There has been a lot of breathless excitement about the evolving “sharing economy,” where people can use services provided by others, like Uber and AirBnB . But the sharing movement actually started in the federal government in 1973.
That is the year the Agriculture Department launched the National Finance Center, a shared payroll services operation. Initially, it served only Agriculture agencies. Today, it provides payroll and other services for more than 650,000 employees at 170 agencies.
The shared services approach allows federal offices to move operations that are common across government to a provider that already performs those functions for other agencies. Typically, those services focus on administrative areas, such as financial management, human resources, payroll and travel.
According a 2015 study by the Partnership for Public Service, Congress authorized shared services pilot projects in the 1990s and passed legislation in 2002 to tap shared technology to improve support functions. In 2004, the Office of Management and Budget created task forces called “lines of business” to identify opportunities to reduce costs and improve services across common functions. These task forces later evolved into shared services. In 2014, shared services became one of the Obama administration’s Cross-Agency Priority Goals. As a consequence, progress in transitioning to a shared services environment is reviewed quarterly by top government officials, which has created momentum for the initiative.
There are six lines of business in government that are at different stages of implementation, each with its own managing partner:
- Financial and grants management
- Human resources services
- Information systems security
- Budget formulation and execution
- Geospatial information
- Federal health architecture
Financial management and human resources services are the furthest along. Other shared service arrangements address travel, payroll (part of the HR framework), procurement, grants management, real estate, acquisition and components of IT, such as the new Data Centers Consolidation Initiative.
Historically, agencies have been reluctant to hand over the operation of their mission support functions to someone else. But recent trends have changed the environment. According to a 2015 report by the Shared Services Roundtable, OMB and agency leadership interest, budget constraints, technology such as cloud services, the loss of administrative talent because of retirements, and the successful track record of existing shared services providers have collectively created momentum for making the transition.
Interestingly, a private sector advocacy group called the Shared Services Leadership Coalition is promoting legislation to accelerate the transition by removing administrative and financial barriers. It took 26 years to move from 50 payroll systems to four, for example. Legislation could speed these kinds of transition. Another incentive is a possible savings of up to $47 billion during the coming decade, according to the Shared Services Roundtable report.
Shared services and lines of business started as a series of independent initiatives launched over the years. OMB Controller David Mader has been a key champion for expanding shared services, and is co-lead for the Cross-Agency Priority Goal, along with Denise Turner Roth, head of the General Services Administration. Mader recently remarked: “This is no longer a pet project. It is going to scale. This is how government is going to do its business from now on.”
Mader created an overarching governance framework to serve as convener of both executives and stakeholders to create standardized approaches. In October 2015, he introduced the 17-member Shared Services Governance Board, which would provide a unified cross-agency approach to implementing and managing shared services. He also created the Unified Shared Services Management Office at the General Services Administration to support the initiative. Led by Beth Angerman, the office convenes providers and customers across the shared services ecosystem to resolve specific issues. For example, it encourages consistent definitions of services and levels of services for different functions, so they are easier to compare and interoperable across agency boundaries.
In addition to the governance framework, the Cross-Agency Priority Goal leaders developed policy guidance that institutionalizes migration strategies for agencies and ensures they have metrics to assess progress, manage performance and give a voice to their customers. The team also created a framework that outlines best practices for migrations to shared services and includes a tollgate review process with OMB. Currently, more than 30 agencies are going through a system and/or service migration.
In addition, ProviderStat was created to monitor the progress and performance of shared service providers. The system also assesses the maturity of providers’ capabilities as well as transparency in their operations. And finally, the Unified Shared Services Management Office recently conducted a customer survey that gauges the quality of the various shared services.
Together, these efforts provide a foundation to scale shared services initiatives in the coming years.
There are a number of different models of how shared services are organized and delivered. Some provide multiple mission support services, but only within their agency. Some provide multiple mission support services, but allow other agencies to purchase from them as well. And some focus on a single line of business, such as payroll, finance, or human resources, and offer those services to a wide range of government customers. There are also instances of shared services focused on mission performance, but that tends to be less common.
