Federal Shared Services

I am providing this post on a matter of importance to anyone under the shadow of the U.S. Federal Government.  The topic is something government insiders call “Shared Services”.  For the non-insider, Shared Services is simply back office consolidation or centralization, something anyone with a career in industry has most likely experienced one or more times.  According to Wikipedia, Shared Services is:

The provision of a service by one part of an organization or group, where that service had previously been found in more than one part of the organization or group. Thus the funding and resourcing of the service is shared and the providing department effectively becomes an internal service provider.

The case for Shared Services (back office consolidation) is academic and has been around since the industrial revolution.  Simply, economies of scale from consolidation of functions like HR, payroll, finance, IT, purchasing, fleet management, travel management, etc. can drive significant savings through reduction in manpower, unified technology, reduced office space, and high volume buying power.  In addition to these savings opportunities, operational effectiveness and efficiencies can be improved through better training, sharing of best practices, alignment of culture, improved chain of command, and so forth.  The classic downside with too much consolidation is twofold (1.) too much power wielded by back office organizations such that mission centric operations (service, delivery, sales) spend excessive time with back office bureaucracy taking them away from value adding activities.  This is what many call “the tail wagging the dog.” (2.) The second major risk with consolidation / shared services is that that the balance between processes and systems tailored to meet local and organizational needs versus standardization into a single approach focused on savings swings too far towards rigid standardization.  This takes away organizational ability to serve the customer and shift with changing market/environment demands.

In industry, this type of consolidation typically takes place as part of a merger or acquisition.  It is one of the first places value is sought in post M&A activities.  The process involves numerous planning and design activities followed by years of consolidation work and they rarely go occur according to plan.  Nonetheless, the processes and techniques for effective back office consolidation are well known by industry experts and the various consulting firms supporting these efforts.  I have personally been involved with a number of M&A situations from large scale acquisitions at Verizon to small mergers among IT service providers.  I have never seen one go exactly as planned.  What I have witnessed is the ones where the outcomes were sensible, clearly communicated, measured, and rewarded were ultimately successful and the ones where outcomes and synergies were mysterious, excessive energy was placed on processes, systems, governance, and so forth, ultimately ended in failure.  This is not to say that processes and systems are not important, because they are very important, but they are not the goal.

Since the George W. Bush Administration there has been some form of push in government toward back office consolidation (Shared Services). They called it creating lines of business. The Obama Administration saw a significant move toward Shared Services for financial, payroll, and HR back office functions.  More financial and payroll than HR, but at least there was movement.  Payroll, in particular, is a fairly well evolved Government Shared Service.  At the time, several financial shared services providers were established: the Department of Agriculture’s National Finance Center; the Department of the Interior’s Interior Business Center; the Department of Transportation’s Enterprise Services Center; and Treasury’s Administrative Resource Center.   One can see how financial management shared services is a logical thing for Treasury, but why the agencies in charge of agriculture, forests, and transportation would somehow be the right place for this seems odd.  Being closer to the matter than most, I know the rationale was that these agencies were good at financial management and they were also willing to take on the role as Shared Services provider.  There is some logic to this, but will an approach like this lead to a sensible business architecture for our government if all Shared Services are migrated in this way?

To date, the financial and payroll lines of business are the largest intentional initiatives by the civilian side of Government and the Department of Defense has seen significant and long term benefits from organizations such as the Defense Finance and Accounting Service (DFAS).  A recent analysis of DFAS cost per transaction shows costs comparable to industry providers of similar services.  The jury is still out on the financial line of business and we know firsthand that significant workforces still exist in the agencies that were supposed to divest these financial capabilities. These people continue on for the purpose of interfacing and translating the operations with the Shared Services providers.  Does that make sense?

Most recently, a number of agencies and offices are jumping on the shared services bandwagon in response to President Trump’s executive orders on reorganization and the establishment of a White House Office of American Innovation.  Shared Services is a buzz around DC, driven by the tone from both the Administration and the Hill being one of reduced bureaucracy and reduced Government cost to America.

