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Shared services: Testing the maturity of CIO functions

Shared services: Testing the maturity of CIO functions

While the logic of consolidation, rationalisation, and economies of scale is undeniable, making the new organisational relationships work is another matter.

As governments on a global basis seek to reduce business-as-usual ICT costs, many are turning to centralisation and shared services to harness economies of scale. Shared services offer an apparently elegant solution to the problems of excessive devolution of ICT. While the logic of consolidation, rationalisation, and economies of scale is undeniable, making the new organisational relationships work is another matter. Shared ICT services face a challenging “many-to-one” dynamic, if they are expected to serve a multitude of different masters – many departments and agencies and their subsidiary divisions, programmes, and project teams all acting independently.

While it is natural to focus the energy of shared services strategies primarily on the creation of the shared services entity and the “forced march” of services into its stewardship, success requires an equal focus on the capabilities of the CIO functions of the shared service’s customer agencies.

There is a paradox in the fact that the success of shared services strategies relies as much on the behaviour of the customer agencies, as it does on the operational excellence of the shared services provider itself.

An ICT shared service is part of a federal ICT organisation

Shared services strategies are sometimes overly influenced by consultants and their rational analysis of efficiency benefits, and by the notion that government is an “enterprise” – a coherent organisation commanded in a top-down manner and served by corporate functions that can be centralised for economies of scale.

However, to regard Westminster system governments as an enterprise comparable to a private sector corporation is a naive oversimplification. Governments operate in a highly devolved manner, and are better regarded as a federation of quasi-independent agencies than as an enterprise. Each agency head operates with a high degree of autonomy over decisions regarding inputs such as ICT.

A practical consequence of this devolution is a diversity of approaches to ICT across agencies – a mix of centralised and decentralised ICT assets, resources, and capabilities. In organisational design terms, this is a federal style of ICT organisation comprising a federation of largely autonomous ICT functions aligned with the priorities of their agencies, but not necessarily with strategies and priorities at a whole-of-government level.

Effective management of a federal ICT organisation requires the creation of subtle leadership glue that binds together otherwise disparate devolved ICT functions. We call this “strategic ICT management” – the new whole-of-government and cross-cutting activities required to lead and coordinate devolved ICT resources.

Without strategic ICT management, a federal ICT organisation can be unproductively chaotic and fragmented.

Shared services strategies need to be founded upon a sound understanding of the practical realities of managing a federal ICT organisation. The shared services strategy cannot stand alone as a purely efficiency-driven initiative. It needs to be supported by strategic ICT management capabilities to bring coherence to the federal ICT organisation and to coordinate decisions and activities across its many players.

A shared services strategy makes agency CIOs more important, not less

The federal ICT organisation is a challenging environment for CIOs due to the contradictions and ambiguities that result from the coexistence of centralised and decentralised ICT resources. A further challenge arises from the fact that different agency heads often have different views of the CIO role. Some see value in a hands-on corporate approach and the strategic ICT management capabilities of a CIO, while others prefer a more devolved, “hands-off” approach and are happy for ICT activities to operate autonomously throughout the business. The CIO role is influenced by the managerial preferences of agency heads, leading to a diversity of levels of maturity of CIO functions across agencies.

Agency CIOs and their teams also sometimes feel under attack by a shared services strategy. The business case for shared services is often founded on the transfer of assets and resources into the shared services entity. Operationally minded CIOs may see shared services as an unwelcome reduction in their resources, power and influence. The result is that some agency executives, and even some CIOs, feel that a shared services strategy downgrades the status of the CIO role or makes it less important. However, the opposite is true.

A shared services strategy creates a new imperative for a more rigorous and consistent approach to the CIO role across the government, so that agencies can more effectively marshal and shape their ICT needs and funnel them through to their shared services providers in a coordinated manner.

A decision to move to shared services is a catalyst for diagnosis and redesign of agency CIO functions

The importance of the CIO role to the success of a shared services strategy means that a decision to pursue shared services should be used as a catalyst for reviewing the maturity of agency CIO functions. Ovum proposes a CIO Maturity Model framework, which can be used to diagnose and design agency CIO functions to ensure that they have the capabilities and agency-wide influence necessary to manage and marshal demand.

The CIO Maturity Model: remit, range and reach

The CIO Maturity Model provides a template for assessing and discussing three key elements of the CIO role: remit, range and reach.

“Maturity” in this context refers to the ability of the CIO function to support implementation of a whole-of-government ICT strategy, such as ICT shared services. “Remit” refers to the set of issues and questions that the agency head expects the CIO to address. Agency heads with high expectations of the business value of IT will give the CIO a powerful remit and expect the CIO function to be mature in its capabilities. A mature CIO function will be expected to be authoritatively on top of all significant ICT issues on an agency-wide basis, including spending and investment; risks and threats; a portfolio view of major projects, capabilities, and assets; sourcing strategies; and the use of ICT to drive innovation. “Range” refers to the range of strategic ICT management leadership and control activities carried out by the CIO function. “Reach” refers to the reach of the CIO’s influence across the various divisions, programmes, and organisational units within the agency.

