Cash strapped governments increasingly look to shared services for savings

Shared service centers revolve around the streamlining of processes within a company to bring a number of different facilities and activities together as one as a way of making sure that the company is saving money wherever possible.

The concept was born out of - as many business advancements are - the necessity of cutting costs. The streamlining of tasks and the simplification of processes has been the driving force behind the growth of shared services, as companies look to save money in the long run.

This type of outsourcing within firms is being used in large organisations which have a vast number of different departments and processes, such as councils and multinational corporations, where it is easier to bring a whole HR department together in one country for example, as opposed to having one in each area in which the firm operates. This is one of the most efficient ways to save money in the long run as it saves the need to set up a different department numerous times.

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Shared services have their base in the early part of the 1990s, when firms in such countries as Canada, New Zealand, the US and Australia started to attempt to streamline their human resources departments to cut costs.

The key areas where these types of service are becoming more popular include the likes of human resources, payroll, purchasing and IT. The reasons for this is that that these are all processes which can be completed from a distance without a need for face-to-face contact between members of staff and those working in the departments.

According to Bain and Company, there are also other advantages which can be seen from the use of this form of outsourcing. It said that it can help to standardize the processes of a company to have everyone doing a certain task in the same office, rather than scattered around a variety of departments or even nations.

The firm also said that it can help to free up members of staff to more effectively perform their own core tasks as opposed to having to take on little side jobs such as dealing with the pay of staff under their command or holiday allocation. It can also help expansion into a wider range of companies to already have an IT center, for example, in a centralized location.

Government and public sectors organizations are increasingly looking to adopt and extend shared services strategies. While most governments of developed economies have been using a shared service approach in some form for many years, financial difficulties are forcing both local and national government bodies to make cost savings.

In the USA, for instance, federal CIO Steven VanRoekel launched a government-wide "Federal IT Shared Services Strategy" which is has identified "billions of dollars in potential savings if these services were reconciled, consolidated, and moved to a shared delivery model."

Others, such as the Australian state of Queensland are looking to reinvent their Shared Services model with an overhaul of their IT systems to ensure that the platforms are working efficiently.

Meanwhile, in Britain local councils have been developing Shared Services centers amid government cutbacks to save on back office functions like IT and legal as well as frontline services like waste disposal and road maintenace. A recent study of 5 shared services projects identified over £30 million in savings had been achieved through such scheme.

However, while this is true of the service centers, there are also some disadvantages to them. For example, many firms which have taken part in the relatively new trend have discovered that staff are averse to having their HR departments far away from where they work, if they have a query or complaint for example.

Another criticism is that often the implementation of a Shared Services strategy fails to deliver its projected cost savings. According to a British government MP Margaret Hodge, Chair of the Committee of Public Accounts, many of the UK's public sector shared service centers "have failed to deliver the savings they should have. They cost £1.4 billion to set up, £500 million more than expected, and in some cases have actually cost the taxpayer more than they have saved."