Government Shared Services – A Recipe for Disaster

Tuesday, March 3, 2009 by Tripp Babbitt
I just read an article from displaying the "efficiencies" gained from a shared services strategy in the states of California (CIO – Teri Takai) and Michigan (CIO – Ken Thies).  Maybe this is the reason that these two state deficits are so large.

Shared services usually means either we are consolidating front office activities or back office activities to gain economies of scale.  The problem is that we have created front and back offices that are not designed very well to handle customer demand.  Front and back offices are designed with the assumption that all the work received is value work and thus treated as something to be processed.  The reality is much of the work is failure work, work that is rework, "status inquiries or progress chasing.

Information Technology in these situations leads to locking in costs rather becoming an enabler.  Work is broken down into tasks that can be electronically sent to the "right" people.  Managers then monitor the activity and performance to pre-determined targets.  End game:  Targets are hit, but poor service generates increasing failure demand.  The activity and performance measures take the attention away from the purpose of the activity and reality of the work.  Ultimately, leading to the need for additional staff to accommodate the increase in failure demand.

Economies of scale is a driver of the shared services strategy, but it is the economies of flow (Taiichi Ohno) not scale that will drive costs down and improve service.   Understanding the predictability of failure demand will help identify and stop the causes by redesign of services that can then provide value.  Understanding value demands will help managers design services that allow citizens to get what they demand from the service.

Some services may not require a front and back office split and by having tasks split create more waste and worsen service.  Some services are provisioned better with just a front office (especially those that have high complexity).

My fear is Ms. Takai and Mr. Thies believe that front and back office designs should be driven by IT.  IT analysts and consultants that identify the tasks to be done and the processes these tasks belong to, creating standardized work.  But the standard work is not able to absorb the variety of demand and by placing these demands ensures that information technology will lock in costs.  The costs of a shared service design is in the flow not transactions.  It is the total volume of transactions and its accompanying costs of delivering the service that are important, not the cost per transaction.  Assumptions that costs are in transactions leads to building shared services departments that deliver high cost and poor quality services.  IT guarantees locking in this waste.

What should be done?
Do we need a front and back office? Or is a front office design a better way to handle demand.  Only by studying customer demand can we be sure.

Before any shared services strategy takes place we need to understand current service performance.  This can be accomplished by studying customer demand (what customers want), capability (how well it is delivered), the value work (the service customers want efficiently), waste and its causes.  We can then improve service where it is currently delivered and then have a knowledge-based discussion on shared services opportunities.

These same arguments exist for the private sector and not just government management.  As a former CIO in state government, I am thankful that my partners (Vanguard Consulting) and especially John Seddon pointed the difference out to me.  Systems thinking is a better way.

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