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Designing governance for shared services organizations in the public service
Government Information Quarterly 24 (2007) 522 – 538
Designing governance for shared services organizations in the public service Gerald Grant, Shawn McKnight ⁎, Aareni Uruthirapathy, Allen Brown Eric Sprott School of Business, Carleton University, Ottawa, Canada Available online 1 November 2006
Abstract As shared services organizations (SSO) become more popular as a service management and delivery option in government, properly defining and setting up the governance structure continues to be a key success factor. This paper explores the options and issues to consider when selecting and implementing shared services governance including topics such as oversight, accountability, culture, management of resources, and of day-to-day operations. Shared services organizations are increasingly common in private sector companies and the particular challenges involved in the governance of an SSO in a public service context are highlighted and discussed. © 2006 Elsevier Inc. All rights reserved. Keywords: Public service; Shared services governance; Service level agreement (SLA); Governance model; Governance structure
1. Introduction A shared services organization is essentially a business unit or organizational entity within the enterprise that delivers specialized, value-added services across the entire organization (Blake, 2005). Governments are increasingly turning towards shared services organizations (SSOs) to consolidate and deliver services to their customers (Conference Board of Canada, 2005). In researching a wide range of articles from the public and private sector, academic, ⁎ Corresponding author. E-mail address: [email protected] (S. McKnight). 0740-624X/$ - see front matter © 2006 Elsevier Inc. All rights reserved. doi:10.1016/j.giq.2006.09.005
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consultant research, and other popular press articles have been reviewed. The issues discussed and recommendations proposed can be broadly categorized into two areas—governance structures and key elements. The focus of this paper is to discern the optimal governance structure for implementing shared services in a public service context and then to analyze the key, substantiated elements and considerations of an SSO governance structure and where these fit or reside in the selected structure.
2. Governance structures The nomenclature of governance terms describing the relationships, control, and accountabilities of shared services organizations is diverse. In this paper, the term governance structure is used to outline the hierarchy of committees, boards, bodies, or forums that execute the management of, and oversee the delivery of, the products and/or services of the SSO. This structure has also been referred to as a control architecture (Turnbull, 2005), organizational design (Clarke, Cavanaugh, Brown, & Sambamurthy, 1997), SSO structure (Blake, 2005), governance archetype (Weill & Woodham, 2002), governance design structure (Rau, 2004), and governance structure (Kearney, 2004), to name a few. In all cases, the governance structure details how many levels or layers of committees there are and outlines each of their primary roles. The roles, accountabilities, and responsibilities assigned to the levels and committees of the SSO will differ based on how some of the core processes of the organization are implemented. Clear decision rights, governance structures, defined roles and responsibilities, and issue resolution processes are needed from the start (Blake, 2005). Input and decision rights on matters such as the business model for cost recovery and long term organizational funding, costing, and pricing mechanisms and SSO growth strategies are but a few additional components that should be clearly documented in the initial charter of the SSO. There are several governance structures advocated to oversee shared services organizations. Models of functioning SSOs were examined from Canada, Australia, the UK, US, and many others including the broad overviews provided in the popular literature and consulting firm reports. One such report, Kearney's (2004) study interviewed 140 executives in SSOs—seventy in North America and seventy in the UK, France, and Germany. In general, the governance structures were similar and the differences between competing frameworks were largely in the nomenclature and number of layers—the number and types of oversight committees in each of the structures. The majority of governance structures had between two and three layers and these represented almost all of the public sector implementations, some of which were referenced and recognized as best practices in the reference literature (Conference Board of Canada, 2006; Kearney, 2005; Queensland, 2005; Schmotzer, 2006; UK SSDN, 2002). The UK Shared Services Development network proposes four levels of governance to consider—host (enterprise/corporate), two at the partnership level (operational and strategic), and SSO management (tactical). These tiered divisions have been implemented by the UK National Health Services and the Australian State of Queensland Government and are recommended in other literature. The Accenture Study (2005a,b) and the Conference Board of
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Canada Study (2006) both support a multi-tiered structure although they define it differently. The Conference Board describes two basic layers or levels of governance—enterprise and operational, often linked together by a “corporate group” of senior officials to deal with things like service level agreements (SLAs) and to monitor performance and results. The enterprise level focuses on the overall transition to the SSO via strategic and organizational alignment. The operational level concerns itself with providing direction for service delivery and accountability agreements. These layers are manifested in all the proposed governance structures, the differences between each proposed structure being the number of layers— division of duties. The addition of an implementation board to each of these layers comes from the Queensland Government structure (Queensland Government, 2005). The Queensland model is widely cited as a success story, as it embodies the governance structure elements seen in other large, public service shared services organizations examples in the literature (Accenture, 2005a; Conference Board of Canada, 2006; UK SSDN, 2002). The model considers the temporal and government coordination facets missing in the other models while retaining the base elements of oversight, accountability, and the inclusion of input rights for the functional services heads through governing boards and partnering forums. In short, while it incorporates all the elements of the governance structures seen throughout the referenced literature, it also acknowledges and formally codifies in its structure, the need to manage change. This concept of change management during the transition from current service provision mechanisms to that of a shared service organization is mentioned frequently in the literature (Blake, 2005; Conference Board of Canada, 2006; D'Auray, Flumian, & Valeri, 2003; Kearney, 2004; UK SSDN, 2002), but only in the Queensland example does it appear to be acknowledged as a separate element of the governance structure. In the Queensland example, the role of the Program Implementation Steering Committee is to oversee the effective development, integration, and implementation of standard and cost-effective corporate services, business processes, systems, and revised work practices from a whole-of-government perspective. The executive director subcommittee's role is to guide the effective implementation of the program of work associated with the implementation of standard, cost-effective corporate services, business processes, and systems from a whole-of-government perspective through operational decision making. Whereas the role of the prioritization subcommittee is to ensure that a consistent and transparent evaluation process is developed and maintained for the prioritization of work requests raised by shared service partners. All three of these coordinating roles are deemed to play an important enough role in the transition towards the SSO environment that these warranted separate consideration and the establishment of a forum to deal with their issues (Queensland, 2005). This is consistent with other literature on change management, including one article that recommends that companies should formally review transformation projects at least every eight weeks (Sirkin, Keenan, & Jackson, 2005). Combining the aspects of these various structures and reflecting these in the nomenclature of layers documented by the Conference Board of Canada (2006) provides these examples of roles and membership for guidance.
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Within the enterprise and managerial levels, there are two recommended structures: – A governing board (comprised of the SSO CEO and the heads or representatives of the shared services partners or clusters of agencies) or an executive council headed by senior management, agency representatives, and shared services partners. This level is mirrored in the Queensland (2005) and UK (2002) NHS examples; and – A shared services implementation office that plays the lead role in developing the whole-ofgovernment approach.
Fig. 1.
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On the operational/tactical levels, there are three recommended structures: – A Shared Services Implementation Board—charged with making the day to day operationsfocused decisions required for the transition to shared services organization; – A Shared Services Organization Governing Board (primarily comprised of the heads of SSO and of partner organizations)—this board provides an equitable decision-making forum and issue resolution mechanism for the SSO heads of services provided; and – Partnering Forums, which serve as the first or base level of issue resolution. Governance charters for this level of the organization should cover such things as voting rights, rules and methods, definition of quorum for decisions, and circulation of papers and records of decision (UK SSDN, 2002). Depicted hierarchically, a synthesis of the recommended features of an SSO governance structure can be shown as follows with the shaded section listing the governance mechanism for dealing with the implementation/transition to the shared service environment from the Queensland (2005) model (Fig. 1). This four-tiered governance structure provides the functionality and oversight advocated in the literature but it also embodies some of the key elements and characteristics of governance as well. These features are brought out in more detail in the referenced literature and will now be covered in-depth.
3. Governance elements and considerations Governance elements and considerations are those factors or best practices identified throughout the reference literature that should be incorporated into the governance structure through charters, terms of reference, and roles and responsibilities of governing boards and key individuals. These elements and considerations, together with the three-tiered governance structure outlined above form a proposed governance model for shared support organizations in the public sector. These elements can be grouped into eight broad categories similar to the five governance elements in the IT Governance Institute (ITIG; 2005) pentagon with a few additions as supported by the literature.
