Why agencies should leverage commercial innovation to drive shared services

A recent roundtable discussion hosted by the IBM Center for the Business of Government, the Professional Services Council (PSC), and other industry and government leaders looked at how to leverage commercial best practices for driving shared services in government.

In the commercial world, shared services are widely deployed in organizations that have multiple lines of business. These companies have consolidated business operations serving all of these lines, with a particular focus on human resources (HR), financial management (FM), and information technology (IT) .  By sharing technology (through systems often referred to as enterprise resource planning) and centralizing back-office business operations, shared services has proven effective in eliminating redundancies and delivering savings and mission efficiencies.

Over the past two decades, the federal government has discussed how best and how widely to implement shared services across agencies. To date, payroll stands as a large success. In 2002, the Office of Management and Budget (OMB) required agencies to leverage standard business processes in consolidating 26 separate federal payroll systems to four payroll providers serving the executive branch. Today, government is working with industry to develop a strategy and standards for bringing a similar transformation at scale across human resources and finance, and looking forward to moving on other business lines like grants and acquisition.

Roundtable discussion of potential improvements

The PSC meeting focused on an important element of shared services success in industry that has not been central to most government discussions to date:  How can common software platforms best be leveraged to support public sector missions, incentivizing major commercial providers to deliver cost-effective software as a service at the agency and cross-agency enterprises?

The discussion included multiple major providers of commercial software, who shared keen insights on how government could capitalize on efficient market-driver offerings without requiring significant and costly adaptations that have constrained supply of these offerings for agencies over time.

The animated and dynamic conversation resulted in several important takeaways, including:

• Core financials and HR involve standard processes, whether delivered within government or in the commercial sector. Government should build from stable core FM financial management and HR offerings based on common standards, and then add new functions such as grants and travel to the ecosystem.
• To enable success in leverage standards-based software, agencies should consider going beyond tools to streamline business processes, including through developing common approaches such as business process as-a-service.
• A pilot program or test bed could allow an agency to waive some requirements that have become barriers to entry for service providers, such as certifying compliance with global security standards rather than obtaining the current government security mandate through the Federal Risk Authorization and Management Program to promote commercial innovation.
• The government should consider an approach that would certify private sector shared service providers based on common requirements, and choose companies that demonstrate the commitment to enter the marketplace for at least five years.
• There is a need to socialize the government’s strong shared services vision more comprehensively across agencies and among industry partners.

With respect to socializing the vision, the first point above merits reinforcement. One of the primary efforts of the current shared services initiative has been to develop standard requirements in an environment where almost every agency considers itself and its financial and HR processes to be unique.

A former federal official raised the point that agencies tend to include financial and HR solutions in their IT budget proposals as interfaces and “bolt-ons” to a core financial system.

A better approach for standardizing across agencies would be to propose and evaluate the commercially developed system as a whole, and then subtract or adapt only where necessary to address an agency’s unique mission. The government has moved forward on enabling commercial provision through a GSA-led acquisition strategy that allows the private sector to provide “as-a-service” platforms.  A similar approach for financials would help drive the government toward commercial best practice as well.

A future state for shared services

Numerous roundtable participants agreed that if government adopted the above and similar recommendations, the use of shared services would accelerate through a larger volume of cost-effective supply that agencies could leverage. This will enable government to move out of the current stage, which our center has   referred to previously as “Shared Services 1.0, the 20^th Century Model,” and toward Shared Services 2.0, moving into the 21^st Century Model.  Shared Services 3.0 would be the end goal of this migration — a dynamic, commercially accessible marketplace whereby agencies choose a provider based on service and price, with the ability to change providers without excessive switching costs. The PSC discussion highlighted critical success factors for government to move forward in this journey, including:

• Adequate funding of the technology modernization necessary for the migration to shared services.
• A vehicle for purchase of software as a service from the private sector across lines of business, expanding from the current HR vehicle.
• Agency roadmaps for shared services by the end of 2018, including change management and resource allocation, reflecting some activity from all agencies within 24-36 months.
• A robust marketplace in which commercial and Federal shared service providers (FSSPs) remain competitive.
• Processes that allow for a return on investment over a period of 5-10 years.

The consensus of the representatives from software platform providers in the meeting was that core financials is a standard process whether delivered within government or in the commercial sector.  The discussion and recommendations above reflect that with the right steps taken, Federal shared services delivered at scale can become a reality in the future.

Dan Chenok is the executive director for the IBM Center for the Business of Government. Jesse Samberg is a shared services fellow with the IBM Center for the Business of Government.

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