Table of Contents 1. Executive summary... 4 1.1. Guiding principles for shared services... 5 1.2. Key messages for stakeholders... 6 1.3. Key recommendations shared services... 6 1.4. Key recommendations - CenITex... 7 1.5. Key recommendations Project Atlas... 7 1.6. Key recommendations other projects... 8 1.7. Conclusion... 8 2. Introduction... 9 2.1. Background... 9 2.1.1. Why share services?... 9 2.2. Purpose of this review... 9 2.2.1. Objective... 9 2.2.2. Scope... 10 2.2.3. Approach... 10 2.3. Policy context... 13 2.4. Key definitions... 13 2.4.1. How shared services are related to procurement... 13 2.4.2. What the literature tells us... 14 3. State of play... 15 3.1. Key stakeholder perspectives... 15 3.2. End user input... 15 3.3. Existing shared services across government... 16 4. What the evidence tell us... 18 4.1. Why shared services fail... 18 4.2. Spectrum of shared service models... 19 4.3. Sizing the opportunity... 21 5. Shared services recommendations... 22 5.1. Guiding principles... 22 5.2. Governance and delivery model... 23 5.3. Approach to existing shared services... 25 5.4. Approach to new shared services... 26 5.5. Potential opportunities... 26 6. CenITex... 27 6.1. Overview of CenITex services... 27 Page 2
6.2. Assessment of CenITex against the guiding principles... 27 6.3. How we got here... 28 6.4. Detailed recommendations for CenITex... 29 7. Implementation Strategy and Approach... 31 7.1. High level roadmap... 31 8. Appendices... 32 8.1. Bibliography... 32 8.2. Catalogue of Back Office Shared... 34 8.3. Stakeholder Consultation... 35 8.4. Focus User Group Summary... 36 8.4.1. Focus Group Agenda... 36 8.4.2. What s Working Well... 36 8.4.3. Opportunities for Improvement... 36 8.4.4. End User Vision for Corporate Support... 37 Page 3
1. Executive summary The Department of Premier and Cabinet (DPC) commissioned a short strategic review to assess the opportunity to improve the effectiveness and efficiency of business support services across the Victorian Government. This review was driven by both a strategic imperative to improve Government business operations but also an operational imperative to assess whether outsourcing all of CenITex services to a single vendor would deliver improved business outcomes and value for money. Over eight weeks, the review considered options to support reforms to Victorian Government business support services through the wider use of shared services. The review assessed many case studies from other jurisdictions, and considered a range of governance models in the policy context of the Victorian Government. In considering the suitability of governance frameworks from other jurisdictions, building on the strong accountability of Victorian departmental secretaries is important. There are many shared services already in place across government: establishing an environment that will enable Secretaries to leverage what is working and remediate what is not working is essential. Shared service models range from a strong centralised governance and delivery model to a federated governance and decentralised delivery model. Shared service case studies show that centralised governance for shared services usually involves a centralised leadership culture, which can be effective in delivering efficiency and cost control, usually through a single operating model. A federated governance model requires a strong leadership commitment from senior stakeholders, bottom-up collaboration and direct oversight of the service by customer representatives. This kind of model can be more customised to customers needs, and supports an operating model with more devolved accountability and decision making. Both of these models have advantages and disadvantages. The strong accountability of Secretaries for the operations of their departments and the large number of services that are already shared among and within departments, however, suggests that a federated governance model, with central development of standards, policies and strategies to drive standardisation, is best suited to the Victorian Government s needs. The case studies also show that centralised delivery is most successful when common processes and systems are in place, and that a more decentralised delivery approach provides an opportunity to cluster departments and agencies around common processes and systems that meet their needs. Across all governance and delivery models, there are two key enablers of shared services: Whole of government strategies, policies and standards for Information, Communication and Technology (ICT) and broader business systems; and Whole of government procurement of these services. Economies of scale, often a motivator of a shared service, are only really optimised when customers adopt and maintain common standards. Further assessment of case studies coupled with significant consultation with departments, large delivery agencies, CenITex and other shared service providers across Victorian Government, highlighted and in many cases confirmed, the critical success factors of operating a shared service in the Victorian Government. Page 4
Key elements included: Senior executive leadership and active oversight of the performance of shared services in delivering more efficient and effective business support; Customer representation, expertise and involvement in the business planning and performance management of the shared service; Regular benchmarking of the cost, quality and relevance of the shared service to customers and against comparable service providers; Formal and consistent reporting of key metrics to provide assurance and advice to senior leadership in relation to the performance of the shared service; and A fee-for-service funding model that includes appropriate levels of on-going investment in improving the quality of service and maintaining its relevance to business needs and evolving market offerings. In specifically addressing ICT shared services and the performance of CenITex, considering the accelerating pace of technology change and the opportunity to leverage some well-established services offered by the market is important. The ICT