The effective organization of administration functions through shared services.(Solutions)

To centralize or decentralize? That is often the question governments ask when trying to decrease costs and improve the delivery of administrative functions such as purchasing, human resources, accounting, or information technology, Some unfortunate government agencies have even found themselves alternating between centralization and decentralization every few years searching in vain for the correct organizational structure.

The goal is to find the correct balance between the organization's need for efficient administrative functions and adequate internal controls with the individual departements' needs for responsive service. A growing number of governments are realizing that the centralization/decentralization dichotomy often presents a false choice and are working to resolve this dilemma through a shared services approach.

WHAT IS A SHARED SERVICES APPROACH?

"Shared services" has come to mean the convergence, standardization, and streamlining of administrative functions and transactions across the entire organization. A shared service approach to administrative functions usually includes:

* a single set of organization-wide integrated administrative policies, strategies, and standards;

* a single processing center for common transactions that enables the organization to take advantage of economies of scale; and

* improved customer service to departments through the use of service-level agreements and a customer-driven governance structure (e.g., a customer committee that heavily influences or even sets priorities and standards and evaluates the service center's performance against those standards).

The benefits of a shared services strategy, when implemented successfully, include improved efficiency, decreased paperwork, higher levels of customer (departmental) satisfaction, and improved consistency in policy and administration across the organization.

HOW CAN GOVERNMENTS BENEFIT FROM THE SHARED SERVICES APPROACH?

While a decentralized approach to administrative functions can lead to a high level of responsiveness to departmental needs, it can create concerns related to consistent application of policies, equity and fairness, all of which translate into organizational risk. Furthermore, unnecessary duplication of services in various independently acting departments can increase the overall cost of administrative functions and take resources away from the delivery of services to the public.

Centralization, on the other hand, may not be an acceptable alternative either. Centralized administrative agencies may be perceived bureaucratically burdensome, unresponsive agencies that maximize their own budgets and authority to the detriment of user departments. Traditional central support agencies also have the reputation of focusing almost entirely on rule enforcement, often failing to focus on meeting user departments' real needs for high-quality administrative services.

The shared services model has the potential for resolving the issue of decentralization versus centralization by reframing the question. Rather than posing the win/lose scenario of centralization/ decentralization, the shared services model provides an opportunity for a win/win scenario: assuring organization-wide consistency in administrative policy and standards while at the same time offering an arrangement that will give user departments the services they need, when they need them.

The major elements of the model include:

1. Separation of Administrative Activities into Leadership, Transaction Processing, and Customer Support. Administrative activities may be categorized into the three groups listed below. Each category has implications for where these activities are located in the organization, the methods by which they are delivered, how they are governed, and the training and qualifications of the employees who provide the activities.

* Leadership--activities such as organization-wide strategic resource planning (e.g., budget development and labor negotiations), policy development, standards setting, and compliance monitoring. These activities benefit the overall organization and require an organization-wide perspective. The "customer" is the overall organization or the community as a whole. They are typically performed by a relatively small, single staff.

* Transaction processing--activities that are typically provided most effectively and efficiently (due to economies of scale) in a single, centralized unit. Customers may be individual employees and their families, departmental management, or the organization as a whole.

* Customer support--activities that directly support the needs of user departments. Customer departments typically have significant latitude, within broad organization-wide standards and policies, to determine the timing and level of such services, based either on a service-level agreement with the provider or on a fee-for-service structure in which the cost of the service is budgeted in the departmental budget, then billed by the internal service agency, These services can be delivered by staffers physically located in user departments, or shared among departments that do not have a high enough demand for services to warrant dedicated employees within the departments.

2. Planning, Policymaking, Standards Setting, and Compliance.

Administrative planning, policymaking, standards setting, and compliance activities are separated from the customer service activities and, if feasible, performed by employees that do not provide direct service to departments. These functions focus on the overall needs of the organization and realizing the best overall value for the citizens.

3. Customer Focus. Service providing units are freed from planning and enforcement activities and thus are able to focus their efforts on providing the services that customer departments need and want in a way that leads to increased customer satisfaction.

4. Customer Governance. Customer departments have responsibility for reaching agreement with the administrative service provider on the timeliness, quality, and amount of services provided. Customer departments may collectively establish the balance between quality and timeliness of the services they need and, in cases where a charge-back system is established, have a substantial say in the amount they pay for these services.

CONCLUSION

Reorganizing administrative staff and either centralizing or decentralizing functions can have lasting and costly effects on organizations. Unfortunately, these reorganizations often do not address the underlying necessity of balancing the needs of individual departments with the overall organization's needs. The shared services approach provides an alternative for governments and agencies that addresses this conflict directly and helps to develop an acceptable balance.

Key Shared Services Elements

1. Separation of compliance and customer service functions.

2. Development of service-level agreements between service providers and customers.

3. Administrative service governance structures that give customer departments a role in decision making.

STEVEN R. KREKLOW is a senior manager in the GFOA's Research and Consulting Center ANNE SPRAY KINNEY is director of the GFOA's Research and Consulting Center.

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