Governments Are Embracing Shared Services

Driven by increasing demands from constituents and an aging population, governments are looking to create economies of scale by consolidating common services into a central organization.

That's according to a report by independent market analyst Datamonitor, which said shared services models were enabling public bodies to improve the efficiency of technology deployments while also creating the optimal organizational environment to benefit fully from these projects. In the report, entitled Outsourcing and Shared Services in Government IT Management, Datamonitor predicts that IT revenue from shared services projects in the US and Europe will grow at a compound annual growth rate of 6 percent from US$57.4 billion in 2007 to $76.2 billion in 2012.

Shared services models still take many forms, from a unitary structure, where a single organization consolidates and centralizes a business service, to an outsourcing arrangement where a private sector third party sells a shared service to multiple agencies.

"It is perhaps best understood as a form of internal outsourcing, where the organization hopes to get economies of scale by building one large central organization to replace a multitude of small sub-units," says Kate McCurdy, a government technology analyst with Datamonitor.

While large private enterprises have been developing shared services models for longer, public sector organizations have a lot to gain from consolidating business, or 'back office,' functions.

"Traditional public bodies tend to have a high degree of duplication in their back office services," says McCurdy. "For example, most agencies will have their own HR or accounting systems. By consolidating these services into one organization to serve many agencies, governments will reduce the costs of maintaining multiple systems, ensure consistency of service to internal stakeholders and disseminate best practices while also allowing individual units to focus on their core responsibilities."

Datamonitor said that, when evaluating functions to move into a shared services model, agencies should look for a few common characteristics.

"Currently, human resources and financial functions are common shared services targets because they are widely used across the enterprise, benefit from technological automation, promise significant cost savings and are not the areas agencies usually specialize in," the report said.

But Datamonitor predicted that shared services would evolve over time to incorporate higher value functions, such as citizen contact, tax collection and social payments, since consolidating these function offer governments opportunities to improve constituent service and reduce costs. However, because consolidating these types of services is politically risky, shared services models must first prove themselves with administrative functions.