news The new Coalition Government’s Commission of Audit (CoA) has recommended the Federal Government investigate the same kind of whole of government shared corporate services scheme which have abjectly failed most Australian State Governments over the past half-decade and resulted in widespread IT service delivery problems.
Section 10.8 of the CoA’s report (available in full online) argues that given that all Federal Government agencies perform some common corporate functions (such as payroll and human resource management, financial management, IT support and so on), there is scope for economies of scale to be achieved, both in the procurement of back-office technology and in service delivery.
“The Australian Public Service maintains a range of bespoke corporate ICT systems,” the report states. “Even where agencies have off the shelf systems, they often differ. For example, many agencies use the SAP enterprise resource planning software – there are more than 40 versions of the package currently in use. The Commission considers the public service should aim to standardise corporate processes to improve purchasing power and to facilitate a move to shared services.”
The report noted that shared corporate services have been taken up to varying degrees by individual groupings of Federal Government departments and agencies, but generally not at a whole of government level.
“The approach to date has been relatively ad hoc and would benefit from better strategic planning,” the report stated. “The Australian Public Service Commission’s latest State of the Service Report noted agencies have been working together and coordinating the purchase of common goods and services, with two thirds reporting they had participated to some extent in a shared service arrangement.”
To a certain extent, the Federal Government is already examining this area. In early March, the Department of Finance issued briefing documents noting that it was considering undergoing a shared services program in the area of ERP systems.
However, there have also been a series of high profile failures in precisely this area through Australian State Governments over the past half-decade.
In June 2010, then-Queensland Premier Anna Bligh revealed the state would abandon its centralised IT shared services model as its exclusive structure for delivering IT services in the wake of the Queensland Health payroll disaster and damaging revelations of widespread problems in associated programs. The Queensland Health issue alone has cost the state more than $1 billion in cost overruns. Queensland’s IT shared services model was started after 2006 and aimed squarely at ERP packages, as well as centralised email systems.
Western Australia’s own shared services project was kicked off back in 2003 with the aim of consolidating financial, procurement and human resources back-office functions from agencies to three shared services centres — covering the health and education portfolios, as well as a number of other agencies. At the time, the state aimed to cut about $55 million out of its annual $315 million corporate services bill. However, after a string of failures, the state abandoned the program in July 2011.
In August 2012, a landmark report into the management of the NSW Public Sector commissioned by the state’s new Coalition Government described how dozens of overlapping and competing systems and services providers have created “chaos” when it comes to the state’s current IT shared services paradigm.
And in Victoria, the Victorian Government has gone to market for IT outsourcing partners to replace large chunks of the service delivery functionality currently provided by its extremely troubled IT shared services agency CenITex, after the agency suffered long-running and extensive problems delivering on its mandate. CenITex did not specialise in application-level shared services such as ERP systems, but more on IT infrastructure, but largely failed at that task.
Uniformly, in most of these cases, government auditors have found that much of the problems with ERP shared services schemes has rested in trying to apply a ‘one size fits all’ model to departments and agencies which have significantly different needs and business processes.
The CoA report notes that any approach to shared services will need to be carefully researched and appropriately implemented.
“A key lesson from other jurisdictions is standardising business processes is a necessary pre-condition to successful shared services projects and provides efficiencies just as significant as those gained from economies of scale,” the report stated.
“In designing and implementing a shared service, departments and agencies should be clear in understanding: The scope, quality and costs of the existing services; services to be included in any arrangement and those that are out of scope; the clarity of benefits, including standardisation of processes, reduced duplication and decreased costs; the expected level of return on the investment over an agreed payback period; opportunities available to leverage technology advancements, such as cloud solutions; transitional arrangement requirements, such as moving to new shared service platforms as existing contracts expire; and whether private sector providers should be considered.”
“While whole-of-government shared services have the potential to deliver cost savings and efficiencies, the Commission suggests a staged approach to implementation is prudent,” the report notes.
“The first step is to conduct a thorough audit of existing Commonwealth public sector corporate support services to understand costs, processes and models and the extent to which these can be standardised. As part of this exercise, the Department of Finance should also publish a register of other business systems (for example stakeholder engagement software) to prevent agencies from building new software that already exists.”
“Agencies should also be grouped and corporate functions standardised within the groups. Grouping could be by: portfolios; ‘like’ agencies, such as economic or national security agencies; or according to the corporate systems currently in place, for example grouping all agencies currently using SAP accounting systems and moving to a common version, potentially in the cloud.”
“Moving to a clustering arrangement will make it easier and more practical to benchmark corporate services performance. As well as increasing the overall performance of public sector corporate services, this would deliver the information to standardise services and improve IT purchasing power prior to moving to shared services.”
News of the Government’s interest in the area comes as prominent analysts have also recently criticised the shared services paradigm. Gartner distinguished analyst Andrea Di Maio wrote in November 2011, for instance:
“… it appears that shared services are having a hard time. Queensland, Western Australia, South Australia, Victoria have all had their fair share of issues with shared services, and this is happening quite consistently in other parts of the world.
There is no doubt that duplication of services and spending across different government agencies makes little sense. But experience shows that there is insufficient attention to the governance aspects (agencies want to have a say in how the shared services are structured) and – more recently – to technology evolution that is making some of the technology that is being targeted through shared services more and more commoditised.
The challenge is no longer to put one organisation in charge of delivering shared services, but to look at how to support agencies in efficiently buying the same service from external service providers.”
My view on this situation is very clear: There is no evidence currently available in Australia that government shared services of the type discussed by the Commission of Audit can succeed. At a macro level, they have consistently and usually spectacularly failed. As I wrote when Finance unveiled its ERP shared services project earlier this year:
“I’m fairly sure my opinion on this issue is clear. The evidence from virtually all of Australia’s State Governments and, as Di Maio pointed out in 2011, internationally, is that IT shared services arrangements are fraught with danger. Based on the available evidence, it does not appear as though the Federal Government is paying enough attention to that danger. In the context of catastrophic ERP failures such as the $1.2 billion Queensland Health payroll nightmare, that kind of naivety is unforgivable. I’ll be watching this one with a great deal of concern. At the very least, the Federal Government will not be able to say it wasn’t warned about this.”
Here be dragons.