infrastructure (the hardware, operating system, file management system and storage) that underpins business services has evolved significantly in recent years. There are many services available through external providers today that the Victorian Government could choose to use. However, it is also important to distinguish those ICT infrastructure services, which are ubiquitous services to any business from those that underpin core business systems that meet the specific needs of government agencies. CenITex performs a combination of the two, and the government relies on the technical expertise and business knowledge of CenITex staff to support the specialised infrastructure component of a number of its core services. In order for Government to take advantage of the growing number of external providers who offer the more ubiquitous services as a commodity, whole of government standards and sourcing strategies need to be established. The previous government initiated a project to outsource some or all services provided by CenITex called Program Evolve. The final stage of this procurement project was transitioned to DSDBI to avoid the perception that CenITex faced a conflict of interest in running a procurement process to outsource itself. This review considers that the paused proposal to outsource CenITex (renamed Project Atlas), should not proceed because the business case does not fully account for the amount of work and cost required within departments to achieve the required level of standardisation. There was also limited confidence that outsourcing all of CenITex s services to one provider would deliver value for money. 1.1. Guiding principles for shared services To create the framework for decision-making on shared services opportunities, the Victorian Secretaries Board (VSB) has endorsed the following guiding principles: 1. The scope of a shared service will be defined by the desired outcomes, rather than by its technical systems or components. 2. Each shared service provider will regularly benchmark its cost, quality and customer satisfaction, and Government will consider outsourcing only those services for which there is contestability among a range of existing service providers. Page 5
3. Shared service providers will plan for an upfront investment in the setup of the shared service, and a fee-for-service model for the delivery of the service to customers, with both reinvestment and accrued benefits reflected in the fee. 4. Government will adopt strategies, policies and standards to enable collective procurement decisions in the short term, and migration to shared services in the medium term. 5. Departments will leverage existing shared services. For each new business support investment, they should ask why not migrate to (or establish) a shared service, acknowledging that it will not always be appropriate. 6. Shared service providers will invest in leadership with expertise in evaluating, selecting, deploying and managing the ongoing operation of shared services, and educate existing teams to improve their skills. 7. Departments hosting shared services will establish a performance management framework and incentivise the participation of their department and agencies. 8. Departments hosting shared services will appoint a board with customer representation for each major new service to ensure the provider: a) Invests in staff capability, adopts a customer-focused culture and maintains a relevant and attractive service; and b) Develops, operates and reports in accordance with an agreed service catalogue and service levels to its customers. 9. Secretaries will remain accountable for the overall quality of service to their staff, and for deciding if, when, and how they adopt a shared service. 10. Departments that choose to join a shared service will participate in the development of its strategy, business plan and scope of services in the ongoing assessment of its performance, and will only exit through a pre-agreed managed process. 1.2. Key messages for stakeholders The recommended approach builds on the strong accountability of departmental Secretaries to establish a federated approach to shared services, rather than mandating the use of shared services from the centre. This approach proposes to: Increase Government s understanding of existing shared services, so agencies know what is available to them now; Structure new service contracts to allow other agencies to join later if they want to; Use strategies, standards and policies to drive consistency among business systems and enable easier sharing in the future; and Over time, look for opportunities to buy services from competitive providers, or join existing shared services, rather than building new ones. The approach also provides the governance and framework that will guide CenITex s future role as a service provider. 1.3. Key recommendations shared services To underpin successful shared services in the future, the review recommends that: 1. DPC lead the development of business systems strategies, policies, standards and sourcing strategies to enable shared services and the VSB take collective responsibility for enforcing them; Page 6
Page 7 2. DPC establish a federated governance framework and work with existing shared service providers, to ensure: a) A fit-for-purpose board is in place that includes a majority of customer representation; and b) A performance management framework is in place that aligns with the guiding principles and focuses on transparent performance reporting and increasing the capability of staff through education and recruitment. 3. The VSB receive regular reporting on: a) The development, adoption and benefits of the business systems standards, policies and sourcing strategies; and b) The performance of the portfolio of business systems shared services in operation across Government. 4. DPC establish a support unit to: a) Provide assurance and advice to the VSB on the performance of existing shared services and emerging opportunities; b) Provide analysis and support to shared services boards on the performance and direction of their shared service provider(s); and c) Facilitate the development of emerging shared services opportunities across Government. 