The shared services paradox

By Steve Hodgkinson | Friday, November 06 2009

Shared services exacerbate rather than solve the problem of fragmented ICT governance and management in public sector agencies. Is it time for a Public Sector Information Management Act?

Governments and their public sectors are complex, diverse and fragmented organisations. The complexity is generally agreed to be “beyond the wit” of any central agency to manage, and most governments around the world have adopted devolved organisational models – with departments and agencies structured to deliver discrete sets of outputs, but otherwise left to operate with a high degree of managerial autonomy.

The model has proved highly effective at improving the efficiency of the way discrete services are delivered – with agency heads held accountable to their Ministers for achievement of their business plans and output targets. How they do it is largely their own business (subject to the requirements of legislation).

The problem, of course, is that this “divide and conquer” devolution is better at the discrete than the inter-connected – better at producing technically correct outputs than public value outcomes. Another problem is the vertical organisational diversity and fragmentation eventually translates into duplication, waste and inefficiency when one looks at things from a horizontal perspective.

ICT assets and resources are intrinsically horizontal, so it is no surprise there is a growing tension between the generally devolved organisational model of the public sector and the way ICT is managed. State governments have been pursuing re-centralisation and shared services strategies for almost a decade to cut costs, and the fuse has been lit on this debate at the federal level by the Gershon Review in Australia. It’s a slow burning fuse so far, but the eventual detonation could be spectacular.

Shared services strategies are sometimes seen as a quick-fix solution to over-devolved ICT management – throw all the plumbing and common applications and business services in a pile and everything will be a lot more efficient. Meanwhile, agencies can just carry on as before with a new supplier.

The shared services movement, however, highlights an interesting paradox in public sector ICT management. The focus of shared services strategies is usually on that which is shared – the new entity and its processes – but in reality the biggest challenge is the ICT management maturity of the agency customers. Best practice on the part of the shared services entity is necessary, but not sufficient.

Shared services creates a “many-to-one” dynamic that exacerbates – rather than solves – the dysfunctional effects of overly devolved ICT management. A shared service cannot prosper if it is bombarded with a blizzard of fragmented and uncoordinated service requests. It can’t play favourites among its customers to balance demand and supply without being accused of being unresponsive.

Prior to shared services, each agency could internalise its demand versus supply decision making – making trade-offs flexibly according to political and business imperatives. With a shared service provider, demand needs to be aggregated on an agency-wide basis and then debated in the context of the shared service provider’s demand versus supply decisions.

The paradox is that shared services is not about centralisation at all. It is about the creation of a coherent government-wide ICT organisation – able to coordinate and optimise ICT decision making horizontally across its centralised and devolved agencies. The more services that are shared, the more important it is each agency has a consistent set of ICT governance and management processes in place to coordinate and marshal demand.

This somewhat counter-intuitive observation cuts to the heart of the ICT governance dilemma of the public sector. The public sector administration and financial management acts institutionalise agency heads having the rights, powers and authorities of individual employers. This, however, no longer reflects the reality of our modern, ICT- intensive organisations with their reliance on shared and interconnected information assets and resources. Agencies are becoming increasingly information inter-dependent.

Pressure is building for the creation of a Public Sector Information Management Act, or a set of directions to agency heads under the existing acts, to define clear expectations for how public sector ICT assets and resources should be managed.

An information management act would prescribe the key elements of whole-of-government and agency-wide CIO roles to prevent information waste and chaos - in the same way that the financial management acts prescribe the CFO role to prevent fiscal waste and chaos.

The imperative for an information management act has so far been theoretical and diffuse – it is up to each agency head to decide how he or she prefers to manage ICT activities, and who could really say otherwise? Real progress on ICT shared services and standardisation/consolidation strategies, however, will require this nettle to be grasped. And let’s not even start to consider the information security drivers.

Dr Steve Hodgkinson leads Ovum’s ANZ public sector advisory services.