4. Direction setting/strategic leadership 4.1. Representation at the top One of the common points that emerge is that the head of the executive or top level oversight board should be a person with experience in leading shared services (Accenture, 2005a; UK SSDN, 2002). Others take the point further stating that an external head with experience in implementing or running shared services in the private sector may be of value (Conference Board of Canada, 2005). In most models, this board has a limited rotating membership from the
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heads of the functional shared services being offered. The rotating membership allows each a chance at the experience while fairly balancing renewal and continuity. In the UK (2002) model used at their National Health Service, the head of the top oversight board is rotated every 3 years. This accommodates the temporal nature of shared service governance—that the services required to be shared as well as overall governance of the process evolve over time and therefore, different skill sets are required. It also hedges against stagnation of board leaders. The character of the leader, and having both the thorough understanding of the expectations on objectives, timelines, and gains and the conferred decision-making power are raised as key points in the Conference Board of Canada's (2005) report. It states that the top leader needs to be someone well known and respected as a “winner and a positive force in the change process.” The leader chosen must have sufficient power to deal with other obstructionist leaders or functional service heads that either thwart change or refuse to give up the proper people and resources required to centralize the services in question. Amplification for this point is provided by ITGI (2005) who state that the top-level board is required to provide direction, measure performance of the activities delivered and cause adjustments to be made—in short, to exercise strategic leadership. 4.2. Customer focus One of the main points for the SSO to articulate from the initial design stages onwards is a customer focus. Although the rationale for migrating to an SSO is often cited as realizing cost savings, nominally through achieving economies of scale, the mission of the SSO is to provide their customers and clients with better service. This customer centric focus is echoed throughout the research material and best practices (Accenture, 2005a; D'Auray et al., 2003; Kearney, 2004; Office for Public Management, 2004). Of note, in the AT Kearney (2004) study, they compared expectations before and after implementation and cost savings turned out to be 17% lower than what they were expecting. Although cost savings are usually achieved, the general theme amongst the papers describing successful implementations was that for those who strived to ingrain a customer first culture, buy-in, operational efficiencies and success followed.
5. Strategic alignment 5.1. Separating strategic from operational concerns “The design of shared services is most effective when those who deliver services to clients are separate from those who ensure compliance with corporate policy and standards” (Conference Board of Canada, 2006). Prudence in the assignment of enterprise or strategic roles and responsibilities to senior or top-level board members and operational or tactical considerations to operational/tactical levels of the governance structure can pay dividends. “Several executives reported that they had wrestled with how best to make the distinction between strategic and transactional processes. They found that they would have gained by
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being far clearer at the outset about where the distinctions would lie” (Conference Board of Canada, 2006). The IT Governance Institute (2005) states that strategic alignment of the governance structure with that of the parent organization increases managerial effectiveness and administrative efficiency and adds value to products and services rendered. Rau (2004) echoes this imperative and advocates for a “Governance Council” that includes strategic alignment, policy setting, control, and performance management. 5.2. Service mix The main difference between the private sector and public sector implementations of shared services organizations is the inclusion of external or third party provided services to achieve cost efficiency. In some private sector models, the governing board of the SSO is a broker that ensures best value for money in service delivery, no matter who the provider is. The choice to be made when setting up the organization and its governance is whether to start slowly by combining a few services and grow or to make a leap and include all services that are felt should come under the mandate of the SSO (Blake, 2005). Will there be a hybrid of services?—For instance, will there be a single face to the customer (D'Auray et al., 2003), in that the SSO processes internal to the organization and any processes that are traditionally provided by third parties are brought together under a single point of contact to facilitate interaction, accountability, and respond to the needs of the client base. 5.3. Physical location When establishing the SSO, setting up the office in a separate, new physical location has been suggested to convey organizational independence (Accenture, 2005a). This may be more problematic in a public service context than in the private sector as realities with respect to federal realty asset management and the required proximity to clients and/or technological infrastructure (sometimes secure infrastructure) may dictate otherwise. The initial board governing the SSO must balance communicating the perception of independence and a mandated way forward that precludes rolling back to “the way we used to do it” with infrastructure realities as well as political and economic development influences. If the proposed SSO is sufficiently large, there may be considerable influence exerted to establish or base the SSO in a particular location (i.e., locating government offices in a politician's district or riding) or fiscal and office space availabilities may dictate a course of action. “Decisions about where the shared services organization will be located, in relation to the business units it serves, must also be made. Particularly for public sector organizations that are geographically dispersed, the decision about location can send a strong message about the importance of shared services” (Conference Board of Canada, 2006). 5.4. Cost recovery The two main methods of funding the SSO appear to be charge backs (setting a fee for service charged to the client organization) or acquiring funds from the centre, that is,
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centralized funding (with portions of client budgets appropriated to the SSO), via service level agreements (SLAs) as a contract for services (Kearney, 2004). The literature is clear on the preferred way, calling charge back's a “source of client rage” (Fyfe, 2006). What emerges as a best practice in the use of SLAs however is to treat them as a loose framework to be regularly revisited and discussed between the SSO and clients rather than to use as an iron clad contract. In the Kearney (2004) study, they introduce the concept of “customer inclusive governance” where there is an ongoing dialogue with customers over their expectations with respect to performance targets and expectations and how they will be managed and delivered. The Accenture study (2005a) echoes a similar theme where discussions are held through a “customer council” that includes key stakeholders and their end user groups to guide and assist in the implementation.
6. Risk management 6.1. Risk management In the UK (2002) SSDN model, risk management (and risk sharing) is explicitly included in the interactions between the top level of oversight, the executive board, and the management level board below it. According to the Accenture (2005a) study, it is essential to set service delivery expectations for all parties based on a clear definition of services and regularly measure to ensure they are met or exceeded on a consistent basis. Risk management appears as a vital governance element in virtually every study and paper in the field (Accenture, 2005a; Blake, 2005; Conference Board of Canada, 2005, 2006; De Haes & Grembergen, 2006b; Fyfe, 2006; IT Governance Institute, 2005; Kearney, 2004; Larsen et al., 2006; Office for Public Management, 2004, 2005; Queensland, 2005; Rau, 2004; Schmotzer, 2006; UK SSDN, 2002; Webb et al., 2006).
7. Performance management 7.1. Performance management Integrating performance management functions into the structure are seen as a necessity and it appears in the majority of reference material (Accenture, 2005a; Blake, 2005; Conference Board of Canada, 2005, 2006; De Haes & Grembergen, 2006b; Fyfe, 2006; IT Governance Institute, 2005; Larsen, Pedersen, & Viborg, 2006; Kearney, 2004; Office for Public Management, 2004, 2005; Queensland, 2005; Rau, 2004; Schmotzer, 2006; UK SSDN, 2002; Webb et al., 2006). A performance baseline is necessary to compare against, and ongoing metrics and evaluation are required, not only for accountability and proof of service and savings, but also for issues resolution in the provision of services. These targets and service thresholds
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should be part of the SLA and of the ongoing discussion with client groups. SSO performance is required as one of the main agenda items at several layers of governing boards and partnering meetings, yet according to a recent study (Accenture, 2005a), 25% of SSOs have no performance management system or performance metrics to measure by. Turnbull (2005) further amplifies this point by stating that without systemic feedback and feed-forward channels of communication from constituents, hierarchies in either the public or private sector do not have reliable and sustainable processes to identify, let alone, increase effectiveness and responsiveness. Several studies highlight the use of Kaplan and Norton's Balanced Scorecard Performance Management Framework as a tool used to integrate the elements of direction setting, strategic alignment, value management, and performance management (De Haes & Grembergen, 2006b; Larsen et al., 2006).
8. Control and compliance 8.1. Legislative compliance In deciding who will offer which services, there are operational and legislative concerns of which to be mindful. Some of the reference material mentions compliance with privacy issues (and the relevant privacy of information legislation and obligations) and the complications (or limitations on third party sourcing) this may bring to the equation (D'Auray et al., 2003). Nolan and McFarlan (2005) include these duties in board oversight, stating that the board must always consider legal issues, security and reliability as well as strategic concerns. Other potential areas for consideration are language or service rights under languages laws such as Canada's Official Languages Act (including the regional/provincial legislative variations such as those in the province of Quebec), and in other cases the mandated provision of services at equal levels for all citizens (Office for Public Management, 2004). Most public service SSOs have internal government offices and organizations as their clients so this may not be an issue, but for those that do deal with the public at large in the provision of federal, provincial or municipal services, these are additional considerations not often found in their private sector equivalents. Accountability should feature prominently in a governance structure as service failures or violations in information protection, privacy, an official languages complaint or other issues often skip the escalation procedures established in the governance methods of an SSO and can wind up coming from the top down via correspondence from a minister's office. The oversight and control provided by internal audit functions are incorporated in many of the examples and studies cited. In the Queensland (2005) model, the government's auditor general office has membership on one of the middle level boards. In the UK (2002) model, the audit function is built in to the top level “Trust” Board. Rau (2004) also highlights the importance of considering this in stating that the audit function assists the governing boards by reviewing practices and control systems so to recommend improvements.