1.4. Key recommendations - CenITex To strengthen CenITex s service delivery and competitiveness, the review recommends that: 1. CenITex continue to deliver the secure processing and information management services it currently provides in order to support the specialised business applications and requirements of Government departments and agencies; 2. DPC lead the development of standards, high level requirements and sourcing strategies for the workplace collaboration environment (for desktops, laptops, mobile devices, etc.) and for network carriage and management services for the Victorian Government, and test the market for these services from an external provider; and 3. Government should enhance the CenITex Board to include a majority of customer representatives, and retain some existing members for continuity and their unique expertise. The Board should remain accountable for the governance and ongoing performance of CenITex. 1.5. Key recommendations Project Atlas 4. The project to outsource CenITex (Project Atlas), that was paused during the review should be discontinued because: a) Without previously agreed standards, the proposed commercial arrangement with the vendor could have influenced decisions about ICT service standards, rather than government business needs determining the service; b) The contract would have committed the Government to a fixed package of services from one vendor. Outsourcing the services on a case-by-case basis to specialist providers based on agreed standards will likely result in better outcomes; c) Making changes to technical solutions for services after the initial transition would likely have been expensive; d) The outsourcing business case did not fully account for: i. The effort and cost required for departments to meet the standards set by a new provider; and
ii. The cost to departments to complete the transition to a new provider. 1.6. Key recommendations other projects The other projects paused during this review should be managed as follows: a) VicConnect be discontinued and the work completed to date be leveraged to support the development of new shared services for the workplace collaboration environment and network carriage and management; b) A new shared service for human capital management be reconsidered following the development of whole of government requirements; and c) A new shared financial services initiative be reconsidered following the development of whole of government requirements. 1.7. Conclusion The implementation of this review s key recommendations will further support collaboration and flexibility among departments to establish fit-for-purpose shared services which will improve the efficiency and effectiveness of business support services across Government. A consistent governance framework, a commitment to common strategies and standards, and a strengthening of whole of government strategic sourcing and procurement practices, will drive opportunities for greater sharing of services in the future. Page 8
2. Introduction 2.1. Background The Department of Premier and Cabinet (DPC) commissioned a short strategic review to consider opportunities to improve the efficiency and effectiveness of business support services across the Victorian Government. This review has been undertaken in the context of the Government s commitment to deliver high quality services to all Victorians. To achieve this, the Victorian public sector workforce must be supported to be productive, agile and mobile, through provision of the business models, support services and technology-enabled ways of working that allow employees to engage more deeply with citizens and service users. Efficient and effective support services drive a greater focus and investment on frontline services and infrastructure, leading to better outcomes for all Victorians. The urgency of this review was driven by the need to understand the broader context in which Government can make a decision regarding the future of CenITex (the Victorian Government in-house ICT shared service). The previous Government initiated a project to outsource CenITex to a commercial ICT provider that was first managed by CenITex and then transferred to the then Department of State Development, Business and Innovation. In December 2014, the project was transferred to DPC and paused pending this review. 2.1.1. Why share services? Business support services are often shared among government agencies and departments to achieve a higher standard of service than they could alone, take advantage of specialist expertise, and reduce overhead costs. Some of these services are easier to share than others. Transactional services, the highly repeatable, often highly standardised activities lend themselves well to a shared service, largely delivering economies based on volume and economies of scale. Examples include, payroll processing, accounts payable and accounts receivable. The most basic of the transactional services are common to most businesses, and are offered by a range of specialist private sector providers, creating a commodity market. External providers most efficiently deliver these services as internal Government providers struggle to compete on quality or price. Decision support services are higher value, specialised skills that can lend themselves to a shared service, largely delivering aggregate cost savings based on sharing expertise and knowledge. Examples include data or business analytics. Strategic services are the highest value services, requiring specialised skills coupled with significant business knowledge and intellectual property. These rarely lend themselves to a shared service. Examples of strategic services include policy advice and strategic planning. 2.2. Purpose of this review Page 9 2.2.1. Objective The objective of this review is to define an agreed way forward for business support shared services in the Victorian Government and create a contextual strategic framework in which the future of CenITex and other in-flight whole of Victorian Government ICT initiatives can be assessed.
