Commission of Audit backs high-risk shared services schemes



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.

Image credit: Enrico Corno, royalty free


      • Renai
        Over an IT career of 50 years I have heard the “New Team” say “this time it will be different” when told “we have tried this before, many times, and it has failed!”.
        I am never quite sure why the New Team (NT) think they are so much better and brighter than the “Old Team”. (OT)
        Invariably the NT fare no better than the OT and in most cases last significantly less time than the OT. In one magnificant case the NT were gone before the OT had worked out their redundancy time.

  1. I have always thought the logic behind the SS model is sound for many broad services as is the centralisation of IT in most enterprises.

    However, from my watching of SS implementations, especially being a close observer of the SA experience, driving reform in IT fails not because of competence but often because of culture. Those tasked with leading IT reforms, like the reform of the PS in general, got to their position in govt by using the culture of IT in government to become successful. It is incredibly hard for the person who so expertly used the system to gain rank to then change spots and actually reform the system.

    Further, there is a range of ‘stakeholders’ in Agencies who aren’t willing to give up any of their little corner of IT power as they are too using the culture of IT in Govt to try and be the next IT Director. Oh, and nothing scares the staff in Govt like the word “change”, usually represented by actually completing a project. I saw many $M projects stop literally weeks before implementation due to a new Stakeholder being introduced last minute and changing the BusReqs, government change or the PS Unions jumping in at a vulnerable time with a project to kill it with a scare campaign.

    Address culture, which means directly incenting those leaders to drive change on a whole of govt basis. Otherwise the inertia of govt will just kill success.

    • +1. Some astute comments. Many of these SS initiatives were in fact vendor and technology driven.

      We have seen the results of such programs with examples such as the QH Payroll. Often technology is applied as the solution when in fact work practices and culture are the issues that first need to be addressed.

      Furthermore, these debates are becoming infected by ideology –that apart from policing and the legal system the private sector automatically can do it better or is more efficient at service delivery. (See recent discussion threads on this site)
      Truth is a good project requires a good client as well as a good supplier- and government so often is a poor client because its corporate memory and capabilities (and ability to learn which Steve Hodgkinson from Ovum has banged on about as being a critical element for success) have been subverted or removed.

      If you were running Government as if it were your own business would you outsource critical elements of governance/strategy to consultants as has been the case? Furthermore, would you keep and promote the very people in the public sector who were the ones managing the SS initiatives?

      I got out of government when following one major audit report condemning that State’s implementation of Shared Services we had the same people responsible for its implementation also responsible for fixing it. (Was just more than I could take listening to the Exec Directors saying what previously occurred was all wrong – but also not thinking there was something wrong with not mentioning they were the ones who got it all wrong).

      Of course the Commission of Audit has re-lifed Shared Services (as well as Hockey putting the renewal of the model 204 mainframe system in Centrelink on the table) – it is simply scheduling when the next gravy train will arrive in town – it’s money for jam for the big end of town. Remember ATO change program or even Centrelink Refresh anyone. Excuse the cynicism but I have worked on such projects and you see it over and over again.

  2. They never do it in a way that might possibly work. The way to do it is create a ‘corporate view’ of government operation and then a define a business model for a service – procurement, payroll, HR, payments, etc, etc. Only once you have the business model nutted out you then look for information services that would support the business model you want. It maybe that there are currently not the technologies to do what you want or they are not the tired old clunky stuff.

    The trouble is that they don’t do any of the above and go straight to the large software vendors with their inappropriate software and the large consultancies that promise the earth.

    If government did the design properly SAP, Oracle, etc, would never get a look in.

    The Scots have a whole of public sector procurement operation – they started with ‘corporate business model’ which stipulated a service across the whole of government, They then fitted technologies that fully supported that vision – outcome a billion pounds in savings, reduced complexity and a single service.

  3. I thing we should adopted the Gina Rinehart model for HR services. Just pay everyone a flat $2.00 an hour, this would then streamline the that pesky payroll system. Would save millions just implementing this one plan.

  4. While almost all shared services have indeed ‘failed’, for the analysis to be complete, one must also ask the question, ‘….compared to what?’ If we judge SS failures based on the delta between promise and delivery, yes, they are almost all abject failures.