In our depiction of a mature CIO function in terms of the CIO Maturity Model, the CIO function reports at a senior executive level; is engaged in business leadership with reasonable reach across the agency; performs the full range of leadership and control activities with agency-wide reach of influence; and is responsible for managing and sourcing a range of operational ICT services across many parts of the agency.

This profile suggests that this agency would be well positioned to participate in an ICT shared services strategy, because the CIO has the capabilities in place to influence and marshal the agency’s demands and coordinate ICT activity on an agency-wide basis.

In our depiction of a less mature CIO function in the CIO Maturity Model, the CIO function is characterised by less engagement in business leadership; performance of a more limited range of ICT leadership, control, and service provision activities; and a weaker reach of influence across the agency. The likely consequence would be that the many divisions, programmes, and projects within the agency would independently interact with the shared services provider in an uncoordinated manner.

The less mature the CIO functions are, the harder it is for an ICT shared services entity to be successfully established and to operate sustainably as a valued service provider to the agencies.

Management interfaces are also critical to the success of shared services

Another dimension of the maturity of a CIO function is the management interfaces that exist with, on the one hand, the shared services provider and, on the other hand, the whole-of-government functions of the CIO. Shared services arrangements create new planning and service management interdependencies between agencies. The demands of one agency can now impact other agencies.

This interdependence comes into sharp relief when an agency is planning a major new application that will be hosted by the shared services centre. Can the project reuse existing infrastructure and software assets, or create new assets for reuse by other agencies? If so, how does this affect scheduling and funding? Such questions are often architecturally complex, and decisions now must be made in the context of whole-of-government strategy directions, the shared service provider’s forward work programme, and the needs and priorities of all of its agency customers.

The move to shared services increases the importance of the agency’s technology planning and management capabilities. For example, an agency’s ICT strategy, ICT governance and portfolio management, investment management, and enterprise architecture activities should be synchronised with whole-of-government directions. These should feed into the agency’s technology planning and management activities, which should be synchronised with the service planning and account management activities of the shared ICT service provider – enabling the balancing of demand and supply expectations.

Similarly, the agency’s service management activity needs to interface with the ICT shared service provider’s service desk and broader service management activities – as well as with other internal and external services. An ICT shared services provider will likely be one of a number of service providers, so it is usually critical that the agency retains an integrated service management capability in-house.

Drawing on the “retained organisation” lessons of ICT outsourcing reinforces the view that the transfer of operational activities to an external party such as a shared services provider, does not absolve the in-house function from responsibility. Indeed, there are many ICT governance and management activities that must be retained in-house for the agency to be assured that its ICT demands will be met by any shared service or outsourced ICT service provider.

A capable whole-of-government CIO function is also vital to a shared services strategy

An effective whole-of-government CIO function is also critical to the long-term success of a shared services strategy. The structural, leadership, and governance complexities, and ambiguities of government, can be thought of as a “WoG bog” – a whole-of-government swamp.

The shared services entity can easily drown if left to its own devices in the swamp, because it is just a humble service provision organisation and typically not empowered to deal with the muddy business of government-level decision-making and funding. The whole-of-government CIO function is critical to facilitate the government-wide strategic direction, investment, and enterprise architecture frameworks within which decisions are made regarding reuse and sharing of assets and capabilities between agencies.

Without top-down leadership, the bilateral discussions between the shared services entity and its customer agencies can too often take the path of least resistance, with real decisions on reuse and sharing considered too difficult across many agencies. The path of least resistance leads to either inefficient, over-customised shared services or to the agencies building decentralised ICT capabilities out of expediency and frustration with the difficulty of wading through the “WoG bog”.

Read more: Five big ideas to avoid doing stupid digital stuff

Effective management interfaces between the agency-level CIO functions and the whole-of-government CIO function are vital to support decision-making between the agencies with regard to the evolution of the scope of services provided under the shared services strategy.

ICT shared services holds a mirror up to the ICT organisation

The bottom line is that implementation of an ICT shared services strategy will highlight weaknesses in a government’s ICT organisation – and in the maturity of its CIO functions at both whole-of-government and agency levels. ICT shared services should be seen as a catalyst to rethink the role of the CIO.

Steve Hodgkinson is research director, public sector at Ovum and a regular columnist of CIO New Zealand. Email comments to steve.hodgkinson@ovum.com

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Tags leadershipsteve hodgkinsonchange managementovumgovernment CIOshared services modelCIO rolestrategyanalystCIO Summit

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