- NASA Shared Services Center: multiple mission support services for NASA flight centers. According to a report by the Partnership for Public Service, “the NASA Shared Services Center is a fee-for-service unit that performs many administrative support functions for NASA’s 10 research space and flight centers across the country. It provides 55 support services in human resources, finance, IT and procurement.” This includes services such as payroll processing, bill payments and grants management. The center was the result of a 2002 study concluding that by moving to a shared service environment, NASA could reduce its administrative support costs by 25 percent, moving those funds to support space missions.
- Health and Human Services Program Support Center: multiple mission support services for multiple agencies. The PSC provides a portfolio of services around five lines of business: financial management and grant payments, procurement, real estate, federal occupational health and administrative operations (travel, mail, etc.). It has a staff of about 3,000–roughly 20 percent federal employees and the rest contractors. For about 25 percent of its business, PSC is the mandatory provider; for the remaining 75 percent, it is competitive with other providers, or in some cases, competes directly with the private sector. PSC operates on a nonappropriated fund and can retain 4 percent of its earnings for capital replacement. Its executives have revenue growth targets.
- Human Resources Line of Business: a single set of services for use by many agencies. It oversees the development of a dedicated set of human resource-related services from certified providers. It managed the consolidation of 26 agency payroll systems into four, and the migration of agency HR systems to six federal and four private sector shared services centers. Between 2004 and 2015, these consolidations reduced HR and payroll costs by $1.6 billion. Its customers are the 24 Chief Financial Officers Act agencies, which comprise the steering committee. The HR line of business works with the Chief Human Capital Officers Council to create a 10-year vision for what kinds of functionality it should be providing in the long term. Its goals include offering a common user experience; creating standardized, accessible data; and ensuring common security standards.
- Environmental Management Consolidated Business Center. In 2004, the Energy Department created the center to centralize the process for the cleanup and closures of sites contaminated with radioactive nuclear waste from the World War II Manhattan Project. Rather than develop duplicative staffs of specialists at each site, the center was created to provide expertise and standardized business processes–this staff was available to other agencies as well. The business center gained valuable expertise in contract management that was shared with multiple sites, resulting in the early completion of projects and cost-savings.
OMB sponsored a study in late 2015 to develop an “as is” baseline description of shared services initiatives in five areas: information technology, human resources, acquisition, financial management and grants management. The objective was to paint a “to be” picture of what the shared services ecosystem could look like in the future, as well as a migration strategy for getting there, in order to tee up such initiatives for the next administration.
The study engaged over 160 individuals from 26 agencies to glean their insights on what elements need to be in place and what it would take to get to scale. The key priorities expressed were ensuring consistency, quality and levels of service. Agencies also expressed the importance of developing integrated solutions. Some highlights of the interviews include:
- Standardize administrative processes within and across agencies before going to commercial service providers–although several shared services have been successful in standardizing while undergoing a migration.
- Decide upfront what services should or should not be included in a shared environment. For example, it may be more appropriate to outsource repetitive, standardized processes (e.g., payroll, fleet management), but keep qualitative services (e.g., recruiting, clearances) in-house.
- Use outcome-based requirements, not technical requirements, when describing services to be provided.
- Start with the results of the cross-agency benchmarking study of administrative services (which is another Cross-Agency Priority Goal), and consider using this as the baseline for evaluation and starting a governmentwide business case.
- Seventy percent of what needs to be done can be done administratively, without legislation.
- The interagency resource-sharing process needs to be fixed. “There’s no government version of PayPal” to manage funding transfers. Every agency’s general counsel interprets the Economy Act differently, so there is a lot of friction in doing interagency business. GSA building lease payment, for example, varies by agency, and this is true for all sorts of other services.
While there has been significant progress expanding shared services in recent years, some key challenges remain in scaling shared services initiatives. For example, there are legislative constraints on retained earnings by shared service organizations, which are needed to invest in infrastructure and expand capabilities. But there are opportunities to broaden the shared services approach from mission support to mission delivery functions, such as joint initiatives for call centers, benefit determination processes, or health care insurance fraud detection. The next administration has a foundation to build upon, if it wishes, and a set of plans to follow.
This is the fourth in a series about the progress of the 15 Cross-Agency Priority Goals.