The review set out to: Assess the strategic opportunity for the Victorian Government to introduce shared services which will improve productivity, increase employee satisfaction, and introduce new levels of agility to more efficiently and effectively execute anticipated high levels of change; Deliver a framework and set of guiding principles which reflect the collective aspiration, capability and capacity of Government to execute on the strategic opportunity identified; Provide a governance model which utilises the framework and guiding principles to ensure an aligned position is maintained and applied to the assessment and scoping of process improvement and ICT initiatives which emerge within individual departments and across agencies or, as Whole of Government undertakings; Review all planned and/or in-flight shared services and ICT initiatives, identified during the review, and make recommendations with regards to the level to which they are aligned with the guiding principles developed; and Make explicit recommendations with regards to the proposed outsourcing of services delivered by CenITex. 2.2.2. Scope The scope of this review is all business support services generally delivered within a department under the leadership of a corporate Deputy Secretary. Part 8.2 provides a detailed list of the range of services and service categories that the review considered in its investigations. It is important to note that it is not common practice to introduce shared services for all corporate services but a broad scope provided an appropriate context to discuss current and future shared service activity across Government. 2.2.3. Approach To achieve an eight week timeline, the review team sought to leverage Project Atlas deliverables and project team expertise, including: The baseline data collated on CenITex operations; Insight into the previous discussions about the governance and decision making of whole of Victorian Government shared services; Access to the individuals with working knowledge of the Project Atlas deliverables; and Project Atlas program administration and planning resources. Page 10
Page 11 Table 1 provides a high level outline of the activities undertaken each week and outcomes achieved across the eight-week strategic review.
Table 1: Business Support s Strategic Review approach and activities Week Key Activities Key Outcomes 1 Pause Project Atlas program activity; Announce the review to stakeholders; and Establish and brief core review team. All stakeholders briefed. Project Atlas consultants secured as required. The initial briefing of the core team is complete. 2 Undertake a series of workshops / working sessions with the core review team, supplemented by appropriate additional SMEs, to prepare a hypothesis/straw man of the shared services opportunity, the framework, guiding principles and Project Atlas / CenITex recommendations; Presentation and working session with the CenITex Board; and Socialisation sessions with the review sponsor and key advisors to refine the hypothesis / straw man. 3 Prepare materials for three streams of activity: Interviews with key stakeholders (Deputy Secretaries, Chief Information Officers, Chief Financial Officers) across departments and major delivery agencies including Victoria Police, PTV, CSV and VicRoads; Focus groups with a cross section of key users from across the departments and major delivery agencies; and Collation of departmental planned or in-flight shared services or ICT initiatives. 4-6 Completion of interviews, focus groups and data collection; Iterative working sessions with core review team to refine hypothesis based on incoming information and feedback from sessions; Socialisation sessions with the review sponsor, CenITex Board and key advisors to refine the hypothesis / straw man. 7 8 CIO, CFO & Deputy Secretary cross-department and major delivery agency sessions to socialise review findings and recommendations; and Iterations of draft report with final report delivered. An initial experience-driven hypothesis to be tested, validated, refined and enhanced over the period of the review. Agendas and provoking presentation materials for all three streams of activity. An agreed list of interviewees, focus group participants and specific templates for collection of departmental initiatives. Continue collation of data coming in from departments, documented outcomes of meetings & workshops. A further refined hypothesis / straw man which will become the draft review report. Final draft of review report and formulation of next steps. Final report presented to sponsor and socialised for endorsement. Page 12
2.3. Policy context The Government has recognised the need to use high quality shared services, including ICT, as enablers of public sector reform rather than pursuing ICT as a policy stream in its own right. Policy and service reforms will be underpinned by improvements to ICT capability across government to ensure efficient and effective end-to-end business operations. This will involve moving from: Central management of digital opportunities to a more collaborative and facilitative central support role; A series of individual projects to a predictable and continuous program of improvement; and ICT-driven reform governed by CIOs to separate streams of public sector reform, supported by ICT, with strategic leadership by the VSB: Business support services Citizen engagement Open government (public data) delivery reform ICT standards, policies and strategies This review has focused on the business support stream of reforms. The other public sector reform streams will be supported by their own governance and oversight by the VSB. 2.4. Key definitions 2.4.1. How shared services are related to procurement In addition to having a clear definition of shared services, it is equally important to distinguish procurement, strategic sourcing and standardisation as enabling activities that are undertaken as a precursor or in conjunction with establishing a shared service. The following definitions of these activities are used in this review: Procurement is the process of buying goods or services; Enterprise procurement is the process of buying goods or services and creating a contract that secures an option for other parts of government to join and expand the service later; Standardisation is the movement toward consistent or compatible specifications, to make the sharing of services more successful, and enables the establishment of a shared service in the future; Strategic sourcing is enterprise procurement of standardised goods or services; and Shared services are optional services hosted by a department or agency to service a portfolio of customers. Page 13