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9. Relationship management 9.1. Communications Governance structure, mechanisms, and SSO results should all be regularly communicated to stakeholders so that they understand the processes and the performance of the organization (Conference Board of Canada, 2005). This kind of transparency is becoming a key emphasis in government and one of the studies added an additional layer of transparency by requiring the decisions of some of the governing boards to include the dissenting opinions and why these were rejected in the formulation of a policy or directive (University of Arizona, 2005). Communications during the time of transition are also crucial. Meetings tend to be more frequent during change initiatives, and thus awareness of governing board members to this dynamic environment is important. “Senior executives must pay special attention to the dynamics within teams, changes in the organization's perceptions about the initiative, and communications from the top” (Sirkin et al., 2005). 9.2. Cultural analysis The Conference Board of Canada (2006) argues that part of the challenge in setting of the governance and operation of an SSO is an analysis of an organization's culture—its strengths, weaknesses, opportunities, and threats. This analysis is required to select and populate the leadership positions in the governance structure with the right people of the right level of authority to successfully carry the change mandate implicit in the establishment of an SSO. As the organizational culture changes during the maturing process of the SSO, leadership styles of the varying boards may be revisited as the type of leader necessary to champion change may differ from that of the steady state organization. As such, methods such as codifying rotating board members or fixed tenure lengths may be tools that help in this regard. Instilling from the start an organizational culture of customer service is a key success factor cited in almost all the reference literature, and so this should be the starting goal of any SSO rather than explicit cost savings. Schmotzer (2006) asserts that this culture change sparks the entrepreneurial spirit required for the SSO and that this spirit will eventually manifest itself as cost efficiency a search on finding better ways to serve the SSO's customers continues.
10. Transformation management 10.1. Initial staffing of the SSO The initial establishment of the SSO will involve transferring skilled people from their existing organizations. The scope of the initial governance meetings should be prohibited from talking about how many resources get transferred in initially and more focused as to the requirements and design of the new organization. “Decisions also need to be made in relation to the staff of the shared services entity, including where they will come from, which skills will
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be required and what the new reporting relationships will be. These decisions should form the basis for employee selection criteria and funding arrangements for staffing the new operation” (Conference Board of Canada, 2006). Partner organizations (whose staff is being transferred) will naturally have concerns about how many people they are losing and what resources they are left with, and so the senior leadership of the new SSO should be cognizant of these issues while pointing out that part of the roles and responsibilities of the organizations losing these resources that are to be subsumed in the new organization. It may be necessary to provide overlap in responsibilities and capabilities by overstaffing slightly during the establishment of the SSO. Of note, in Canada, the new Public Service Employment Act allows greater flexibility in filling positions quickly with the expertise and “fit” the SSO requires. Cross, Earl, and Sampler (1997) highlights the importance of staffing correctly at the start of transformational efforts like this “the assembly of a project team was no longer driven by positional authority or job title, but instead was focused on bringing together the team with the most appropriate skills.” Many of the reference studies and articles also recommend getting the unions involved early in the process so that they feel consulted and through this consultation, they can help the governing bodies of the new SSO manage expectations. The Kearney (2005) study pointed out that the number one concern or source of anxiety for those considering implementing an SSO was workforce/union pressures. They found that this issue was actually tenth on the list of concerns or challenges faced by those that did implement an SSO, as early efforts on communications and a plan that recognized HR challenges mitigated the issue. 10.2. Realistic transition timelines The transition to a shared service delivery model is not completed overnight. Kearney (2005) figures show it takes an average of 1.2 years in Europe and 2.2 years in North America before implementation is complete. The governance structure must accommodate the transitional or temporal concerns. In the initial stages, there will be customer and staff anxieties and issues that slip through the cracks of even the best laid service provision plans in regard to the initial governance structure – composition, meeting frequency, operational, customer centric issue resolution mechanisms – must mitigate these concerns and potentially accept the risk and lack of process that would otherwise be necessary in the stable state, so to keep the transition on its rails. Sirkin et al. (2005) echo this advice and states that more frequent review and monitoring during the transition phase is critical for success. The three proposed time phases that outline activities and expectations during transition to an SSO (Conference Board of Canada, 2006) are listed below (along with their characteristics): 6–18 months: SSO created, starts building identity. Previous process owners play high-level roles. Heavy focus set on communications to clients and staff alike. 18–36 months: Changes may involve relocation, process and system changes. Political and implementation risk is identified. Branding takes hold, roles and responsibilities are being set.
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36–72 months: Integrated risk management, automation, SSO is self-funded from the shared services being provided. Steady state is achieved. 10.3. Managing SSO growth As the SSO matures towards a steady state and potentially grows, the governance model, as embodied in the charter of the organization, should have mechanisms in place for the rotation and/or hiring of board members at the various layers of governance (UK SSDN, 2002). Close to the operational layer, oversight committees often have rotating membership from the heads of the services provided, but the governance model will have to specify whether the senior jobs in each committee or board is filled by promoting from within (retaining experience but potentially demonstrating favoritism) or brought in externally. Kearney (2005) also points out that effective governance of the SSO is the single most important success factor and one of the duties of the governing body is to consider growth— will the organization grow, will it add new shared services and/or seek collaboration with other potential partner organizations. 10.4. Power brokering-closing the back doors Governance of the SSO must be seen to be transparent and accountable to the clients and the staff providing the service. Users have to see that the decision-making process is legitimate (Conference Board of Canada, 2005, 2006) or the governance mechanisms will be short circuited by dissenting members/organizations finding other ways to influence decisions of, or on behalf of, the SSO. Governance boards and board membership should be structured to mitigate the risk of other people or organizations not accepting a mandate for change. In addition to a governance charter authorizing the appropriate level of authority, utilizing a person from outside the organization on the board – an “honest broker” – can be seen as adding experience and objectivity when considering governance decisions (Conference Board of Canada, 2005). Michael Hammer (1996) wrote on change management during organizational and process re-engineering and categorized resistance into these four areas. 1. Dismissal, denial and rationalization: In this form of resistance employees ignore or dismiss the need for change. Employees rationalize why a change initiative will not work. “We tried this years ago and it didn’t work, so why should it work now?” 2. Argumentation: In this form of resistance, employees argue that not enough information is known to make a decision regarding the proposed change. 3. Passive aggression: Typically characterized by an individual's appearance to support the change initiative when he/she actually is not supportive and in fact, may be working behind the scenes to prevent the change from happening. 4. Active noncompliance and explicit obstructionism: A person exhibiting these forms of resistance will indicate that they will not support or comply with the requested change and/ or try to sabotage the initiative.
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Communication is the key to transparency and acknowledging dissenting opinions with the reasons why they were rejected can go a long way towards acceptance of unpopular decisions and mitigating resistance. Executives surveyed in SSOs that are already up and running urged that a communications plan be constructed and implemented right from the start (Conference Board of Canada, 2005) to facilitate the change and maintain contact with the stakeholders and employees. No difficult decision should be made from an Ivory Tower (University of Arizona, 2005). 10.5. Future changes/evolution of the governance structure Dahlberg and Kivijarvi (2006) notes that organizational structures and decision rights are seen to change with evolving strategy, corporate governance and business needs. The Queensland (2005) model incorporates this changing nature at the start by embodying a separate set of implementation committees at the managerial and tactical/operational level. Other implementations of this element consider an “investment budget,” that is, need funding with which to fund future infrastructure and investments (De Haes & Grembergen, 2006b).
11. Value management 11.1. Capital planning/life cycling of equipment Another consideration is how to plan for life cycling capital equipment and major capital purchases for the SSO. Who pays for increased loads (on people, servers, and infrastructure) for services that have become popular (Hocker, 2004)? If one is not using charge backs or fees for services, will user fees be introduced or will baseline budgets of the organizations utilizing the services most be re-examined? The Association for Enterprise Integration (2006) advocates that the governance structure should provide additional guidance for program managers to address the issues of life cycle service liability of service providers for shared services. In short, how is the cost for replacement of capital items—hardware and infrastructure to be assigned? Who pays the bills and in what proportions? 11.2. Frequency of governing board meetings and reports It is expected that governance and committee meetings will be more frequent during the initial stages of SSO implementation due to the requisite communications and consultative approach that fosters the necessary cooperation. Governing boards should be mindful of the workload associated with formal meetings – especially in the gathering, preparation, and presentation of performance data – on top of the existing day-to-day roles and responsibilities of SSO staff. The most frequent meeting of any board in the Queensland (2005) model is monthly—and this is for a subcommittee of the Implementation Steering Committee. These eight governance elements appear in a variety of papers and studies, both from an academic and practitioner viewpoint. This figure shows the overlap (Fig. 2).
