Analyst warns of shared services pitfalls

Despite the well documented cost benefits of shared services, concerns remain

Many CIOs in the public sector are keen to reap the cost benefits of shared services, but one analyst has warned of the potential risks for those with diverse agency requirements.

Ovum research director IT for the Asia Pacific region, Steve Hodgkinson, said that the benefits are much greater for “commodity-based” spaces such as data centres, networks and application hosting environments, as opposed to areas like human resources or finance which have gotten into trouble in the past.

Hodgkinson pointed to the case of Queensland Health as a prime example of a shared services failure.

In 2010 an SAP payroll system was implemented for Queensland Health employees, however, was not properly tested and did not provide contingency plans in case of failure when it was rolled out in March. The fault left thousands of workers incorrectly paid for several months.

The Queensland Government blamed the $4 million system failure on the contracting company IBM, citing a "breach of duty of care and breach of contract".

“When you look at Queensland, the problems with their HR system as a shared service really stemmed from the fact that the different agencies that consumed that service had really quite different requirements,” he said. “When you look at different agencies across their payroll needs they tend to be very specific and related to the different awards people are under, nurses are quite different to police who are quite different to office workers, so trying to meet all those diverse requirements from one system is very difficult.”

Ovum recently surveyed CIOs from the public sector and found 29 per cent from the Asia Pacific region were concerned about the risks, despite the touted benefits of shared services.

“The move to shared services does involve upheaval and invariably means changing software applications, which in turn can require system and data migration and all the complexity that this entails,” Ovum analyst, Jessica Hawkins, said in a statement. “Many agencies have the perception that there is not enough money to be saved to make this worthwhile.”

According to Hawkins, the change to shared services requires a change in service delivery dynamics, which leaves CIOs uneasy about losing control of their business operations.

“This is compounded by the prospect of job losses and the legal complexity of transferring staff to a shared services model.”

Hodgkinson gives the nod to Victoria’s shared ICT agency CenITex, which he says is the “best success story” of shared service to date due to its focus on services that are fairly generic, as opposed to Queensland’s HR and Western Australia, which he said, continues to struggle with HR and finance.

Shared services must be given significant time to be established he said, leaving at least five years to successfully establish the operations and build the working relationships with the agencies so they can trust and rely on the shared service provider.

“If you look at the evolution of CenITex in Victoria, that’s involved over about 10 years of continuous evolution towards shared infrastructure services,” he said. “There is a need to build up credibility and trust so the agencies have got to come to the view where they can rely on a service provider. These things are often driven by treasure and finance typically as a cost cutting agenda and the attempt to drive it too fast within a short number of years but it takes a long time for their agencies to establish a shared services operation.”

Shared services are likely to play an even greater role in the NSW Liberal Premier, Barry O'Farrell, said a government-wide review of state government departments would introduce "new-look" additions, including finances and services, mental health and healthy lifestyles. The new finances and services department would likely expand or follow on from the existing shared services arrangements under the former government.

Follow Chloe Herrick on Twitter: @chloe_CW

Follow CIO Australia on Twitter: @CIO_Australia

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