    If, however, we judge shared services in relative terms against what they replace, the picture is murkier.

    I have worked in many government departments. Almost universally, their HR, administration and other core corporate functions are hopelessly incompetent, very wasteful and led by self-interested and ineffective senior managers who are underpaid and underprepared for the expectations placed on them. The act of putting together a shared service has the unwelcome effect of ‘surfacing’ the problems inherent in government administration practice – shared services collect up all the nonsense in one place, making it easier to see what a mess things are.

    The alternative, to leave things as they are, or to disband shared services, is not likely to be better, it is just easier to cover-over the waste; the ineptitude and antediluvian work practices are just harder to see when they are distributed and at smaller scale.

    No, the answer isn’t shared services, nor is the answer devolved, agency-specific services, because the question isn’t ‘…what size should our administrative services be?’; the question is ‘…how can we most effectively run our administrative operations?’

    The real answer, to the right question, is of course, much more complex than ribbon-cutting or headline-worthy phrases allow. The real answer includes:
    – improving the competence of the people doing the work (training them)
    – streamlining processes (finding where the value is delivered and where waste can be cut)
    – and most importantly, holding leaders accountable (how many incompetent public servants get the sack vs. being given ‘special projects’ when they fail to deliver?)

    Oh yeah, you might want some technology to help you as well, but not until you have sorted out the first three things.

  5. Shared Services needs a definition. Let me propose one based on the Australia-wide Shared Services track record.

    ‘Shared Services is a management approach that seeks to cripple an efficient and effective high value activity by artifically making it dependent on an inefficient low value activity. Examples include, Travel Management, Finance, HR, Commodity IT, Procurement, etc.

    With brilliant service management you ‘might’ eventually see some value from Shared Services – intuitively you expect to. However time and time again all we see are tears. If I had access to the brilliant people who could make this broken model work – I’d give them a more important job to do. There are plenty of more important things out there.

    • Hah! I like this one Peter. Kind of like saying “I wouldn’t join any club that would have me as a member”. If I have an executive capable of successfully and sustainably running a shared service in government then they are obviously an organizational magician and I should make them responsible for a department that actually delivers services to citizens. Nice!

  6. Hmmm … the Feds new enthusiasm for shared services is … unfortunate. A triumph of wishful thinking over common sense. The only way this can possibly work is if individual agencies are empowered to choose services when, and because, they are better, faster, less costly and less risky than alternative models.

    As soon as you start to make the whole program into some form of socialist ideology driven reform … secret police herding unwilling and sullen comrades into a smelly collective … then the whole thing just becomes an ’emperor’s new clothes’ joke. As long as the Dictator has power everyone nods sullenly but is unable to speak out against the regime without being branded ‘part of the problem’. This is a dark view, but it is not far off the mark. Everyone tries to make a ‘go’ of it … but the overall approach is fundamentally flawed. It can work in theory, but not in practice. Eventually the Dictator is deposed, his or her henchmen are dispatched, the disaster is revealed for what it is and the baby is thrown out with the bathwater, again. Sigh!

    The only good thing I suppose is that it keeps money flowing around in the economy – kind of a ‘make work’ scheme like paying people to dig holes and paying others to fill them in again. At least it creates employment and keep the cash flowing.

    I’ve puzzled over this for many years, decades even, and my conclusion is that the only model that can work sustainably in the public sector is what I call “Compounding organizational learning”. Find things that work and do more of them. More quickly discover things that don’t work and stop doing them. Empower agencies to get on with things and collaborate to share lessons about what works … and what doesn’t.

    This is an intrinsically market-based approach – empowered by the rise of as-a-service models which are giving agencies more and better options. The Government is seriously barking up the wrong tree with internal shared services. It is a wasteful blind alley. The focus should be on creating the conditions for agencies to become intelligent consumers of services from the competitive market. This puts government demand on the table to stimulate economic growth and to develop exportable service capabilities.