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Fig. 2. Designing governance of public service shared service organizations.
Now that the multi-tiered structure of shared service governance and the eight essential elements that must be embodied in the structure have been examined, it is now possible to build upon and tie-in the work of De Haes and Grembergen (2006a, b) who proposed a governance model with three components–structure, process, and relational mechanisms. This unifying model incorporates the structure and elements, found in our research, and allows for the relationship management element found to be crucial in many instances of SSO governance to be further explored and developed. A slight adaptation of their model is shown as Fig. 3. Combining the multi-tiered structure prevalent in the research and case studies with the eight governance elements, it is possible to arrive at the following suggested model for the governance of shared service organizations in the public service.
Fig. 3. Designing governance of public service shared service organizations.
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National level Government Services Committee (quarterly meetings) Membership Associate deputy minister/director general level representation from each of the participating departments involved in the development of the shared service organizations. Roles This level of oversight ensures coordination of IT shared service delivery programs at the government level. Members are heads of each department providing shared services. The body serves as the final level of dispute resolution as well as provides guidance, direction, and ensures alignment between the shared services organization and government policy. This national coordination and oversight governance committee would only be present when there are multiple instances of government-wide shared services. Elements (1) Direction setting, (2) Strategic alignment, (3) Risk management, (4) Performance management, embodied (5) Control and compliance, (6) Relationship management, (7) Transformation management, (8) Value management.
Executive level Shared Service Governing Board (monthly meetings) Membership
Roles
Elements embodied
Chaired by the ADM of the relevant department, membership should include the director(s) general and directors from the SSO as well as, where practicable, director or director general representation from the main client organization. Approval of the annual business plan, high-level SLAs, audit program, and any capital equipment procurement plans. Nominally—the highest level for escalation of any service related issues. Policy setting body for the SSO. (1) Direction setting, (2) Strategic alignment, (3) Risk management, (4) Performance management, (5) Control and compliance, (7) Transformation management, (8) Value management. Note: In the absence of a higher level board, this level of governance and oversight would be expected to embody all eight governance elements.
Managerial level Shared Service Management and Advisory Board (monthly meetings) Membership Roles
Elements embodied
Chaired by the head of the SSO, membership includes heads of functional areas such as HR, IM/IT, and Finance. This level of oversight is kept to a small core team and it focuses on maintaining strategy, policy, and performance of the SSO as well as responding to any service issues that have been escalated upwards from the lower board. (3) Risk management, (4) Performance management, (6) Relationship management, (7) Transformation management, (8) Value management.
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Tactical level Shared Service Operations Committee (semi-monthly meetings) Membership Roles Elements embodied
Managers of the functional areas of the SSO. Continuously review the operations, performance, and quality of service of the SSO and its arrangements (e.g., SLAs) with its clients. (3) Risk management, (4) Performance management, (6) Relationship management, (7) Transformation management, (8) Value management.
12. Conclusion This paper has covered a variety of considerations and factors in designing governance and the elements and considerations required for shared service organizations in the public sector. The majority of literature examined supports the multi-tiered governance structure with the roles and responsibilities (as well as specific structures to facilitate the implementation and change management) differing only slightly from implementation to implementation. Eight key elements also emerged from the study of a wide variety of literature in the academic and practitioner/case study areas. Key themes of customer centricity, communication, and starting with the right people were echoed throughout the research material used for this overview. Consideration of the temporal factors and changes that will be required over time as well as the organizational imperatives of performance management, risk, reporting, and culture can go a long way in establishing a robust governance framework from which to run a shared service organization. References Accenture. (2005a), Driving high performance in government: Maximizing the value of public-sector shared services. Accenture. (2005b), Optimizing shared services performance through better service management. Association for Enterprise Integration. (2006). Facilitating shared services in the Department of Defense. Blake, Pat (2005). In quest of shared services. Journal of Sourcing Leadership, 2(2). Clarke, Charles E., Cavanaugh, Nancy, Brown, Carol, & Sambamurthy, V. (1997). Building change readiness capabilities in the is organization: Insights from the bell atlantic experience. MISQ, 425−455 (Dec.). Conference Board of Canada. (2005). Implementing shared services in the public sector: Lessons for success. Conference Board of Canada. (2006). Implementing shared services in the public sector: The pillars of success. Cross, John, Earl, Michael, & Sampler, Jeffrey. (1997). Transformation of the IT function at British Petroleum. MIS Quarterly, 21(4), 401−423. Dahlberg, Tomi & Kivijarvi, Hannu (2006). An integrated framework for IT governance and the development and validation of an assessment instrument, 39th Hawaii International Conference on System Sciences. D'Auray, Michelle, Flumian, Maryantonett, & Valeri, Tony (2003). From ideas to action: Towards seamless government. Policy, Politics and Governance. De Haes, Steven, Grembergen, & Wim Van (2006a). Information technology governance best practices in Belgian Organisations, 39th Hawaii International Conference on System Sciences.
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De Haes, Steven, Grembergen, & Wim Van (2006b). IT governance structures, processes and relational mechanisms: Achieving IT/business alignment in a major Belgian Financial Group, 39th Hawaii International Conference on System Sciences. Fyfe, Toby (2006). Fine tuning shared services: It's a different road in the public sector. CIO Government Review, 8(1). Hammer, Michael (1996). Beyond reengineering: How the process-centered organization is changing our work and our lives. Hocker, Rhonda (2004). Service-oriented architectures and governance. BEA Systems. IT Governance Institute (2005). Board briefing on IT governance, 2nd Ed. Kearney, A. T. (2004). Success through shared services. Kearney, A. T. (2005). Shared services in government: Turning private sector lessons into public sector best practices. Larsen, Michael Holm, Pedersen, Mogens Jukn, & Viborg Andersen, Kim. (2006). IT governance: Reviewing 17 IT governance tools and analysing the case of Novozymes A/S, 39th Hawaii International Conference on System Sciences. Nolan, Richard, McFarlan, & Warren, F. (2005). Information technology and the board of directors, Harvard Business Review, Oct 05. Office for Public Management. (2004). Public service governance: The policy context. Office for Public Management. (2005). The good governance standard for public services. Queensland Government. (2005). Australia, Shared Service Initiative Governance Framework. Rau, K. G. (2004). Effective governance of IT: Design objectives, roles and relationships. Information Systems Management, 21(4), 35−42. Schmotzer, Steven (2006). Design and governance for shared service centres. International Quality and Productivity Centre. Web article, http://www.iqpc.com/cgi-bin/templates/102684041825781249999900002/ article.html?topic=30&article=66. Sirkin, H., Keenan, P., & Jackson, A. (2005). The hard side of change management. Harvard Business Review, 108−118 (Oct. 05). Turnbull, Shann (2005). A framework for analyzing network governance of public assets, Governance Conference, Melbourne Australia. UK SSDN (Shared Services Development Network). (2002). NHS share service organizations: Accountability and governance framework. University of Arizona. (2005), Shared governance MOU: Guidelines for shared governance. Webb, Phyl, Pollard, Carol, & Ridley, Gail (2006). Attempting to define IT governance: Wisdon or Folly? 39th Hawaii International Conference on System Sciences. Weill, Peter, & Woodham, R. (2002). Don’t just lead, govern: Implementing effective IT governance, MIT Sloan Working Paper No. 326.
Gerald Grant is an Associate Professor in the Information Systems Concentration. He received his PhD from London School of Economics, University of London. He is an associate editor of the Journal of Global Information Management. Currently, Gerald is a member of the Executive Council of the Information Resources Management Association (IRMA). He is also a member of the Advisory Board of the Ottawa Manufacturers Network (OMN). Shawn McKnight is a PhD candidate in management at the Eric Sprott School of Business, Carleton University, Ottawa, Canada. He received an MBA from the University of Ottawa and a Bachelor of Computer Science from Wilfrid Laurier University. Allen E. Brown is PhD candidate in management at the Eric Sprott School of Business, Carleton University in Ottawa, Canada.