2.4.2. What the literature tells us A literature review and experience of other shared service providers yielded a number of consistent themes: The shift towards shared services must be led by the senior executive group. transformations can only be achieved through hands-on executive involvement; A clear shared services direction and strategic approach must be set out from the onset; The capability of the customer to manage the services and the service provider is an immediate and long-term success factor; There is limited appetite and a low likelihood of success for a big-bang approach for the adoption of a shared services model; Technology has become a key enabler by providing the ability to move services directly to the cloud and out of traditional infrastructure services; Shared service organisations should not receive their funding from the budget process but rather through a fee-for-service agreement with customers; A consistent and practical performance management framework is required across the scope, cost, quality and customer satisfaction elements of the shared services; Government should regularly assess shared services against market alternatives; and While common standards and requirements are more important motivators than economies of scale, scale will still inform decisions about how to structure and govern a shared services entity. Page 14
3. State of play 3.1. Key stakeholder perspectives Over 40 stakeholder interviews were undertaken including with CIOs, CFOs and Deputy Secretaries across all departments, central agencies and a number of large delivery agencies. Many stakeholders were owners of shared services within their departments and most were users of the long standing whole of Victorian Government central functions such as fleet management, property and libraries services. These interviews addressed four key elements: 1. Clarification of the scope of the review; 2. Sharing the Government s direction on implementing shared services; 3. Seeking stakeholder input on opportunities for introducing shared services; and 4. Completion of a high level SWOT analysis on why shared services do and don t work in the Victorian Government. Most of the time spent in the interviews focused on why shared services have and have not worked in Government. Key themes included: 1. Willingness to collaborate and share what they are doing with others; 2. Supportive of leverage and replication but wary of consolidation and centralisation; 3. Existing inter-department shared services which are working well have strong leadership from the department secretary, effective customer governance, are not mandated, and have transparent cost and charge back models; 4. Existing intra-department shared services which are working well appear to be based on strong bilateral relationships and limited impost on the department or agency hosting the service; 5. A level of frustration created by the current need to spend on upgrading or consolidating disparate finance and human resources systems and willingness to collaborate on minimising the cost; 6. Shared services takes investment to set up initially. Benefits will flow over time but not on day one; 7. Creating a shared service by reassigning resources from service delivery agencies, without re-skilling and recruiting shared services expertise, lowers the quality of services and disenfranchises staff; 8. A lack of on-going investment in the shared services personnel, technology and overall service catalogue and solutions offered; 9. Departments do not have the resources nor the management time to become a large shared service provider as it becomes a distraction from key departmental priorities; and 10. Agreement that there is value in common standards and collaborative buying. 3.2. End user input The review held three 90-minute focus groups attended by around 10 people each. Attendees were a mix of departments and individuals delivering support services and heavy users of shared services. The focus groups were asked to do two things: Brainstorm the corporate services that were working well and those that could be improved; and Page 15
Draw a vision of utopia what the best corporate services model for Government should look like. The brainstorming produced a list of key themes that can be summarised as follows: Central functions such as property, library services and fleet management are considered to be adequate but with potential to be re-assessed as to whether they are really fit-for-purpose today; Departmental functions or shared services generally work well; Queries why government has so many different systems, processes and basic tools for doing the same thing; and Higher expectations of the performance management and reporting from a service provider that is not under the direct control of the accountable service owner. The utopia sessions (refer to Appendix 8.4.4) included a creation of a concept of a standardised base infrastructure for the business. This included one end user workplace tool set, one set of human capital management systems and processes, one set of financial management systems and processes, and flexibility to cluster and consolidate as appropriate. 3.3. Existing shared services across government The review created a template to capture high-level information about the shared services in existence across Government. This template was supplemented by the discussions with each department and large delivery agencies. The diagram below is the same representation of scope, provided in Section 2.2.2 above with a colour coded view of where shared services exist. As mentioned earlier, it shows the significant extent to which the transactional shared services opportunities have been explored by most departments and large agencies. Page 16
Page 17 Figure 1: Existing shared services across government
