Federal shared services

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The federal government spends billions of dollars each year on non-mission-focused functions, processes and systems related to agencies’ back-office operations — such as finance, HR, IT and acquisition. The absence of a government-wide, corporate view and supporting strategy for common back-office services has resulted in widespread duplication of effort, resources and capital investments.

In order for government to work better for the people, the government needs to improve back-office operations to run more efficiently and effectively. Many agencies operate in budgetary environments where funds are pulled away from mission programs in order to support the rising costs of back-office operations. Additionally, the new Administration is asking agencies to evaluate opportunities for program and service consolidation and elimination of duplicative functions, with emphasis on back-office functions.

All of these factors will increase demand for back-office shared services across the federal landscape. To better manage their budgets and achieve cost savings, agencies will look to leverage the back-office systems, business processes and staff of other agencies who can operate them at less cost. In addition, agencies will continue to look internally to consolidate duplicative or overlapping functions to achieve scale economies, and may look to low-cost operating locations in order to reduce expense.

EY - Federal Shared Services

Increasing challenges related to the current shared services operating model

The current supply of back-office shared services in the government is limited and challenged to meet the existing demand, let alone the increased demand that is expected as agencies continue to divest back-office operations.

Agencies are looking for opportunities to consolidate back-office operations, but there are currently only a handful of Office of Management and Budget (OMB)- and Office of Personnel Management (OPM)-designated mission-focused agencies that are authorized to provide back-office services and operations to other agencies. Additionally, these current models are constrained by their operating environment and have limited overall potential to expand in order to maximize the benefits of federal wide back-office consolidation.

The primary issue with the government’s current shared services model lies in positioning mission-focused agencies to provide non-mission-focused services to other agencies. This approach creates competing priorities between the parent agency and the shared services operations. As part of the parent agency, shared services enterprises are continually impacted by day-to-day issues and notifications, making shared services enterprise planning and incentives for improvement nearly impossible.

Alternative operating models to serve the federal government’s needs

The commercial industry has faced similar challenges and in response has pulled back-office functions and processes outside of their businesses to centralize them into separate shared services operations. Government should consider a variety of operating models to increase the capacity in the market to support increasing demand for back-office systems and processes. Potential benefits include:

  • Significant cost savings and reduced size of government
  • Increased agency focus on the core mission rather than back-office operations
  • Improved effectiveness of customer service and operations
  • Improved controls and risk management
  • Increased jobs outside of Washington, DC, as shared services migrate to lower-cost regions

Shared services operating model components

EY - Vision and strategy

Vision and strategy
Define business drivers, strategic goals, guiding principles, scope, content for shared services sites, and engage stakeholders.

 
EY - Sourcing and locations

Sourcing and locations
Define organizational footprint to reach customer and realize scale efficiencies; define location restrictions, impact to org design, sourcing agreements by region.

 
EY - Process and controls

Process and controls
Define operating model process and controls for in-scope business processes, activity placement analysis and requirements.

 
EY - Technology and data

Technology and data
Define required enabling technologies and impacts to the current ERP/other systems.

 
EY - Organizational design

Organizational design
Define ‘To Be’ organizational structure, governance, reporting, hierarchies, job leveling, human resources and people frameworks.

 
EY - Transition management

Transition management
Develop and manage a transition action plan: resources, transition objectives and outcomes.

 
EY - Communications and change management

Communications and change management
Essential in a shared services project due to the potential complexity and people impact.

 
 
 

Translating new operating models into reality

The current shared services supply environment will be unable to meet the increasing demand for back-office consolidation. The government needs to act now to get out ahead of increasing the shared services operations supply and eliminate the constraints that currently hold shared service enterprises back.

An evaluation across the federal landscape should be conducted to determine where alternative operating models should be considered. We recommend a variety of operating models be tested quickly and simultaneously in the federal market to drive innovation and meet demand.

 

Learn more in our full report, Evaluating alternative operating models for government-wide shared services