Designing governance for shared services organizations in the public service Gerald Grant, Shawn McKnight ⁎, Aareni Uruthirapathy, Allen Brown Eric Sprott School of Business, Carleton University, Ottawa, Canada Available online 1 November 2006
Abstract As shared services organizations (SSO) become more popular as a service management and delivery option in government, properly defining and setting up the governance structure continues to be a key success factor. This paper explores the options and issues to consider when selecting and implementing shared services governance including topics such as oversight, accountability, culture, management of resources, and of day-to-day operations. Shared services organizations are increasingly common in private sector companies and the particular challenges involved in the governance of an SSO in a public service context are highlighted and discussed. © 2006 Elsevier Inc. All rights reserved. Keywords: Public service; Shared services governance; Service level agreement (SLA); Governance model; Governance structure
1. Introduction A shared services organization is essentially a business unit or organizational entity within the enterprise that delivers specialized, value-added services across the entire organization (Blake, 2005). Governments are increasingly turning towards shared services organizations (SSOs) to consolidate and deliver services to their customers (Conference Board of Canada, 2005). In researching a wide range of articles from the public and private sector, academic, ⁎ Corresponding author. E-mail address: [email protected] (S. McKnight). 0740-624X/$ - see front matter © 2006 Elsevier Inc. All rights reserved. doi:10.1016/j.giq.2006.09.005
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consultant research, and other popular press articles have been reviewed. The issues discussed and recommendations proposed can be broadly categorized into two areas—governance structures and key elements. The focus of this paper is to discern the optimal governance structure for implementing shared services in a public service context and then to analyze the key, substantiated elements and considerations of an SSO governance structure and where these fit or reside in the selected structure.
2. Governance structures The nomenclature of governance terms describing the relationships, control, and accountabilities of shared services organizations is diverse. In this paper, the term governance structure is used to outline the hierarchy of committees, boards, bodies, or forums that execute the management of, and oversee the delivery of, the products and/or services of the SSO. This structure has also been referred to as a control architecture (Turnbull, 2005), organizational design (Clarke, Cavanaugh, Brown, & Sambamurthy, 1997), SSO structure (Blake, 2005), governance archetype (Weill & Woodham, 2002), governance design structure (Rau, 2004), and governance structure (Kearney, 2004), to name a few. In all cases, the governance structure details how many levels or layers of committees there are and outlines each of their primary roles. The roles, accountabilities, and responsibilities assigned to the levels and committees of the SSO will differ based on how some of the core processes of the organization are implemented. Clear decision rights, governance structures, defined roles and responsibilities, and issue resolution processes are needed from the start (Blake, 2005). Input and decision rights on matters such as the business model for cost recovery and long term organizational funding, costing, and pricing mechanisms and SSO growth strategies are but a few additional components that should be clearly documented in the initial charter of the SSO. There are several governance structures advocated to oversee shared services organizations. Models of functioning SSOs were examined from Canada, Australia, the UK, US, and many others including the broad overviews provided in the popular literature and consulting firm reports. One such report, Kearney's (2004) study interviewed 140 executives in SSOs—seventy in North America and seventy in the UK, France, and Germany. In general, the governance structures were similar and the differences between competing frameworks were largely in the nomenclature and number of layers—the number and types of oversight committees in each of the structures. The majority of governance structures had between two and three layers and these represented almost all of the public sector implementations, some of which were referenced and recognized as best practices in the reference literature (Conference Board of Canada, 2006; Kearney, 2005; Queensland, 2005; Schmotzer, 2006; UK SSDN, 2002). The UK Shared Services Development network proposes four levels of governance to consider—host (enterprise/corporate), two at the partnership level (operational and strategic), and SSO management (tactical). These tiered divisions have been implemented by the UK National Health Services and the Australian State of Queensland Government and are recommended in other literature. The Accenture Study (2005a,b) and the Conference Board of
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Canada Study (2006) both support a multi-tiered structure although they define it differently. The Conference Board describes two basic layers or levels of governance—enterprise and operational, often linked together by a “corporate group” of senior officials to deal with things like service level agreements (SLAs) and to monitor performance and results. The enterprise level focuses on the overall transition to the SSO via strategic and organizational alignment. The operational level concerns itself with providing direction for service delivery and accountability agreements. These layers are manifested in all the proposed governance structures, the differences between each proposed structure being the number of layers— division of duties. The addition of an implementation board to each of these layers comes from the Queensland Government structure (Queensland Government, 2005). The Queensland model is widely cited as a success story, as it embodies the governance structure elements seen in other large, public service shared services organizations examples in the literature (Accenture, 2005a; Conference Board of Canada, 2006; UK SSDN, 2002). The model considers the temporal and government coordination facets missing in the other models while retaining the base elements of oversight, accountability, and the inclusion of input rights for the functional services heads through governing boards and partnering forums. In short, while it incorporates all the elements of the governance structures seen throughout the referenced literature, it also acknowledges and formally codifies in its structure, the need to manage change. This concept of change management during the transition from current service provision mechanisms to that of a shared service organization is mentioned frequently in the literature (Blake, 2005; Conference Board of Canada, 2006; D'Auray, Flumian, & Valeri, 2003; Kearney, 2004; UK SSDN, 2002), but only in the Queensland example does it appear to be acknowledged as a separate element of the governance structure. In the Queensland example, the role of the Program Implementation Steering Committee is to oversee the effective development, integration, and implementation of standard and cost-effective corporate services, business processes, systems, and revised work practices from a whole-of-government perspective. The executive director subcommittee's role is to guide the effective implementation of the program of work associated with the implementation of standard, cost-effective corporate services, business processes, and systems from a whole-of-government perspective through operational decision making. Whereas the role of the prioritization subcommittee is to ensure that a consistent and transparent evaluation process is developed and maintained for the prioritization of work requests raised by shared service partners. All three of these coordinating roles are deemed to play an important enough role in the transition towards the SSO environment that these warranted separate consideration and the establishment of a forum to deal with their issues (Queensland, 2005). This is consistent with other literature on change management, including one article that recommends that companies should formally review transformation projects at least every eight weeks (Sirkin, Keenan, & Jackson, 2005). Combining the aspects of these various structures and reflecting these in the nomenclature of layers documented by the Conference Board of Canada (2006) provides these examples of roles and membership for guidance.
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Within the enterprise and managerial levels, there are two recommended structures: – A governing board (comprised of the SSO CEO and the heads or representatives of the shared services partners or clusters of agencies) or an executive council headed by senior management, agency representatives, and shared services partners. This level is mirrored in the Queensland (2005) and UK (2002) NHS examples; and – A shared services implementation office that plays the lead role in developing the whole-ofgovernment approach.
Fig. 1.
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On the operational/tactical levels, there are three recommended structures: – A Shared Services Implementation Board—charged with making the day to day operationsfocused decisions required for the transition to shared services organization; – A Shared Services Organization Governing Board (primarily comprised of the heads of SSO and of partner organizations)—this board provides an equitable decision-making forum and issue resolution mechanism for the SSO heads of services provided; and – Partnering Forums, which serve as the first or base level of issue resolution. Governance charters for this level of the organization should cover such things as voting rights, rules and methods, definition of quorum for decisions, and circulation of papers and records of decision (UK SSDN, 2002). Depicted hierarchically, a synthesis of the recommended features of an SSO governance structure can be shown as follows with the shaded section listing the governance mechanism for dealing with the implementation/transition to the shared service environment from the Queensland (2005) model (Fig. 1). This four-tiered governance structure provides the functionality and oversight advocated in the literature but it also embodies some of the key elements and characteristics of governance as well. These features are brought out in more detail in the referenced literature and will now be covered in-depth.
3. Governance elements and considerations Governance elements and considerations are those factors or best practices identified throughout the reference literature that should be incorporated into the governance structure through charters, terms of reference, and roles and responsibilities of governing boards and key individuals. These elements and considerations, together with the three-tiered governance structure outlined above form a proposed governance model for shared support organizations in the public sector. These elements can be grouped into eight broad categories similar to the five governance elements in the IT Governance Institute (ITIG; 2005) pentagon with a few additions as supported by the literature.