4. What the evidence tell us In parallel with the activity to assess the current state of play inside the Victorian Government, the review team sourced and synthesised significant pieces of thought leadership and case studies on shared services (refer Appendix 8.1 for detail). The review team looked at studies of other jurisdictions around Australia and overseas and drew on the team s corporate and professional experience. The team also engaged with global shared services experts from Gartner and tested with them the guiding principles and the governance and operating models that have worked and not worked elsewhere. 4.1. Why shared services fail Shared services often fail for a combination of reasons that can be attributed to one or all three of these parties: The shared service provider, whether internal or outsourced; The shared service customer; or The shared service accountable owner. Page 18 The shared service provider If a shared service provider fails to deliver a quality service on par, or better than customers could achieve themselves, the customer will focus solely on cost and not the value proposition offered by the shared service. Inevitably, the customer, over time, will look for an alternative service provider or re-establish the function within their own business unit. If the shared service provider does not invest in the development and customer service culture of its people, its employees take a transactional approach to service delivery and lose sight of the broader objective of customer-oriented service. If the shared service provider fails to invest in benchmarking, continuous improvement and relevance of services it provides, it will not be competitive with the accelerating rate of change and innovation others will sell to the customer. If the shared service provider fails to provide the transparency and reporting to engage customers in performance issues and opportunities, the customers will develop a level of distrust, lose confidence and again focus solely on cost. If the shared service provider does not maintain sufficient standardisation across the services it provides, the economies of scale and quality of service will be eroded. The shared service customer If the shared service customer fails to invest in the capability to manage a shared service provider, the customer will find the shared service provider loses relevance to their business through a lack of knowledge about the customer s emerging needs. If the shared service customer fails to engage in the development of the service catalogue, benchmarking and performance assessment, the shared service provider may not align with their needs over time. The shared services owner If the shared services owner fails to ensure the provider complies with the organisation s strategies, policies and standards, it will lose relevance to its customers and they will seek alternative services that do comply with their strategy.
If the shared services owner fails to oversee the performance of the shared service provider and does not pro-actively drive business plans for expansion or reduction of services offered by the service provider, the shared service will lose relevance to its customers and they will seek an alternative provider. Case studies show that the commitment of the provider, the customer and the owner, to work together and jointly take on the accountability to make a shared service work is essential. The required investment of time and collaborative effort by all parties is significant and cannot be underestimated. 4.2. Spectrum of shared service models Through the review of case studies and discussions with others in these jurisdictions, it is clear that there are several distinct shared service governance and delivery models in place. The case studies show that centralised governance for shared services usually involves a centralised leadership culture, which can be effective in delivering efficiency and cost control, usually through a single operating model. A federated governance model requires a strong leadership commitment from senior stakeholders, bottom-up collaboration and direct oversight of the shared service by customer representatives. This kind of model can be more customised to customers needs, and supports an operating model with more devolved accountability and decision making. While both of these models have advantages and disadvantages, the strong accountability of secretaries for the operations of their departments, and the large number of services that are already shared among and within departments, suggests that a federated governance model, with central development of standards, policies and strategies to drive standardisation, is best suited to the Victorian Government s needs. Figure 2 below summarises models adopted in other jurisdictions and the critical success factors that need to be in place to make each model work. Page 19
Figure 2: Spectrum of shared services models Starting with the left top corner, there are no easily identifiable instances, nor does it seem feasible to pursue a federated governance model with a centralised delivery focus. Moving to the left bottom corner, this is largely a top down driven mandate with the establishment of a central agency or business unit to deliver the scope of shared services agreed. The case studies emphasise the strong top-down decision making processes required to support a centralised governance model in managing the size and scope of the implementation effort required. The bottom right hand corner is also a top down driven mandate with a legislated directive to participate in a clustered model of delivery. It acknowledges the view that one size does not fit all but relies on the legislated directive to sustain momentum. The final quadrant, the top right hand corner, is a bottom-up collaborative approach that is an organic incremental implementation of shared services. The governance is driven by a commitment to common standards across Government departments and a coalition of the willing. The decision to adopt a centralised governance model will require Victorian Government to implement whole of Victorian Government business systems strategies, policies and standards and invest substantial leadership time in driving the sustained change management momentum. A decentralised governance model will drive a progressive achievement of results and will also require the Victorian Government to commit to whole of Victorian Government business systems strategies, policies and standards to enable the shared services to be successfully implemented. Page 20
