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HomeMy WebLinkAboutCORRESPONDENCE - GENERAL CORRESPONDENCE - BACK OFFICE TRANSFORMATIONJerry Mechhng's Profile at Harvard University Page 1 of 2 KENNEDY SCHOOL OF GOVERNMENT FACULTY return to faculty index PROFILE Jerry Mechling Lecturer in Public Policy Executive Education Office Address 124 Mt Auburn - Suite 195-125 Mailing Address Kennedy School of Government Mailbox 127 79 JFK Street Cambridge, MA 02138-5801 Phone Phone 617-495-3036 Fax 617-495-8228 Email Address jerry_mechling@harvard edu Jerry Mechling, Lecturer in Public Policy, is Director of the Leadership for a Networked World Program His studies focus on the impacts of information and digital technologies on individual, organizational and societal issues He consults on these and other topics with public and private organizations locally and internationally Most recently he was author of Eight Imperatives for Leaders in a Networked World and is presently finishing Leadership for a Cioss-Boundary World A Fellow of the National Academy of Public Administration and four -time winner of the Federal 100 Award, he was formerly a Fellow of the Institute of Politics, served as an aide to the Mayor and Assistant Administrator of the New York City Environmental Protection Administration, and served as Director of the Office of Management and Budget for the City of Boston He received his BA in physical se,ienccs from Harvard College and his MPA and PhD in economics and public affairs from the Woodrow Wilson School at Princeton COURSES Fall STM-480 Leadership for a Networked World MEDIA EXPERTISE Jerry Mechling welcomes media inquiries on the following subjects Additional experts may be 'k4 found by clicking on each subject listed You may contact faculty directly or if you need assistance contact the Communications Office at 617-495-11 15 Information Systems Management Information Technology Telecommunications Policy RESEARCH IRe,;earcll For a completo 6,,t of faculty rit,itions from 2001 - Present please visit the KSG Research REPORT Report Online Selected Publication Citations Magazine and Newspaper Articles http //ksgfaculty harvatd edu/Jerry_Mechltng 11/02/2007 argets _ Enterprise archiiecture services, whici i ultimately need to be extended government wide ® Financial services including accounting, budgeting, and performance measurement (and data mining) Human resources services, making _4 - a-drpinistratiVe=serrvices=%effortless=s0-- e ectronlC reC6-rc =_ rY 'd mu angr . It "-11 '_'�Yi3'rv.4'.^--' _rs"=_ ! ur :_ m.4v'_�t Tdie �^''r'v�.''v'-'y', ��•5?i,�vrs mmm_p `i-"Sfs__ '=umv�fir�,`��vy�: afie�ly�-§K red = _ .ras_mvr=_ v, im ;' Tarcrets Education and training se®° viies, whey e economies of scale could permit customization for disadvantaged groups ® G/S services, offering one of the main dimensions for analyzing and controlling government work ® Processing- and -networking services - =today remai.ri: eXcessvel -=fraarnentec� w _ 9=ev=v-zflQ eB+eee=eH L,.-r@l1=9..999r9B9=H9-=4-19-99_D-9_H-i ----- -- an San Diew County. Before 17 Separate Help Desks ® 5 disparate e-mail systems ® Multiple unprotected data centers and distributed servers • No -viable accounting for software licensing Limited sharin of hardware==and Software- 4 �_ s. sterrms=beteenei_business� urn-ifs=�==VHF:-=��e�z���==-° I\In=rlAcknr °Frmmni itar--nnrlr cc3r r�"r_ _r�ifrAch= = responsibb IT Diego County... After 0 1 Integrated e-mail system W 1 Centralized Help Desk • 21,000 standard and integrated phones ® 1 Integrated Network 0 1 Hardened and protected data -center - 12,000 standard state-of-the=art_desktop computers with _a =single opilerating; system =_= _ -= _ _.100_l0 software licerisiri` accurac - _ - -�. s_ g Overview e 0 a tiM challengesNew REDESIGN ACCESS online, nof_m,line- _ = m y PROBLEMS • more people involved • greater complexity • remote, delayed feedback adapti"ve,.not-technical uv T-,Nl Don'ts .uf,o s an DONM duck the responsibility, o go • • ® o get prepared, get c® m'itted "Sloes -trigger, fast_bu-Ilet"),��m�� _ -=- _ - __ ___ =wt _a�ti�-== m-i r` t l nExamples 1. Leverage economies of specialization and scale: Arizona Central Services Bur. 2. Prepare for possible privatization: OMB A-76 guidelines 3. Prepare for equity and transparency: South Dakota, Iowa, and Ontario 4. Commit to back -office reforms as organizational- changeepro,ects: ~Federal;__ 4 m =___ =__line=ofnbasin=ess=__reformsm==-=wm��----= --- - -__ - __-= r =_ _-_- ___- _ = = _==_= ___- - _= _ - = LL� == Potiae a=rod=r=a:a:LL g aimed=eery ce__ e_ ei =m_= = g®===r_=-:T -=._ r r_ 9LL rx_g= __ - -- _- -- -- _ =:=m____ - u_mu_w__.m, m:-_ =-mu__ _c_-_v=�s-.._=mom vEvv ==v_-' i-o�a�ae%e#ic��_ ---- Can-Ll�ann=( 11111 EMIR 0 C T onclusions 1. Technology continues to explode 2. Offering win -win productivity options 3. Throughout the extended value chain 4. Transformation is risky - _,5. , But so,_i�s=:non-transformation: _ ----- - ^3 _- Will you ! o ,i, 'i bye --� nostril IN digit front [eft MH trunk belly hind lea vvebbeu r_"-".-=rr"='-'�..,.=�LL_'u i': `��.u' xr s� I""'"=i'-,=",' _��"''—'~3�m y.''a'""'`:-�.'� =�"—' "'�.,`':.�:'��5�'7 "} "�`�,:.•�'�',?"' "�"s �` of=`rim eE-,r>.e� e ri.-try7_s„` .