4. Direction setting/strategic leadership 4.1. Representation at the top One of the common points that emerge is that the head of the executive or top level oversight board should be a person with experience in leading shared services (Accenture, 2005a; UK SSDN, 2002). Others take the point further stating that an external head with experience in implementing or running shared services in the private sector may be of value (Conference Board of Canada, 2005). In most models, this board has a limited rotating membership from the
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heads of the functional shared services being offered. The rotating membership allows each a chance at the experience while fairly balancing renewal and continuity. In the UK (2002) model used at their National Health Service, the head of the top oversight board is rotated every 3 years. This accommodates the temporal nature of shared service governance—that the services required to be shared as well as overall governance of the process evolve over time and therefore, different skill sets are required. It also hedges against stagnation of board leaders. The character of the leader, and having both the thorough understanding of the expectations on objectives, timelines, and gains and the conferred decision-making power are raised as key points in the Conference Board of Canada's (2005) report. It states that the top leader needs to be someone well known and respected as a “winner and a positive force in the change process.” The leader chosen must have sufficient power to deal with other obstructionist leaders or functional service heads that either thwart change or refuse to give up the proper people and resources required to centralize the services in question. Amplification for this point is provided by ITGI (2005) who state that the top-level board is required to provide direction, measure performance of the activities delivered and cause adjustments to be made—in short, to exercise strategic leadership. 4.2. Customer focus One of the main points for the SSO to articulate from the initial design stages onwards is a customer focus. Although the rationale for migrating to an SSO is often cited as realizing cost savings, nominally through achieving economies of scale, the mission of the SSO is to provide their customers and clients with better service. This customer centric focus is echoed throughout the research material and best practices (Accenture, 2005a; D'Auray et al., 2003; Kearney, 2004; Office for Public Management, 2004). Of note, in the AT Kearney (2004) study, they compared expectations before and after implementation and cost savings turned out to be 17% lower than what they were expecting. Although cost savings are usually achieved, the general theme amongst the papers describing successful implementations was that for those who strived to ingrain a customer first culture, buy-in, operational efficiencies and success followed.
5. Strategic alignment 5.1. Separating strategic from operational concerns “The design of shared services is most effective when those who deliver services to clients are separate from those who ensure compliance with corporate policy and standards” (Conference Board of Canada, 2006). Prudence in the assignment of enterprise or strategic roles and responsibilities to senior or top-level board members and operational or tactical considerations to operational/tactical levels of the governance structure can pay dividends. “Several executives reported that they had wrestled with how best to make the distinction between strategic and transactional processes. They found that they would have gained by
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being far clearer at the outset about where the distinctions would lie” (Conference Board of Canada, 2006). The IT Governance Institute (2005) states that strategic alignment of the governance structure with that of the parent organization increases managerial effectiveness and administrative efficiency and adds value to products and services rendered. Rau (2004) echoes this imperative and advocates for a “Governance Council” that includes strategic alignment, policy setting, control, and performance management. 5.2. Service mix The main difference between the private sector and public sector implementations of shared services organizations is the inclusion of external or third party provided services to achieve cost efficiency. In some private sector models, the governing board of the SSO is a broker that ensures best value for money in service delivery, no matter who the provider is. The choice to be made when setting up the organization and its governance is whether to start slowly by combining a few services and grow or to make a leap and include all services that are felt should come under the mandate of the SSO (Blake, 2005). Will there be a hybrid of services?—For instance, will there be a single face to the customer (D'Auray et al., 2003), in that the SSO processes internal to the organization and any processes that are traditionally provided by third parties are brought together under a single point of contact to facilitate interaction, accountability, and respond to the needs of the client base. 5.3. Physical location When establishing the SSO, setting up the office in a separate, new physical location has been suggested to convey organizational independence (Accenture, 2005a). This may be more problematic in a public service context than in the private sector as realities with respect to federal realty asset management and the required proximity to clients and/or technological infrastructure (sometimes secure infrastructure) may dictate otherwise. The initial board governing the SSO must balance communicating the perception of independence and a mandated way forward that precludes rolling back to “the way we used to do it” with infrastructure realities as well as political and economic development influences. If the proposed SSO is sufficiently large, there may be considerable influence exerted to establish or base the SSO in a particular location (i.e., locating government offices in a politician's district or riding) or fiscal and office space availabilities may dictate a course of action. “Decisions about where the shared services organization will be located, in relation to the business units it serves, must also be made. Particularly for public sector organizations that are geographically dispersed, the decision about location can send a strong message about the importance of shared services” (Conference Board of Canada, 2006). 5.4. Cost recovery The two main methods of funding the SSO appear to be charge backs (setting a fee for service charged to the client organization) or acquiring funds from the centre, that is,
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centralized funding (with portions of client budgets appropriated to the SSO), via service level agreements (SLAs) as a contract for services (Kearney, 2004). The literature is clear on the preferred way, calling charge back's a “source of client rage” (Fyfe, 2006). What emerges as a best practice in the use of SLAs however is to treat them as a loose framework to be regularly revisited and discussed between the SSO and clients rather than to use as an iron clad contract. In the Kearney (2004) study, they introduce the concept of “customer inclusive governance” where there is an ongoing dialogue with customers over their expectations with respect to performance targets and expectations and how they will be managed and delivered. The Accenture study (2005a) echoes a similar theme where discussions are held through a “customer council” that includes key stakeholders and their end user groups to guide and assist in the implementation.
6. Risk management 6.1. Risk management In the UK (2002) SSDN model, risk management (and risk sharing) is explicitly included in the interactions between the top level of oversight, the executive board, and the management level board below it. According to the Accenture (2005a) study, it is essential to set service delivery expectations for all parties based on a clear definition of services and regularly measure to ensure they are met or exceeded on a consistent basis. Risk management appears as a vital governance element in virtually every study and paper in the field (Accenture, 2005a; Blake, 2005; Conference Board of Canada, 2005, 2006; De Haes & Grembergen, 2006b; Fyfe, 2006; IT Governance Institute, 2005; Kearney, 2004; Larsen et al., 2006; Office for Public Management, 2004, 2005; Queensland, 2005; Rau, 2004; Schmotzer, 2006; UK SSDN, 2002; Webb et al., 2006).
7. Performance management 7.1. Performance management Integrating performance management functions into the structure are seen as a necessity and it appears in the majority of reference material (Accenture, 2005a; Blake, 2005; Conference Board of Canada, 2005, 2006; De Haes & Grembergen, 2006b; Fyfe, 2006; IT Governance Institute, 2005; Larsen, Pedersen, & Viborg, 2006; Kearney, 2004; Office for Public Management, 2004, 2005; Queensland, 2005; Rau, 2004; Schmotzer, 2006; UK SSDN, 2002; Webb et al., 2006). A performance baseline is necessary to compare against, and ongoing metrics and evaluation are required, not only for accountability and proof of service and savings, but also for issues resolution in the provision of services. These targets and service thresholds
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should be part of the SLA and of the ongoing discussion with client groups. SSO performance is required as one of the main agenda items at several layers of governing boards and partnering meetings, yet according to a recent study (Accenture, 2005a), 25% of SSOs have no performance management system or performance metrics to measure by. Turnbull (2005) further amplifies this point by stating that without systemic feedback and feed-forward channels of communication from constituents, hierarchies in either the public or private sector do not have reliable and sustainable processes to identify, let alone, increase effectiveness and responsiveness. Several studies highlight the use of Kaplan and Norton's Balanced Scorecard Performance Management Framework as a tool used to integrate the elements of direction setting, strategic alignment, value management, and performance management (De Haes & Grembergen, 2006b; Larsen et al., 2006).
8. Control and compliance 8.1. Legislative compliance In deciding who will offer which services, there are operational and legislative concerns of which to be mindful. Some of the reference material mentions compliance with privacy issues (and the relevant privacy of information legislation and obligations) and the complications (or limitations on third party sourcing) this may bring to the equation (D'Auray et al., 2003). Nolan and McFarlan (2005) include these duties in board oversight, stating that the board must always consider legal issues, security and reliability as well as strategic concerns. Other potential areas for consideration are language or service rights under languages laws such as Canada's Official Languages Act (including the regional/provincial legislative variations such as those in the province of Quebec), and in other cases the mandated provision of services at equal levels for all citizens (Office for Public Management, 2004). Most public service SSOs have internal government offices and organizations as their clients so this may not be an issue, but for those that do deal with the public at large in the provision of federal, provincial or municipal services, these are additional considerations not often found in their private sector equivalents. Accountability should feature prominently in a governance structure as service failures or violations in information protection, privacy, an official languages complaint or other issues often skip the escalation procedures established in the governance methods of an SSO and can wind up coming from the top down via correspondence from a minister's office. The oversight and control provided by internal audit functions are incorporated in many of the examples and studies cited. In the Queensland (2005) model, the government's auditor general office has membership on one of the middle level boards. In the UK (2002) model, the audit function is built in to the top level “Trust” Board. Rau (2004) also highlights the importance of considering this in stating that the audit function assists the governing boards by reviewing practices and control systems so to recommend improvements.