4.3. Sizing the opportunity An assessment of the trade-offs between the alternative shared service governance and delivery models must be examined in the context of the size of the opportunity. As noted in the previous section of the report, there are a number of shared services already in place across Government. These have been implemented to deliver economies of scale through consolidating highly repeatable, low value transactions. There are also instances of decision-making centres of excellence that demonstrate that higher value services, if shared, have a lower aggregate cost to deliver. Centres of Excellence also create opportunities to significantly improve business operations over time. At present, a number of departments need to invest in a growing number of systems assets that are nearing or beyond end of life, including financial and human capital management systems. To address this problem, a number of systems upgrade or replacement business cases are under development to avoid increased operational costs and address rising operational risks. The investment required to fund these systems upgrade or replacement business cases could be brought together in order to drive whole of Victorian Government business systems policies and standards, strategic sourcing decisions and enterprise procurement contracts. By adopting the federated governance model and making the commitment to whole of Victorian Government business systems strategies, policies and standards, a significant step forward is achievable. Page 21
5. Shared services recommendations 5.1. Guiding principles The guiding principles presented below, have been developed by the review team and socialised with CIOs, CFOs, deputy secretaries, the CenITex Board and the VSB during the course of the review. Figure 3: Guiding principles for shared services The principles have been tested across a number of existing shared services and have received strong endorsement from all parties. Their purpose is to set the framework for the assessment of any shared service across Victorian Government, whether provided internally or outsourced. It is crucial that the principles are appropriately communicated and endorsed by the Secretaries and form the basis against which they assess a proposal to: Procure a service to deliver a corporate function; Establish a shared service within their department or one of their agencies to service themselves and others; Dismantle a shared service within their department or one of their agencies that is servicing others; Their department and/or one or more of their agencies seek to join a shared service; or Page 22
Their department and/or one or more their agencies seek to exit from a shared service provided by another. The decision to adopt a shared services approach remains with each Secretary but the guiding principles provide a consistent framework for evaluation. 5.2. Governance and delivery model After giving due consideration to the options presented in the previous section, it is recommended that the Victorian Government adopt the federated governance and decentralised delivery model described in section 4.2. This recommendation is based on the following key considerations: There is strong accountability of department secretaries that would provide the leadership required to implement a federated governance model. There is an opportunity to leverage existing shared services in departments, agencies or within clusters, where the short-term benefit would be to agree and implement a common governance framework to identify opportunities for strategic sourcing, service improvement or service expansion. There is currently no appetite for a large scale centralisation initiative to implement a centralised delivery or governance model given the potential disruption to the departments or agencies. The proposed governance structure is presented below and its success will rely heavily on secretaries: Committing to the guiding principles established for shared services; Committing to the adoption of agreed business systems policies and standards; and Ensuring fit-for-purpose governance boards are in place for individual and/or clusters of shared services. Figure 4: Proposed shared services governance structure To further expand on the roles and responsibilities of each part of the governance structure, refer to Table 2 below: Page 23
Table 2: Governance shared services roles & responsibilities Governance Layer Governance Role Governance Entity Strategic oversight Provides overall oversight for the successful implementation of the shared services strategy. Victorian Secretaries Board Customer Governance Provide customer visibility and influence to the delivery of shared services. Provide a working arrangement that closely links the shared services and customer demand. Connects with the DPC Support Unit to enhance transparency across government of existing and planned shared services. Board with Customer Representation Delivery Responsible for the delivery of the shared service under the direction of the Board. Manages any internal or external service providers involved in the end-to-end delivery of the shared service. Support Provides secretariat and other support for the shared services boards, as required Performs market benchmarking on behalf of the boards Develops and communicates the shared services strategy Assesses services performance and identifies opportunities for improvement Maintains a consolidated view of significant investment in shared services Reports to Victorian Secretaries Board on benefits and opportunities across department-hosted shared services Sets the governance framework for shared services to operate within Department or Agency Shared Host DPC Shared s Governance and Assurance Policies and Standards Defines standards for the procurement of new business systems. Defines the whole of government policies for ICT and shared services. Defines standards for procurement of new business systems Defines whole of government policies for ICT and business systems Defines the sourcing strategy for ICT and business systems DPC Business Systems, Policies and Standards ICT Procurement Negotiates whole of government contracts for departments and agencies to leverage as appropriate DPC ICT Procurement Reporting Reports on take up of ICT and digital approaches across government DPC Directorate ICT Projects WoVG Reporting Assurance Page 24