�� x; .,� sF h 4_iF .. � kzm t' Y3:', w i � =e:Nm: ^'',�•�f `-S. SwF 15��' ~F `. y _ Jerry Mechhng's Profile at Harvard University Page 2 of Mechling Jerry "The Transition a Dark Horse Opportunity " Governing com (Governing Magazine) December 6 2006 Meahhng Jerry "Digital Leadership Moves " Governing com (Governing Magazine) October 4, 2006 Mechling, Jerry "Shared Services 'Trickle Down' from Canada?" Governing coin (Governing Magazine) August2,2006 http //ksgfaculty haivaud edu/Jerry_Mechling 11/02/2007 y p550C14T/ON ?� o •- L _° p PoASACT sin c � ¢ c ' s �5 q� p9J C�FOLLEPSb Developed jointly by the National Association of State Auditors, Comptrollers and Treasurers (NASACT) and the National Electronic Commerce Coordinating Council (eC3) Presented at the 2006 eC3 Annual Conference, held December 4-6, 2006, in Sacramento, California Transforming the Back -office Why and How Written by Dr Jerry Mechling, Harvard University, for the National Association of State Auditors, Comptrollers and Treasurers (NASACT) and the National Electronic Commerce Coordinating Council (eC3) CONTENTS Preface Executive Summary Reorganizing the Back -Office The Opportunity Network -Based, Win -Win Options The High Stakes of Transformation Leadership Challenges What NOT To Do Success Through Preparation and Commitment Back -Office Transformation Guidelines from Emerging Experience 1 Leverage Economies of Specialization and Scale 2 Prepare for Possible Privatization 3 Prepare for Equity and Transparency 4 Commit to Back -Office Reforms as Organizational Change Protects 5 Negotiate and Manage Service Level Agreements 6 Reinvest for Continuing Innovation 7 Develop Governance Structures for IT -Related Investments Conclusion. Leadership for the Next Wave of Change Attachment A Symposium Participants Attachment B Published Resources Transforming the Back -Office Why and How u v 1 2 4 5 7 7 9 10 11 12 12 13 14 15 17 19 21 Preface What follows are examples and guidelines for "back -office transformation" as developed through the eC3 June 2006 symposium in San Diego, California The symposium assembled government practitioners, technology vendors, and researchers The purpose was to identify key upcoming challenges for leadership attention and investment The symposium focused on back -office production rather than front -office delivery, and on transformational change rather than incremental improvement With more rigorous and data - derived metrics yet to be developed, current experience and research suggest that back -office reforms -- such as "shared services" initiatives to consolidate financial services, procurement, human resources, information technology, and other support into an enterprise -wide service organization -- should produce productivity gains of 20% or more for all the work included This would be a transformational shift, and incredibly important for state administrations taking office -- or returning to office -- in the spring of 2007 It would offer critically important benefits for citizens, companies, and other constituencies Back -office transformation will not be easy, but things this valuable are rarely easy The hope of symposium participants is that the guidelines summarized here will help leaders successfully negotiate the next wave of IT -enabled change Jerry Mechling Lecturer in Public Policy John F Kennedy School of Government, Harvard University Faculty Chair, Leadership for a Networked World Program November. 2006 Transforming the Back -Office Why and How Executive Summary While information technology productivity is amazing -- continuing under Moore's Law to double every two years or less -- it doesn't mean much unless we also make changes in how we work So far, however, especially in government, work transformation has focused primarily on the distribution of services We've gone "on line, not in line " This is good, but not a stopping point We offer services "anytime, anywhere," but we have not done enough to improve the production process Workers in the back offices of governments -- especially in financial, human resources, information, and other support services -- are organized much as they have always been organized This will change, however, because we can change it and we must change it We must change it because competitive and demographic pressures are rapidly relocating fobs on a global basis If the work of government isn't productive, it's a huge drag on the economy, and lobs go elsewhere Fortunately, we can change it, largely through the scope and scale economies of IT -enabled divisions of labor We can now produce things differently and much more productively, especially the support services that have historically been sprinkled throughout government programs Support can now be consolidated into larger, more efficient, and more effective "shared services" operations After the transformation of back -office production, all government services can be cheaper AND better But transformation will be risky It will require new kinds of leadership Key guidelines from the practitioners, vendors, and researchers assembled in San Diego include 1 Leverage economies of specialization and scale 2 Prepare for possible privatization 3 Prepare for equity and transparency 4 Commit to back -office reforms as organizational change projects 5 Negotiate and manage service level agreements 6 Reinvest for continuing innovation 7 