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9. Relationship management 9.1. Communications Governance structure, mechanisms, and SSO results should all be regularly communicated to stakeholders so that they understand the processes and the performance of the organization (Conference Board of Canada, 2005). This kind of transparency is becoming a key emphasis in government and one of the studies added an additional layer of transparency by requiring the decisions of some of the governing boards to include the dissenting opinions and why these were rejected in the formulation of a policy or directive (University of Arizona, 2005). Communications during the time of transition are also crucial. Meetings tend to be more frequent during change initiatives, and thus awareness of governing board members to this dynamic environment is important. “Senior executives must pay special attention to the dynamics within teams, changes in the organization's perceptions about the initiative, and communications from the top” (Sirkin et al., 2005). 9.2. Cultural analysis The Conference Board of Canada (2006) argues that part of the challenge in setting of the governance and operation of an SSO is an analysis of an organization's culture—its strengths, weaknesses, opportunities, and threats. This analysis is required to select and populate the leadership positions in the governance structure with the right people of the right level of authority to successfully carry the change mandate implicit in the establishment of an SSO. As the organizational culture changes during the maturing process of the SSO, leadership styles of the varying boards may be revisited as the type of leader necessary to champion change may differ from that of the steady state organization. As such, methods such as codifying rotating board members or fixed tenure lengths may be tools that help in this regard. Instilling from the start an organizational culture of customer service is a key success factor cited in almost all the reference literature, and so this should be the starting goal of any SSO rather than explicit cost savings. Schmotzer (2006) asserts that this culture change sparks the entrepreneurial spirit required for the SSO and that this spirit will eventually manifest itself as cost efficiency a search on finding better ways to serve the SSO's customers continues.
10. Transformation management 10.1. Initial staffing of the SSO The initial establishment of the SSO will involve transferring skilled people from their existing organizations. The scope of the initial governance meetings should be prohibited from talking about how many resources get transferred in initially and more focused as to the requirements and design of the new organization. “Decisions also need to be made in relation to the staff of the shared services entity, including where they will come from, which skills will
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be required and what the new reporting relationships will be. These decisions should form the basis for employee selection criteria and funding arrangements for staffing the new operation” (Conference Board of Canada, 2006). Partner organizations (whose staff is being transferred) will naturally have concerns about how many people they are losing and what resources they are left with, and so the senior leadership of the new SSO should be cognizant of these issues while pointing out that part of the roles and responsibilities of the organizations losing these resources that are to be subsumed in the new organization. It may be necessary to provide overlap in responsibilities and capabilities by overstaffing slightly during the establishment of the SSO. Of note, in Canada, the new Public Service Employment Act allows greater flexibility in filling positions quickly with the expertise and “fit” the SSO requires. Cross, Earl, and Sampler (1997) highlights the importance of staffing correctly at the start of transformational efforts like this “the assembly of a project team was no longer driven by positional authority or job title, but instead was focused on bringing together the team with the most appropriate skills.” Many of the reference studies and articles also recommend getting the unions involved early in the process so that they feel consulted and through this consultation, they can help the governing bodies of the new SSO manage expectations. The Kearney (2005) study pointed out that the number one concern or source of anxiety for those considering implementing an SSO was workforce/union pressures. They found that this issue was actually tenth on the list of concerns or challenges faced by those that did implement an SSO, as early efforts on communications and a plan that recognized HR challenges mitigated the issue. 10.2. Realistic transition timelines The transition to a shared service delivery model is not completed overnight. Kearney (2005) figures show it takes an average of 1.2 years in Europe and 2.2 years in North America before implementation is complete. The governance structure must accommodate the transitional or temporal concerns. In the initial stages, there will be customer and staff anxieties and issues that slip through the cracks of even the best laid service provision plans in regard to the initial governance structure – composition, meeting frequency, operational, customer centric issue resolution mechanisms – must mitigate these concerns and potentially accept the risk and lack of process that would otherwise be necessary in the stable state, so to keep the transition on its rails. Sirkin et al. (2005) echo this advice and states that more frequent review and monitoring during the transition phase is critical for success. The three proposed time phases that outline activities and expectations during transition to an SSO (Conference Board of Canada, 2006) are listed below (along with their characteristics): 6–18 months: SSO created, starts building identity. Previous process owners play high-level roles. Heavy focus set on communications to clients and staff alike. 18–36 months: Changes may involve relocation, process and system changes. Political and implementation risk is identified. Branding takes hold, roles and responsibilities are being set.
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36–72 months: Integrated risk management, automation, SSO is self-funded from the shared services being provided. Steady state is achieved. 10.3. Managing SSO growth As the SSO matures towards a steady state and potentially grows, the governance model, as embodied in the charter of the organization, should have mechanisms in place for the rotation and/or hiring of board members at the various layers of governance (UK SSDN, 2002). Close to the operational layer, oversight committees often have rotating membership from the heads of the services provided, but the governance model will have to specify whether the senior jobs in each committee or board is filled by promoting from within (retaining experience but potentially demonstrating favoritism) or brought in externally. Kearney (2005) also points out that effective governance of the SSO is the single most important success factor and one of the duties of the governing body is to consider growth— will the organization grow, will it add new shared services and/or seek collaboration with other potential partner organizations. 10.4. Power brokering-closing the back doors Governance of the SSO must be seen to be transparent and accountable to the clients and the staff providing the service. Users have to see that the decision-making process is legitimate (Conference Board of Canada, 2005, 2006) or the governance mechanisms will be short circuited by dissenting members/organizations finding other ways to influence decisions of, or on behalf of, the SSO. Governance boards and board membership should be structured to mitigate the risk of other people or organizations not accepting a mandate for change. In addition to a governance charter authorizing the appropriate level of authority, utilizing a person from outside the organization on the board – an “honest broker” – can be seen as adding experience and objectivity when considering governance decisions (Conference Board of Canada, 2005). Michael Hammer (1996) wrote on change management during organizational and process re-engineering and categorized resistance into these four areas. 1. Dismissal, denial and rationalization: In this form of resistance employees ignore or dismiss the need for change. Employees rationalize why a change initiative will not work. “We tried this years ago and it didn’t work, so why should it work now?” 2. Argumentation: In this form of resistance, employees argue that not enough information is known to make a decision regarding the proposed change. 3. Passive aggression: Typically characterized by an individual's appearance to support the change initiative when he/she actually is not supportive and in fact, may be working behind the scenes to prevent the change from happening. 4. Active noncompliance and explicit obstructionism: A person exhibiting these forms of resistance will indicate that they will not support or comply with the requested change and/ or try to sabotage the initiative.
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Communication is the key to transparency and acknowledging dissenting opinions with the reasons why they were rejected can go a long way towards acceptance of unpopular decisions and mitigating resistance. Executives surveyed in SSOs that are already up and running urged that a communications plan be constructed and implemented right from the start (Conference Board of Canada, 2005) to facilitate the change and maintain contact with the stakeholders and employees. No difficult decision should be made from an Ivory Tower (University of Arizona, 2005). 10.5. Future changes/evolution of the governance structure Dahlberg and Kivijarvi (2006) notes that organizational structures and decision rights are seen to change with evolving strategy, corporate governance and business needs. The Queensland (2005) model incorporates this changing nature at the start by embodying a separate set of implementation committees at the managerial and tactical/operational level. Other implementations of this element consider an “investment budget,” that is, need funding with which to fund future infrastructure and investments (De Haes & Grembergen, 2006b).
11. Value management 11.1. Capital planning/life cycling of equipment Another consideration is how to plan for life cycling capital equipment and major capital purchases for the SSO. Who pays for increased loads (on people, servers, and infrastructure) for services that have become popular (Hocker, 2004)? If one is not using charge backs or fees for services, will user fees be introduced or will baseline budgets of the organizations utilizing the services most be re-examined? The Association for Enterprise Integration (2006) advocates that the governance structure should provide additional guidance for program managers to address the issues of life cycle service liability of service providers for shared services. In short, how is the cost for replacement of capital items—hardware and infrastructure to be assigned? Who pays the bills and in what proportions? 11.2. Frequency of governing board meetings and reports It is expected that governance and committee meetings will be more frequent during the initial stages of SSO implementation due to the requisite communications and consultative approach that fosters the necessary cooperation. Governing boards should be mindful of the workload associated with formal meetings – especially in the gathering, preparation, and presentation of performance data – on top of the existing day-to-day roles and responsibilities of SSO staff. The most frequent meeting of any board in the Queensland (2005) model is monthly—and this is for a subcommittee of the Implementation Steering Committee. These eight governance elements appear in a variety of papers and studies, both from an academic and practitioner viewpoint. This figure shows the overlap (Fig. 2).
