The recession has sparked renewed interest in shared services as organisations look to pool their IT, human resources (HR) and financial departments into dedicated service departments.
Local authorities, central government and the private sector see shared services as a way of both reducing costs and standardising their IT infrastructure.
The potential benefits are huge, with up to 50% cost savings, IT leaders at Computer Weekly’s 500 club heard. But so are the challenges. Unless projects are carefully managed, there can be a high risk of failure.
The buzz about shared services has grown, as both public sector and commercial operations seek ways of reducing their costs in the downturn, says Jonathan Cooper-Bagnall, head of shared services and outsourcing at PA Consulting.
More organisations are creating big functional departments that bring together IT, HR, finance and call centres into a single unit.
One big, fast-moving consumer goods company, for example, is spending £1bn a year on a shared service that provides IT, HR, finance and logistics to around 100,000 staff.
The Met Police is spending a similar sum on systems to help solve crime for 50,000 officers and staff in London.
And although it is still early days, central government is developing the idea of Service Integration and Management (SIAM), a new generation of service providers with the capability to manage shared service organisations for the public sector.
You are looking at up to half of an organisation's costs being removed as a result of fully integrated services
Jonathan Cooper-Bagnall, PA Consulting
“The theory for shared services is a really good one," says Cooper-Bagnall. “There is some really good logic in combining everything and saving money. There is a great logic to standardising all the processes and the way we do things.”
Shared services can easily cut costs by 20% to 30%. Add in outsourcing, and savings increase by another 10% or 15%. Integrate all the back-office functions into a single organisation, and you can expect to cut costs by half.
“You are looking at up to half of an organisation's costs being removed as a result of fully integrated services,” says Cooper-Bagnall.
Essex County Council, for example, has signed a large contract for converged network managed services. Within two years, between 15 and 20 public sector bodies will be using the service.
Essex County Council will save 15%, but some of the smaller district councils will be able to make savings of 50%, says David Wilde, CIO of Essex County Council.
The acceleration of interest in shared services is creating new opportunities for CIOs. When organisations are thinking about moving HR, finance and other back-office functions into shared services, it is usually the CIO they turn to first for advice, says Cooper-Bagnall.
Major corporations, such as pharmaceuticals company GlaxoSmithKline, have placed their CIOs in charge not just of IT, but of all enterprise services.
Other organisations have appointed separate heads of shared services to manage day-to-day IT work, freeing up the IT director for more strategic tasks.
“One organisation we have been working with has moved everything – hosting, storage, maintenance and application works – out of the domain of the group IT director and to the head of shared services,” says Cooper-Bagnall. “That is a big change.”
But pulling off a major shared service project is far from easy. Plenty of projects hit the headlines for the wrong reasons.
Somerset County Council's shared service partner, Southwest One, has featured regularly in the press, following a series of legal claims and counter claims over the service’s performance.
Another public sector project took over seven years and £140m to go live with an enterprise resource planning (ERP) system, says Wilde.
When it was ready to go live, the business said: “No thanks, we don’t need it. We have bought Sage, which does the same thing for a fraction of the cost.”
One of the biggest challenges is convincing business leaders that shared services will benefit the organisation.
Businesses need to spend as much time convincing stakeholders that shared services is a good idea as they spend designing and developing the service
Function leaders rarely feel happy when they discover their fiefdoms are going to be integrated into a shared service.
“They are losing power and control, being denuded of their resources and people,” says Cooper-Bagnall. “There is quite a big challenge getting people to accept that this is a good idea and bringing people along on the journey.”
Malcolm Lambell, interim IT director for shared services at Bupa, agrees. “Most stakeholders and staff won’t like it. It's not motivational for people to be in shared services,” he says.
Other business stakeholders are likely to have reservations too. PA Consulting is working with a major law firm that is planning to move its second-level support into a central service.
Some people in the firm don't like the idea because they realise they will lose some of the services they are used to.
“The flip side is that other services are going to be a lot better,” says Cooper-Bagnall. For example, partners working late at night will have access to IT support options currently unavailable out of hours.
The upshot is that businesses need to spend as much time convincing stakeholders that shared services is a good idea as they spend designing and developing the service.
