CW500: Shared services present challenges and opportunities for CIOs

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The recession has sparked renewed interest in shared services as
organisations look to pool their IT, human resources (HR) and financial departments into dedicated
service departments.

Local authorities, central government and the private sector see shared services as a way of
both reducing costs and standardising their IT infrastructure.

The potential benefits are huge, with up to 50% cost savings, IT leaders at Computer Weekly’s 500 club heard. But
so are the challenges. Unless projects are carefully managed, there can be a high risk of

The buzz about shared services has grown, as both public sector and commercial operations seek
ways of reducing their costs in the downturn, says Jonathan
, head of shared services and outsourcing at PA Consulting.

More organisations are creating big functional departments that bring together IT, HR, finance
and call centres into a single unit.

One big, fast-moving consumer goods company, for example, is spending £1bn a year on a shared
service that provides IT, HR, finance and logistics to around 100,000 staff.

The Met
is spending a similar sum on systems to help solve crime for 50,000 officers and staff
in London.

And although it is still early days, central government is developing the idea of Service Integration and
(SIAM), a new generation of service providers with the capability to manage shared
service organisations for the public sector.

You are looking at up to half of an organisation’s costs being
removed as a result of fully integrated services

Jonathan Cooper-Bagnall, PA Consulting

Shared services can halve costs

“The theory for shared services is a really good one,” says Cooper-Bagnall. “There is some
really good logic in combining everything and saving money. There is a great logic to standardising
all the processes and the way we do things.”

Shared services can easily cut costs by 20% to 30%. Add in outsourcing, and savings
increase by another 10% or 15%. Integrate all the back-office functions into a single organisation,
and you can expect to cut costs by half.

“You are looking at up to half of an organisation’s costs being removed as a result of fully
integrated services,” says Cooper-Bagnall.

Essex County Council, for example, has signed a large contract for converged
network managed services
. Within two years, between 15 and 20 public sector bodies will be
using the service. 

Essex County Council will save 15%, but some of the smaller district councils will be able to
make savings of 50%, says David
, CIO of Essex County Council.

Image goes hereJonathan Cooper-Bagnall,
PA Consulting

New opportunities for CIOs

The acceleration of interest in shared services is creating new opportunities for CIOs. When
organisations are thinking about moving HR, finance and other back-office functions into shared
services, it is usually the CIO they turn to first for advice, says Cooper-Bagnall.

Major corporations, such as pharmaceuticals company GlaxoSmithKline, have placed their CIOs in
charge not just of IT, but of all enterprise services.

Other organisations have appointed separate heads of shared services to manage day-to-day IT
work, freeing up the IT director for more strategic tasks.

“One organisation we have been working with has moved everything – hosting, storage, maintenance
and application works – out of the domain of the group IT director and to the head of shared
services,” says Cooper-Bagnall. “That is a big change.”

When shared services go wrong 

But pulling off a major shared service project is far from easy. Plenty of projects hit the
headlines for the wrong reasons.

Somerset County Council’s shared service partner, Southwest
, has featured regularly in the press, following a series of legal claims and counter claims
over the service’s performance.

Another public sector project took over seven years and £140m to go live with an enterprise
resource planning (ERP) system, says Wilde.

When it was ready to go live, the business said: “No thanks, we don’t need it. We have bought
Sage, which does the same thing for a fraction of the cost.”

One of the biggest challenges is convincing business leaders that shared services will benefit
the organisation.

Tackling internal opposition

Function leaders rarely feel happy when they discover their fiefdoms are going to be integrated
into a shared service.

“They are losing power and control, being denuded of their resources and people,” says
Cooper-Bagnall. “There is quite a big challenge getting people to accept that this is a good idea
and bringing people along on the journey.”

Malcolm Lambell, interim IT director for
shared services at Bupa, agrees. “Most stakeholders and staff won’t like it. It’s not motivational
for people to be in shared services,” he says.

Other business stakeholders are likely to have reservations too. PA Consulting is working with a
major law firm that is planning to move its second-level support into a central service.

Some people in the firm don’t like the idea because they realise they will lose some of the
services they are used to. 

“The flip side is that other services are going to be a lot better,” says Cooper-Bagnall. For
example, partners working late at night will have access to IT support options currently
unavailable out of hours.

The upshot is that businesses need to spend as much time convincing stakeholders that shared
services is a good idea as they spend designing and developing the service.

“There is a big question of how you are going to get out and brief folks, how you bring them
with you, and how you start to get their hearts and minds into this,” he says.