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Fig. 2. Designing governance of public service shared service organizations.
Now that the multi-tiered structure of shared service governance and the eight essential elements that must be embodied in the structure have been examined, it is now possible to build upon and tie-in the work of De Haes and Grembergen (2006a, b) who proposed a governance model with three components–structure, process, and relational mechanisms. This unifying model incorporates the structure and elements, found in our research, and allows for the relationship management element found to be crucial in many instances of SSO governance to be further explored and developed. A slight adaptation of their model is shown as Fig. 3. Combining the multi-tiered structure prevalent in the research and case studies with the eight governance elements, it is possible to arrive at the following suggested model for the governance of shared service organizations in the public service.
Fig. 3. Designing governance of public service shared service organizations.
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National level Government Services Committee (quarterly meetings) Membership Associate deputy minister/director general level representation from each of the participating departments involved in the development of the shared service organizations. Roles This level of oversight ensures coordination of IT shared service delivery programs at the government level. Members are heads of each department providing shared services. The body serves as the final level of dispute resolution as well as provides guidance, direction, and ensures alignment between the shared services organization and government policy. This national coordination and oversight governance committee would only be present when there are multiple instances of government-wide shared services. Elements (1) Direction setting, (2) Strategic alignment, (3) Risk management, (4) Performance management, embodied (5) Control and compliance, (6) Relationship management, (7) Transformation management, (8) Value management.
Executive level Shared Service Governing Board (monthly meetings) Membership
Roles
Elements embodied
Chaired by the ADM of the relevant department, membership should include the director(s) general and directors from the SSO as well as, where practicable, director or director general representation from the main client organization. Approval of the annual business plan, high-level SLAs, audit program, and any capital equipment procurement plans. Nominally—the highest level for escalation of any service related issues. Policy setting body for the SSO. (1) Direction setting, (2) Strategic alignment, (3) Risk management, (4) Performance management, (5) Control and compliance, (7) Transformation management, (8) Value management. Note: In the absence of a higher level board, this level of governance and oversight would be expected to embody all eight governance elements.
Managerial level Shared Service Management and Advisory Board (monthly meetings) Membership Roles
Elements embodied
Chaired by the head of the SSO, membership includes heads of functional areas such as HR, IM/IT, and Finance. This level of oversight is kept to a small core team and it focuses on maintaining strategy, policy, and performance of the SSO as well as responding to any service issues that have been escalated upwards from the lower board. (3) Risk management, (4) Performance management, (6) Relationship management, (7) Transformation management, (8) Value management.
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Tactical level Shared Service Operations Committee (semi-monthly meetings) Membership Roles Elements embodied
Managers of the functional areas of the SSO. Continuously review the operations, performance, and quality of service of the SSO and its arrangements (e.g., SLAs) with its clients. (3) Risk management, (4) Performance management, (6) Relationship management, (7) Transformation management, (8) Value management.
12. Conclusion This paper has covered a variety of considerations and factors in designing governance and the elements and considerations required for shared service organizations in the public sector. The majority of literature examined supports the multi-tiered governance structure with the roles and responsibilities (as well as specific structures to facilitate the implementation and change management) differing only slightly from implementation to implementation. Eight key elements also emerged from the study of a wide variety of literature in the academic and practitioner/case study areas. Key themes of customer centricity, communication, and starting with the right people were echoed throughout the research material used for this overview. Consideration of the temporal factors and changes that will be required over time as well as the organizational imperatives of performance management, risk, reporting, and culture can go a long way in establishing a robust governance framework from which to run a shared service organization. References Accenture. (2005a), Driving high performance in government: Maximizing the value of public-sector shared services. Accenture. (2005b), Optimizing shared services performance through better service management. Association for Enterprise Integration. (2006). Facilitating shared services in the Department of Defense. Blake, Pat (2005). In quest of shared services. Journal of Sourcing Leadership, 2(2). Clarke, Charles E., Cavanaugh, Nancy, Brown, Carol, & Sambamurthy, V. (1997). Building change readiness capabilities in the is organization: Insights from the bell atlantic experience. MISQ, 425−455 (Dec.). Conference Board of Canada. (2005). Implementing shared services in the public sector: Lessons for success. Conference Board of Canada. (2006). Implementing shared services in the public sector: The pillars of success. Cross, John, Earl, Michael, & Sampler, Jeffrey. (1997). Transformation of the IT function at British Petroleum. MIS Quarterly, 21(4), 401−423. Dahlberg, Tomi & Kivijarvi, Hannu (2006). An integrated framework for IT governance and the development and validation of an assessment instrument, 39th Hawaii International Conference on System Sciences. D'Auray, Michelle, Flumian, Maryantonett, & Valeri, Tony (2003). From ideas to action: Towards seamless government. Policy, Politics and Governance. De Haes, Steven, Grembergen, & Wim Van (2006a). Information technology governance best practices in Belgian Organisations, 39th Hawaii International Conference on System Sciences.
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De Haes, Steven, Grembergen, & Wim Van (2006b). IT governance structures, processes and relational mechanisms: Achieving IT/business alignment in a major Belgian Financial Group, 39th Hawaii International Conference on System Sciences. Fyfe, Toby (2006). Fine tuning shared services: It's a different road in the public sector. CIO Government Review, 8(1). Hammer, Michael (1996). Beyond reengineering: How the process-centered organization is changing our work and our lives. Hocker, Rhonda (2004). Service-oriented architectures and governance. BEA Systems. IT Governance Institute (2005). Board briefing on IT governance, 2nd Ed. Kearney, A. T. (2004). Success through shared services. Kearney, A. T. (2005). Shared services in government: Turning private sector lessons into public sector best practices. Larsen, Michael Holm, Pedersen, Mogens Jukn, & Viborg Andersen, Kim. (2006). IT governance: Reviewing 17 IT governance tools and analysing the case of Novozymes A/S, 39th Hawaii International Conference on System Sciences. Nolan, Richard, McFarlan, & Warren, F. (2005). Information technology and the board of directors, Harvard Business Review, Oct 05. Office for Public Management. (2004). Public service governance: The policy context. Office for Public Management. (2005). The good governance standard for public services. Queensland Government. (2005). Australia, Shared Service Initiative Governance Framework. Rau, K. G. (2004). Effective governance of IT: Design objectives, roles and relationships. Information Systems Management, 21(4), 35−42. Schmotzer, Steven (2006). Design and governance for shared service centres. International Quality and Productivity Centre. Web article, http://www.iqpc.com/cgi-bin/templates/102684041825781249999900002/ article.html?topic=30&article=66. Sirkin, H., Keenan, P., & Jackson, A. (2005). The hard side of change management. Harvard Business Review, 108−118 (Oct. 05). Turnbull, Shann (2005). A framework for analyzing network governance of public assets, Governance Conference, Melbourne Australia. UK SSDN (Shared Services Development Network). (2002). NHS share service organizations: Accountability and governance framework. University of Arizona. (2005), Shared governance MOU: Guidelines for shared governance. Webb, Phyl, Pollard, Carol, & Ridley, Gail (2006). Attempting to define IT governance: Wisdon or Folly? 39th Hawaii International Conference on System Sciences. Weill, Peter, & Woodham, R. (2002). Don’t just lead, govern: Implementing effective IT governance, MIT Sloan Working Paper No. 326.
Gerald Grant is an Associate Professor in the Information Systems Concentration. He received his PhD from London School of Economics, University of London. He is an associate editor of the Journal of Global Information Management. Currently, Gerald is a member of the Executive Council of the Information Resources Management Association (IRMA). He is also a member of the Advisory Board of the Ottawa Manufacturers Network (OMN). Shawn McKnight is a PhD candidate in management at the Eric Sprott School of Business, Carleton University, Ottawa, Canada. He received an MBA from the University of Ottawa and a Bachelor of Computer Science from Wilfrid Laurier University. Allen E. Brown is PhD candidate in management at the Eric Sprott School of Business, Carleton University in Ottawa, Canada.