOs can benefit from shared services

 

Video: Local authorities share services


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This was first published in July 2011

 

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