So besides the buzz, what is the Establishment actually doing to consolidate and reduce cost to the Tax Payer?  Our research shows that the only official, funded, and operating entity in place is a small office buried under the Office of Government-wide Policy (OGP) which is under the General Services Administration (GSA), staffed with a small number of Government employees called the Unified Shared Services Management (USSM) Office.  The USSM is in place to define and oversee shared services. In October 2015, the USSM helped establish a Shared Services Governance Board (SSGB) which is a board of executives from what looks like 13 Federal Agencies.  We can find no evidence that the SSGB has published any decisions, plans, or guidance.

Questions abound.  Is the Administration serious about reducing the cost of Government through back-office consolidation (a.k.a. Shared Services)?  Are the people that work in these agencies capable of migrating to shared services?  Will our political cycles tolerate the time it takes to execute and assess the migration to a shared service?

To this point, I for one am not encouraged.  An analysis of the single product of the USSM, their shared services migration framework called the M3, lacks critical elements’ emphasizes the development of even more bureaucracy early in the process, is technology centric, and lacks a focus on results.  The mere fact that USSM decided that their first task was to spend time and money on a migration framework is a sign that a business mindset is lacking in this organization.  Further, most articles and commentary from Government leaders openly discussing shared services are IT centric, extoling Software as a Service (SaaS) as a magic bullet that will solve our back office woes.  The most robust document published on the subject is a Federal Shared Services Implementation Guide published by the Federal CIO Council in April 2013.  While a thorough document on the subject, it lacks a clear approach and completely ignores the reality that savings must be recognized through a reduced workforce.  In fact, we can find nothing published by the Government that discusses the most common form of savings in Shared Services, Reduced Headcount.  Rather, Agency representatives are pointing to inefficiencies as a lack of investment in their IT infrastructure and increased buying power.  Not sure how that reconciles with the billions spent on the technology firms with high rent offices around the beltway, but somehow we are supposed to believe that the Government does not spend enough on technology and that they don’t have significant buying power already.  It as if the people formulating the current approach to shared services want to ignore industry best practices and lessons learned as well as the decades of Government IT failures, add beuracracy as a way to create efficiency, and let the agencies decide the service architecture of the Federal Government in a haphazard approach.

So what will it take for our Government to be successful with shared services?  I have discussed this topic with experts in my circle.  These are people with solid industrial experience, relevant degrees, and strong familiarity with Government.  Here are a few things we all agree on.

  1. The Government needs to except and clearly communicate the fundamental premise of consolidation which is reduction of manpower. More efficient and effective technology investments are also possible, but are secondary. This business of claiming impossible to measure efficiency gains has to stop.
  2. Focus on results, not oversight, governance, methodologies, boards, playbooks, etc. Everything you need to get this done has already been invented by industry.
  3. Congress needs to develop a sensible architecture for the executive/administrative branch. Going back to the fact that the people responsible for trees and chickens are now also providing financial shared services, does this really make sense in the long run?
  4. Shared services need to be studied and migrated in a holistic manner avoiding rather than encouraging more IT spending. It is the people that will ultimately make this a success, not technology.  Once a shared services line of business is established and at an acceptable level of performance and maturity, then we will know enough to start considering technology investments.
  5. A massive infusion of industry based people is required. The people leading the charge cannot be career Federal employees.  Rather, the steering committee must be a mix of industry and Government experts and the industry experts must have the support of the President so they are not dismissed by the career Federal leaders.  An industry style culture, approach, metrics, and so forth are vital.  Further, anyone that comes from industry to become a Federal employee leading this charge needs to be hired on a temporary basis and safe-guards such as cooling off periods and conflict of interest restrictions must be put in place to mitigate against fraud and abuse.  The government wide initiative to shared services cannot establish its own bureaucracy.
  6. Lastly, a sense of urgency must be established along with incentives and punishments. It is clear from the timeline of Shared Services dating back to the Bush Administration that things are not moving fast.  The current administration will be gone before anything significant happens unless an acute sense of urgency is created via the appropriations process.

As a citizen that loves our country, in the unique situation of living near the capital city, and working with civilian and defense organizations, I truly hope our Government can successfully move to shared services.  There are numerous opportunities for tremendous savings and improved quality of service in the back office.  This is money that can be diverted to important missions or used to pay down our escalating debt.  In this regard, I am hopeful.  All indications are that the Administration wants to do this for us.  Let’s hope the right people are put in charge and the process gets rolling soon.

About gmsieber
President and CEO of Management Science & Innovation

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