Develop governance structures for IT -related investments The transformation agenda will be challenging for leaders and followers alike It is a challenge we must respond to successfully Transforming the Back -Office Why and How People working alone have limited capabilities We therefore work largely in groups, and augment our power with tools A better life depends on improved productivity, and on organizing ourselves and our tools productively Over the past 50 years, information processing has become incredibly more productive, as have networks for transporting communications and data We have used this processing and communications largely to improve the distribution of services We have gone "online, not in line " We have used ever-present and ever -available networks to offer "anywhere, anytime' service However, what we in government have not yet done -- at least very much -- Is apply the new technologies to dramatically improve the rest of the value chain of work We have transformed the distribution of goods and services, but have made only limited improvement in the production process Productivity per government worker has not been transformed This paper explores where we are headed next using IT for the critical challenge of transforming production It focuses on steps that often lie invisible to those on the receiving end of government services -- i e , on the "back office" work that makes it all possible We will first address why back office transformation is important, and why it is feasible now in ways not possible before We will then lay out lessons emerging from practitioner expenence with back office reforms This paper summarizes work of the eC3 2006 Symposium held June 22-23, 2006, in San Diego Reorganizing the Back -Office: The Opportunity Work adds value through steps often conceptualized as a value chain each step consumes resources to add value, and then transfers its output to the next step, which also attempts to add value To date, the steps targeted most by technology have been those at the end of the chain where information and services are distributed to end users By distributing over networks we add convenience and customization For example, recipients gain what they need without interrupting their own work to travel to a government office during "regular" work hours Recipients gain accessibility, anytime from anywhere Transforming the Back -Office Why and How However, these changes touch only the final steps of the value chain, the distribution work The next wave of reform must focus on the rest of the chain, the back -office production rather than the "dance" that directly Interacts with the public In the military, the soldier delivers the service, but the soldier can not perform without uniforms, arms, ammunition, food, medical services, communications, and other support The soldier is the "tooth" in comparison to those in the "tall" providing support In any modern military there is a substantial supporting tall Soldiers fight more effectively than before, but the division of labor requires extensive "back office" activity The "front office" soldier is supported by financial management, human services, vehicle maintenance, Information services, and other work that takes place largely behind the scenes Back -office work is the new target for transformation New win -win options are emerging, but they are not without substantial leadership challenges and risks Network -Based, Win -Win Options The basic trade-off between low-cost and high -quality production -- or between efficiency and effectiveness -- is illustrated below Figure I The tech -enabled shift to new/better production possibilities LOW COST Mass production focus Efficiency ' Uniform standards and/or central control • Cost control, production culture New/better production possibilities • better information and controls • better flexibility/granular standards • better labor (location) or capital (scale) Producers' Society's "equal value" trade-offs "equal cost" HIGH QUALITY • individual service focus Effectiveness ' Local customization/control • Quality, service culture High -quality production -- options further to the right on the figure above -- tends to require a production culture focused on individualized service In quality -oriented organizations, local Transforming the Back -Office Why and How workers are given substantial discretion to make judgments and incur costs on behalf of the customer The culture rewards those who keep customers happy Low-cost production -- options higher up on the figure above -- tends to require a culture focused on mass production, uniform standards, and centralized control The culture rewards those who focus on efficient production and controlling costs In either culture, trade-offs must be made For producers, it becomes very expensive at the high - quality end of the spectrum to add more quality Fortunately, at the high -quality end of the production possibility curve, most consumers are willing to sacrifice a small amount of quality to gain a relatively large reduction in cost The reverse is true at the low-cost end of the spectrum As Figure 1 illustrates, these pressures lead producers and consumers to meet in the middle Equilibrium is found where producers can't add quality at a price consumers are willing to