“There is a big question of how you are going to get out and brief folks, how you bring them with you, and how you start to get their hearts and minds into this,” he says.
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CIOs need to be ruthless if they want to make shared services really work, says Lambell.
“There will generally be 20% to 40% cost savings very easily found,” he says. “But if you try to do it being nice, it's not going to happen.”
David Wilde agrees. CIOs need to persuade the business to make some hard decisions, he says.
At Essex County Council, for example, he had to persuade stakeholders to take out costs from IT services.
“The argument was really, if I don’t take this cost out, we are going to have to sack social workers,” he says. “That kind of really simple business case says, ''Take your pick, and here are the numbers to back it up'. Believe me, it shifts the debate to the right place.”
There are other problems to consider. Introducing shared services can make the business less agile and less responsive to change, particularly when parts of the business are regulated.
“The problem is you might gravitate to the lowest common denominator,” says Lambell.
One well-known high street bank, for example, ran into difficulties when it created a shared service to manage the IT infrastructure behind its ATM network and its insurance business.
The bank was geared up towards having the cash machines available 24 hours a day, with minimal downtime. It operated a robust change control process, which meant that getting any sort of IT change was difficult.
The insurance business, on the other hand, sold its products over the web, and needed to update its websites constantly.
“The guys in central support were saying, 'Great, we have 99.99% availability and we have the wall up, stopping changes from coming in',” he says.
“I stood up and told the support guys how many problems they were causing by being so robust. The problem was they were incentivised and measured and proud of their availability figures,” he says.
On another occasion, it emerged that the bank’s fraud management systems were months behind schedule. The guys assigned to build the servers kept getting pulled off the project for other work, says Lambell.
“It took someone to understand that millions of pounds of cash was being lost every month that system was being delayed,” he says.
The other side of the coin is that while businesses may become less agile, moving to shared services often helps them to manage risk more effectively.
“I think you have to accept, depending on the organisation you are in, risk and control will probably improve if you are bringing together a bunch of IT services and development practices into one organisation,” says Lambell.
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Any change needs strong leadership and communications, but implementing shared services requires creative intervention, if it is to be successful, he says.
One private equity company ran into difficulties when it naively sent around an internal email announcing its shared services organisation, and then sat back, expecting the shared service to seamlessly click into place.
Lambell booked a hotel for the day and took the 90 people he was leading to run a simulation of the shared service operation, in an attempt to iron out the teething problems.
“There was a room at the end of the hotel. I said those are the offshore guys. You can’t go and talk to them. You can phone them, you can write to them, but you can’t actually visit them,” he says.
At the end of the day, he brought the team back together and asked them to report back on how they felt about the exercise. It was no surprise that the offshore team felt completely isolated.
“People started to communicate better and to understand what it means to be in each of the parts of the operating model after that," says Lambell.
One danger sign is the tendency for internal services departments start to refer to the rest of the business as customers, rather than partners.
“That is the wrong mindset,” says Lambell. “The mindset that goes with the customer supplier relationship is one of domination. You will take costs out. You will do this. It means you can’t have a relationship.”
Lambert uses a simple argument when businesses are tempted to go down the customer/supplier route.
“I tell them I can’t sell my services elsewhere if I don’t like you. So you are stuck with me and I am stuck with you," he says. “So we can’t have that supplier/customer relationship. It has got to be a partnership.”
For Essex County Council's Wilde, one of the biggest challenges in building a shared services centre is finding staff who possess what he calls “good, solid, rounded commercial nous”.
“You can’t buy that stuff and you can’t train it in. We are shockingly bad at both in the public sector, and we need to get better at it,” he says.
The skills required are less to do with the ability to put together a strong business case, and more to do with understanding how the financial figures will affect people’s behaviour, says Cooper-Bagnall.
Persuading IT staff to work in a more collaborative way with suppliers is another challenge.
“You have people in your retained organisation who don’t like to be challenged, who want to be directive, who don’t have a lot of experience of working with providers. We have to change that,” he says.
There are huge benefits to be had from shared services, but implementing them is not easy. It requires investment, resources and planning, and negotiating a lot of internal opposition.
And it is vital to keep up the momentum once you start, says Cooper-Bagnall. “It's not a one-hit thing, it’s a journey.”
This was first published in February 2013