The Queensland Government plans to establish a new central procurement office for state departments and agencies in an attempt to rectify previous challenges with shared services arrangements.
According to Queensland Government chief information officer Peter Grant, previous shared services systems had failed to achieve stated outcomes including saving money, reducing operational redundancy and allowing agencies to focus on their core responsibilities.
“There have not been a range of killer success stories in offering IT services through shared services schemes,” Grant said at the Technology in Government & Public Sector Summit this week.
“In Queensland, we spent $1 billion over 10 years and saved zero.”
The State Government's shared services attempts have faced heavy criticism of late, with issues at Queensland Health and the core shared services agency CITEC leading to ongoing issues.
A $5.2 million audit conducted by Grant, who joined as whole-of-government CIO for the second time earlier this year, had settled on a bill of more than $5 billion to fix the state's 50 most vulnerable systems.
Grant proposed to establish a well-funded central group, dubbed the 'Services Executive', which would be tasked with identifying the best sourcing options for a range of back-office and commodity-based services for Government.
Those services would be provided either through an external industry or internal provider in order, Grant said, to avoid the invalid assumption that an in-house provider must be good at delivering the best services for Government departments.
The executive would be held accountable for ensuring service outcomes are met by identifying the best internal and external providers, each of which would themselves be held accountable by key performance indicators on price and performance.
Unlike other KPI criteria though, those indicators placed on chosen providers would go beyond savings in order to avoid the pitfalls of previous shared services arrangements.
Internal providers would also be held accountable to the same performance indicators, while agencies would be required to use the services, as well as agree to policy directives concerning those services.
Judicious funding and attention to KPIs through this division of responsibilities should drive the appropriate behaviour, Grant said.
Instead of committees, a referee was needed to adjudicate on various issues, such as which services are ripe for shared services and which are best left to agencies.
Grant proposed his office become that referee.
The Services Executive would not require agencies to participate if they were not happy to do so.
“That happens over and over in shared services initiatives," Grant explained.
"Agility and support issues are eliminated because when providers participate because they want to, they can actually chose whom their clients will be."
The advantages of the makeover, Grant argued, was that it would overcome the problem of due diligence, provided the Service Executive was properly funded and did not use cost recovery models.
Righting the wrongs
Understanding why other shared services arrangements failed was the key to developing a better model, he said.
Lack of responsibility for outcomes had become an instant point of failure for many shared services initiatives, he said.
“It’s really hard to find an organisation where there is a person that will get the sack if it doesn’t work.”
Instead, accountability and risk were often shared through committees with diffuse and opaque responsibilities.
He recounted his experience in taking up his current position to learn there were no few than 16 such committees operating in State Government, attended by agency CIOs. No one could explain what they were meant to achieve or how they related to each other.
Grant disbanded those committees.
The funding model, too, was often counter-productive. Cost recovery schemes did not work because it gave agencies a license to avoid the scheme if the prices were raised to high.
The notion of saving costs through economies of scale was a myth, Grant argued, because the needs of agencies often varied.
Some wished to be agile and have the latest tech, while others want just the basics and not interested in a full set of ERP or HR options.
Many agencies ended up having have to pony up for a product they did not need or be disappointed by a dumbed down version of an app they really needed.
The support requirements varied as well. He said supporting a police agency, a health agency and a policy agency involved very different service levels.
The big fat internal provider
Related to this was a phenomenon that Grant described as “the big fat internal provider”.
"They get to a point — particularly where your funding model is wrong — where they don’t have to perform at all,” Grant said. If the service costs more, they simply added it to the agency bills.
Costs were not transparent under such schemes as agencies had to buy at the costs charged by internal providers.
Queensland's CITEC, the state's previous shared services provider, had a lot of overheads, which they subsequently passed on to agencies as additional costs.
He said CITEC had no motivation to cut costs.
“They are costed at a level that were far higher than agencies would have paid," he said.
"It allows providers to grow fat.”
Only marginal savings were possible if the provider was outsourced, as it did not resolve other inherent faults.
Another symptom of a failing shared system was that the organisation that provided shared services were rarely asked whether they want the job, whether they were suited for the position and whether or not there may be alternatives outside the State Government sphere.
“If you ask the provider did you want to do this? The answer is often, no," he said.
"They were made me to do it, because the organisation could not find anyone else to do it. So they found someone that had to do it."
Costs of repurposing inhouse software
Grant also criticised attempts within Government to re-purpose in-house software built for one department, to other agencies that did not require the same features or had the same requirements.
Though expectations often settled on a 10 percent premium to repurpose software, the real costs of doing so were more like 200 percent, he argued.
“Why? The data model of a single application won’t have a table in it for who is the company,” he said.
“If you add that table to the data model, you’ll probably find that becomes the parent key for every other table in the whole system. That means you are going to have to change every table in the whole system.
"That means changing the file structure in the whole system. That means every program in the whole system. So taking something that you use once and make it multi-company is really hard.
One response to this development dilemma is to make a separate instance for each organisation.
“That’s good but how does that give you economies of scale? You have a whole lot of separate instances that you have to maintain. So that is a real trap for shared services organisations.”