5.3. Approach to existing shared services There are a number of existing shared services operating with departments and agencies providing services to others. Many of these shared services have been assessed against the proposed guiding principles and have been considered to satisfy many or all of the guiding principles proposed. In order to align the existing services with the proposed shared services framework, it is recommended that each existing shared service provider: Completes an assessment of its operation against the proposed guiding principles; Shares with the DPC support unit, the outcome of that assessment and any plans to address any significant gaps identified; Assists the DPC support unit in creating and maintaining the transparency of what shared services are operating across government; Engages with the DPC support unit with regards to any significant change to the shared services operation including but not limited to, decisions to procure new services or solutions to deliver services. Figure 5: Example assessments of existing services Page 25
5.4. Approach to new shared services In order to drive alignment and transparency, new shared services should: Be designed to comply with the guiding principles now in place; Draw on the DPC support unit to leverage an existing service, or determine if there is an opportunity to expand the service to other customers; and Align with the strategies, policies and standards developed by the Business s Strategy, Policy and Standards unit within DPC. 5.5. Potential opportunities There are already a large number of shared services in place or under development in the Victorian Government. It is recommended that the governance model is tested on existing or emerging shared services, including CenITex, before Government looks for new opportunities. Based on interviews and research, the review observed opportunities for: A realignment of business requirements for currently paused efforts to market test a new human capital management shared service; A realignment of business requirements for currently paused efforts to market test shared financial services; Greater market testing of travel and fleet services; and Greater standardisation and sharing of systems and services pertaining to information management and data analytics. Page 26
6. CenITex 6.1. Overview of CenITex services CenITex provides a service to its customers that: Accommodates the specialised treatment of confidential information; Understands the broader service requirements of Government including addressing audit, investigation and freedom of information requests; Deals with differences between agencies allowing them to meet the specific needs of their customers; and Recognises the constraints that departments face in upgrading their own equipment. Some of CenITex s services require a specialist understanding of the Victorian Government, or are not readily available in the market, including: Secure data processing and storage; Specialist information security services; desk and field technical support services requiring specialist local knowledge; and Managing services and accounts for departments with different processes and requirements. Some of the other services that CenITex provides do not need to be tailored to the Victorian Government, and are very similar to services that are available as a commodity in the private market from multiple providers, like: Email (currently through Lotus Notes); Technical infrastructure supporting the workplace collaboration environment; Access to and management of data networks; and Standard data processing and storage. 6.2. Assessment of CenITex against the guiding principles In order to formulate recommendations, CenITex s current operations were assessed against the shared services guiding principles. Figure 6 shows that there are a number of opportunities for improvement by addressing existing misalignments. Figure 6: CenITex assessment against guiding principles Page 27
Detailed CenITex recommendations Assessment against Guiding Principles CenITex has multiple different service catalogues and service levels in place Defined outcomes Yes Partial No Uplift capability to manage service Yes Partial No Highly reliant on the role and responsibility of the CIO which varies across departments and agencies Benchmarking and/or market testing needs to be undertaken Benchmarking Performance framework Opportunity to enhance and make consistent Yes Partial No Yes Partial No Initial setup costs were funded from departmental budgets. Today there is a mix of fee-for-service customers and those who true up at end of year for costs and benefits achieved by CenITex Upfront investment, fee-for-service Yes Partial No Guiding Principles Governance board Yes Partial No Capability specifically recruited into the shared service, customer surveys and relationship management people processes Defined but not adopted in all cases with variations to accommodate CenITex customers Implementation of standards Yes Partial No Department accountability Yes Partial No DPC and DTF decision to leverage made by departments and migration managed by them No confidence in CenITex current levels of performance and services not relevant to growing business needs Adopt a why not approach Yes Partial No Customers will stay the course Yes Partial No Difficult for departments to migrate but may opt out FOR OFFICIAL USE ONLY 30 6.3. How we got here CenITex was established as a mandatory, central shared ICT function, without an appropriate governance framework to drive the mandate across government. Its formation did not fully establish it as shared provider of ICT infrastructure services. Key areas where CenITex has faced challenges include: Its re-investment in its technology platforms and services has not kept pace with the accelerating change in the ICT industry; Its pricing regime is based on cost reimbursement with limited incentive to drive efficiency or return any savings benefits which may have been achieved to the departments using its services; and The cost of its customised, non-standard offerings are not reflected in the charges to departments using the services. CenITex has not been able to achieve the level of standardisation required to deliver services at a competitive and market benchmark price. Its technologies and services are no longer meeting all of the needs of departments who have used their services in the past. An initial proposal to outsource some or all of CenITex s services and establish CenITex as a broker of services (Program Evolve) commenced in mid-2013 was stopped by the former government due to a perception that CenITex faced a conflict of interest in running a procurement process to outsource itself. A second proposal to outsource all CenITex services to one vendor (Project Atlas) commenced in mid-2014 should not proceed because: Page 28