    There is an opportunity here to create a market of service provers to government that could become world-class providers of as-a-service offerings to government agencies across jurisdictions and nations. Remember that cloud services are actually shared services that work – by definition. If they don’t work they die quickly. Internal shared services, in contrast, seek to rely on magic to ‘make a silk purse out of a sow’s ear’. Better not to bother … just go out and learn how to become an astute buyer of silk purses.

  7. The idea of shared services is tempting, particularly as government is made up of a number of different agencies that have to undergo ‘machinery of government changes’ regularly, where the ability to migrate agencies between ministers’ portfolio, and thus Departments, would potentially be simplified.

    But consider that every time something has to change in the ‘shared’ environment there has to be investigation into impacts across it, testing of the new ‘change’ as well as potentially unrelated but affected systems, enormous risk and incident management precautions, communication to stakeholders and product owners, all of which increases the time to implement. And these get harder to do the larger the ‘shared’ environment becomes.

    Government needs to be agile to be able to handle the needs of the people, to be able to respond to opportunities and reduce threats to its deliverables. Standardisation can have its benefits as it sets the bar, but it can be at the cost of innovation, reduced speed of delivery in response to needs, and does not provide the opportunity to reset the standards at a higher level. There can be detrimental impacts on smaller agencies or projects, too, where budgets are constrained.

    Share standards so that transfers can occur with minimal translation required, so that government agencies can utilise the best IT for their purpose and money, and to streamline processes that reduce administration costs as well as improve service to business and public users.

    I think that sharing services does have its benefits if you can find the point before the benefits plateau, but I don’t think it is necessary at a whole of government level.

  8. Helen, I like your vision – I just have never seen it work.

    I was a bit facetious last time about this (sorry) but being serious for a moment… The benefits of shared services are simple efficiency. Do it once with no unnecessary duplication. I think we should all strive for that outcome. It just makes sense.

    So if efficiency and no waste are what you are looking for there are other options that have a way better track record than shared services.

    If you are looking for efficiency the simple rule is ‘just buy it – don’t do it’ – sorry Nike. External providers already have economies of scale built in because they have multiple customers and a bigger base than you can have internally. And these are REAL customers – the ones who voluntarily chose that provider and their products / services.

    Also there are now new models for buying services that allow us to buy transactions. We need to explore these first before we have a rerun of a concept that just keeps failing.

    Shared Services on the other hand is normally inflicted on customers. And the customer have to change to meet the standards of the shared services provider. What kind of perverse world is that? You wouldn’t work like that with your own money.

    Finally shared service providers eventually get a life of their own. They will do what ever is necessary to be successful even at the expense of their clients. There are countless examples of this. Sadly once you have seen this happened over and over it’s hard to be positive about the shared services model.

  9. The issue with shared services is that often to put the cart is put before the horse. For fundamental services like HR and finance there are a number important issues that must be addressed.
    • Process standardisation
    My experience within Government IT suggests that trying to persuade departments to adopt common platforms is almost impossible. Generally executive consider that there are strong reasons to adopt “their” system.
    Failure is the only logical outcome, because attempting to make any system, fit unmatched processes is doomed to failure. In order to provide a more hopeful outcome the Departments of State must initially standardise process. Any such standardisation would need to be agreed monitored and followed.
    • Speed of adoption
    The standardisation process would be difficult, but not impossible. The process should be started in a gradual fashion. Once the chart of accounts or Human Resources processes have a common standard then it may be possible to translate this into a successful shared service.
    • Platform introduction
    The problem of platform standardisation is also important. For any system to be effective Departments must be funded in such a way that no single entity can decide to lag behind or surge ahead of the others.
    • Vendor capture
    There are still difficulties for instance if a large database provider is chosen there is a risk of vendor capture which could be as bad as poorly run shared service operation. However if the issue is carefully thought through, there are ways to avoid this trap.
    • Access & Security
    In my experience contractor’s work across departments: this means that both Identity management and security are vital ingredients. Many public servants consider identity management to be an issue for the department not the wider service. How for instance do you tell a justice or human service department to trust others and what about defence or police?
    Given such fundamental issues one wonders if it is worthwhile? Does the saving outweigh the effort required to make it work and do the politicians have the will? Exceptions however, will start a trickle which will turn into an avalanche.

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