Why CIOs need to make tough decisions 

CIOs need to be ruthless if they want to make shared services really work, says Lambell.

“There will generally be 20% to 40% cost savings very easily found,” he says. “But if you try to
do it being nice, it’s not going to happen.”

David Wilde agrees. CIOs need to persuade the business to make some hard decisions, he says.

At Essex County Council, for example, he had to persuade stakeholders to take out costs from IT

“The argument was really, if I don’t take this cost out, we are going to have to sack social
workers,” he says. “That kind of really simple business case says, ”Take your pick, and here are
the numbers to back it up’. Believe me, it shifts the debate to the right place.”

Image goes hereMalcolm Lambell, Bupa

Shared services can undermine

There are other problems to consider. Introducing shared services can make the business less
agile and less responsive to change, particularly when parts of the business are regulated.

“The problem is you might gravitate to the lowest common denominator,” says Lambell.

One well-known high street bank, for example, ran into difficulties when it created a shared
service to manage the IT infrastructure behind its ATM network and its insurance business.

The bank was geared up towards having the cash machines available 24 hours a day, with minimal
downtime. It operated a robust change control process, which meant that getting any sort of IT
change was difficult.

The insurance business, on the other hand, sold its products over the web, and needed to update
its websites constantly.

“The guys in central support were saying, ‘Great, we have 99.99% availability and we have the
wall up, stopping changes from coming in’,” he says.

“I stood up and told the support guys how many problems they were causing by being so robust.
The problem was they were incentivised and measured and proud of their availability figures,” he

On another occasion, it emerged that the bank’s fraud management systems were months behind
schedule. The guys assigned to build the servers kept getting pulled off the project for other
work, says Lambell.

“It took someone to understand that millions of pounds of cash was being lost every month that
system was being delayed,” he says.

The other side of the coin is that while businesses may become less agile, moving to shared
services often helps them to manage risk more effectively.

“I think you have to accept, depending on the organisation you are in, risk and control will
probably improve if you are bringing together a bunch of IT services and development practices into
one organisation,” says Lambell.

Strong leadership is not enough 

Any change needs strong leadership and communications, but implementing shared services requires
creative intervention, if it is to be successful, he says.

One private equity company ran into difficulties when it naively sent around an internal email
announcing its shared services organisation, and then sat back, expecting the shared service to
seamlessly click into place.

Lambell booked a hotel for the day and took the 90 people he was leading to run a simulation of
the shared service operation, in an attempt to iron out the teething problems.

“There was a room at the end of the hotel. I said those are the offshore guys. You can’t go and
talk to them. You can phone them, you can write to them, but you can’t actually visit them,” he

At the end of the day, he brought the team back together and asked them to report back on how
they felt about the exercise. It was no surprise that the offshore team felt completely

“People started to communicate better and to understand what it means to be in each of the parts
of the operating model after that,” says Lambell.

Create a services partnership

One danger sign is the tendency for internal services departments start to refer to the rest of
the business as customers, rather than partners.

“That is the wrong mindset,” says Lambell. “The mindset that goes with the customer supplier
relationship is one of domination. You will take costs out. You will do this. It means you can’t
have a relationship.”

Lambert uses a simple argument when businesses are tempted to go down the customer/supplier

“I tell them I can’t sell my services elsewhere if I don’t like you. So you are stuck with me
and I am stuck with you,” he says. “So we can’t have that supplier/customer relationship. It has
got to be a partnership.”

Image goes hereDavid Wilde,
Essex County Council

Finding the right skills 

For Essex County Council’s Wilde, one of the biggest challenges in building a shared services
centre is finding staff who possess what he calls “good, solid, rounded commercial nous”.

“You can’t buy that stuff and you can’t train it in. We are shockingly bad at both in the public
sector, and we need to get better at it,” he says.

The skills required are less to do with the ability to put together a strong business case, and
more to do with understanding how the financial figures will affect people’s behaviour, says

Persuading IT staff to work in a more collaborative way with suppliers is another challenge.

“You have people in your retained organisation who don’t like to be challenged, who want to be
directive, who don’t have a lot of experience of working with providers. We have to change that,”
he says.

There are huge benefits to be had from shared services, but implementing them is not easy. It
requires investment, resources and planning, and negotiating a lot of internal opposition.

And it is vital to keep up the momentum once you start, says Cooper-Bagnall. “It’s not a one-hit
thing, it’s a journey.”

This was first published in February 2013

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