pay At the same time, they can't cut costs without cutting quality that consumers are not willing to give up HOWEVER, new production possibilities may emerge that make both producers and consumers better off The production curve can shift up and to the right This generates better quality AND lower cost Both producers and consumers are better off What produces such win -win improvements? Major possibilities include 1 Better information and controls Digital data and networks bring enormous increases in information availability When patients go to an emergency room that has access to their electronic medical records, it's possible to quickly assemble information for appropriately personalized service When organizations use institutional credit cards to decentralize purchasing decisions, local decisions can quickly be authorized while simultaneously gaining volume discounts for the enterprise 2 Better flexibility through granular standards Standards used to mean "one size fits all " Modern processing, however, supports finer -grained standards and/or multiple standards with translations between them This allows "mass customization" as personal variations can be handled automatically and efficiently Fingerprints can be shared via translation among multiple coding systems, and located quickly enough to help search for suspects, before such search capability, fingerprint retrieval was used merely to confirm the identity of suspects already apprehended Transforming the Back -Office Why and How 3 Better labor (access to a broader pool) and better capital (access to economies of scope and scale) Networks can overcome distance so work can be coordinated among people who don't need to be in the same room at the same time For many years we've seen back -office private sectorjobs like credit card processing move from expensive urban areas to less expensive, remote areas These possibilities are now becoming attractive to governments as well Technology capabilities allow network -based organizations to produce at lower cost AND better quality While producers and consumers may find it difficult to move to the new methods, recent examples suggest compelling win -win possibilities for both groups The High Stakes of Transformation As organizations adopt technology for improved production, opportunities emerge for better efficiency, equity, and legitimacy - Table 1 - Targets for Back -Office Transformation • Enterprise architecture services, which ultimately need to be extended government wide • Financial services including accounting, budgeting, and performance measurement (and data mining) • Human resources services, making administrative services effortless so more energy flows to customer -facing work • Health care services which need electronic records to be safely shared among multiple institutions • Education and training services, where economies of scale could permit customization for disadvantaged groups • GIS services, offering one of the main dimensions for analyzing and controlling government work • Processing and networking services, which today remain excessively fragmented • Security and identity authentication services the precursors to e-commerce efficiency and stability The rewards of transformational change can be enormous Unfortunately, there are also major risks • Efficiency Over the past decade, technology has become the major investment driving productivity While productivity in government is difficult to measure -- and we've stopped producing official statistics -- a variety of studies show increases of approximately 20% Transforming the Back -Office Why and How for well -implemented projects Unfortunately, many projects are not well -implemented While technology -- on average -- improves productivity, the risks threaten to ruin those results Equity Governments care not only about productivity, but also about equity We care about community and inclusion and fairness Technology can move jobs to low-income areas where well -paying work has traditionally been scarce Any movement of jobs, of course, raises concern, even if the demand for government work is growing faster than the supply of government workers The next wave of technology -enabled change raises such issues • Legitimacy With the transition to technology -enabled production raising tough issues, a major concern is legitimacy Will the public believe that choices are made in the public interest, without favor to special interests? In an information -intensive world, we need to make accountability more transparent Feasibility Any move to transform the back office should weigh risks against rewards In an uncertain world, good bets may sometimes lead to bad results Of course, there are also risks with inaction, even if these are not as visible Perhaps the greatest threat is the "boiled frog" problem A frog thrown into boiling water will jump out and escape, while one thrown into normal water that is then slowly heated will fail to register the danger before it is too late Governments transforming the back office need to monitor and manage ALL risks, including those of inaction In a transformational, turbulent world, the stakes are high Leadership Challenges With the technology -enabled changes that governments have implemented so far, the people directly involved have largely been those building infrastructure (the technology community) and "consumers" who directly interact with net -delivered regulations and services Relatively few government workers have had to endure major changes in their work responsibilities or relationships The future will be more difficult Back -office transformation will impact many jobs It will change their nature, often moving them to new locations, with new responsibilities and new work -group relationships In some cases, transformation will eliminate existing jobs (although existing workers will almost always be offered other job opportunities) For example, when government employees Transforming the Back -Office Why and How 5 ram flvwlrl,- Fram S I'a r __ o n Jerry Mechling Harvard University June 22, 2006 learn to handle their HR transactions on a self-service basis, governments won't need as many HR staff, and the old HR staff will be moved to new fobs This is part of moving from one curve -- the learning and work required for online access -- to a different curve -- the learning and work required for back -office transformation (See Figure 2, below ) While progress on either curve can be made through predictable, incremental changes, the leap from access to redesign presents more difficult challenges For incremental, predictable change, leaders can often delegate work to specialists For radical, unpredictable change, leaders must work on adaptive rather than technical tasks -- i e , tasks where the right answer can't be found by picking from previously learned routines Given the greater uncertainties with adaptive change, leaders must be more intensively engaged than was required for earlier, more technology -oriented protects They must not only approve plans and investments, they must also resolve more problems during implementation, often problems raised by an active opposition Figure 2 Moving to investments requiring cross -boundary, transformational change .. penetration REDESIGN and benefits cross= NEW LEADERSHIP boundarva CHALLENGES A 4 • more people involved *' • greater complexity • remote, delayed feedback r� • adaptive, not technical, work ACCESS online, „r1 ;* .< = � s , �,.,�; "�- • little formal authority •Protects create "losers" not m line <, t ;gy a_ ^h',"„,Y.y� • incessant but slow threats time and effort We're moving into new territory And we don't really have a choice, given the global forces reshaping the world's division of labor We're facing demographics that will increase the demand for government at the same time they diminish government revenues If we can't improve productivity -- dramatically -- we won't be able to keep up We need the power of computers to organize work more productively, often through initiatives energized by younger -generation leaders The new state administrations forming in the spring of Transforming the Back -Office Why and How 2007 should take advantage of the times Leaders should get their transformation agendas ready for implementation What NOT To Do The most common mistakes with back -office transformation are ducking the challenge or responding with a half-hearted commitment It's understandable why some prefer to duck Back -office reforms involve tough work The public is not demanding these projects, at least not in a direct way Success will require major investments and resolving the conflicts raised by "breaking eggs " For some, this looks to be too risky, and for too little return Other leaders, fortunately, will see the upside potential and the necessity for early action Both the public and the workforce can be educated to the challenge Given global, knowledge -based commerce and today's ability to move jobs anywhere, every jurisdiction needs to be alert The kinds of change that governments must make are those being required of many organizations The primary danger for governments is the "boiled" frog danger But if inaction is dangerous, so is rushing in unprepared Half -way measures and overly delegated work will not cut it Conceiving of transformation as technology -first projects will not work The core challenge is keeping the group together through the confusion and conflict that inevitably emerge during implementation Unlike earlier changes enabled by e-government, back -office transformation will generate an opposition Leaders must be well -prepared in advance and, once the decision is made to transform, they must implement with speed and tenacity Success Through Preparation and Commitment Back -office transformation requires preparation and commitment from people at many levels, not just those "in charge" at the top Preparation must include strategic assessment as problems are analyzed and projects given direction Commitment must include sustained tenacity through implementations that become life -changing events for many of the workers involved Adaptive leadership -- much like cooking with a pressure cooker -- requires good judgment in setting the pressure Too little and nothing happens Too much and it blows up Perceptive analysis is needed to align resources with strategic goals In moving to "shared service" Transforming the Back -Office Why and How organizations, the right scale must be chosen for operations and guided, if possible, by metrics and by benchmarking from similar organizations Leaders need to assess the interests motivating all participants, local and central, opponents as well as supporters Once the commitment to transformation has been made, implementation has the best chance if it is speedy and forceful A major danger in government is "scope creep" that delays results While plans are important, and pilots showing early progress are desirable, delivering results is the sine qua non Don't get stuck on the beach San Diego County offers an impressive example of preparation and follow through The County outsourced its information technology infrastructure and services While similar earlier outsourcing has basically failed, the San Diego initiative provides impressive evidence of success (See Exhibit 1, below ) San Diego felt they needed world -class technology and skills -- not only to catch up, but to keep up as time went on They needed access to expertise available only to a firm operating on a global scale The County was thorough in its preparation and tenacious in implementation While not without problems, outsourcing in San Diego County has generated measurable and critical improvement in information services, reliability, and cost-effectiveness With their information infrastructure in place, they now have the tools to transform County programs and general management Transforming the Back -Office Why and How - Exhibit 1 - San Diego County Before and After the Technology Story Before • 17 Separate Help Desks • 5 disparate e-mail systems • Multiple unprotected data centers and distributed servers • No integrated security systems • Every imaginable desktop configuration and operating system • Multiple non-integrated networks • No viable accounting for software licensing • Limited sharing of hardware and software systems between business units • No desktop computer and server refresh cycle (purchased as $ available) • Distributed responsibility for IT • Operational issues dominated IT managers time • Fragmented approach to IT Investments • Limited and Inaccurate hardware and software asset inventories After • 1 Integrated e-mail system • 1 Centralized Help Desk • 21 000 standard and integrated phones • 1 Integrated Network • 1 Hardened and protected data center • Integrated security monitoring and protection • 12,000 standard state-of-the-art desktop computers with a single operating system • 100% software licensing accuracy and accountability • Enterprise (shared) servers and applications • 36 month refresh on all desktop computers • 60 month refresh on all servers • 61 % reduction in the # of trouble tickets • Strategic IT planning consumes most of the IT managers time Putting Into action the lessons of San Diego -- and other back -office reforms — should Improve the odds for other key projects over the next several years Back -Office Transformation: Guidelines from Emerging Experience For those pursuing transformation, what guidelines will Improve performance? To answer this question, the eC3 assembled experienced practitioners for a two-day symposium this past June The guidelines below summarize the Ideas developed there, as refined through subsequent discussion and analysis Transforming the Back -Office Why and How 1. Leverage Economies of Specialization and Scale Much back -office work provides support for government workers rather than value directly to the public While personnel and logistics staffs provide support, it is soldiers that provide the core value of military operations For this reason, government organizations are designed to maximize the performance of soldiers (or police, fire fighters, teachers, doctors, and others delivering core services) The support staff are added on as "as needed" basis In many cases, however, support work -- in the aggregate -- claims a major fraction of total resources Further, support can often be provided more efficiently if carried on at a larger scale, giving support workers a better chance to specialize and grow within their own professional environments It makes little sense to have dozens of email systems or ways to submit travel expenses when a few or even one would do Note that many information technology services, especially the capture, analysis, and delivery of digital data, can be produced most efficiently at a very large scale Computer services and network operations are thus said to "scale well," as is often the case for human resources, financial management, and other back -office work A key for back -office transformation is tasks that can be produced most efficiently at larger scale Benchmarking can help identify opportunities, with efficiencies greater than 20% typically captured through standardization, consolidation, and/or centralization Example Arizona Central Services Bureau Financial and management accounting tasks are mandatory, not discretionary However, small agencies are rarely able to hire back -office specialists or provide career paths to attract the best people for this work Thus accounting -- and other back -office work -- is typically handled part-time by under -trained personnel who consider administrative work a distraction from their primary purpose The Arizona Government Accounting Office addressed this problem in 1997 by organizing the Central Services Bureau CSB specializes in financial and management accounting for some 20 small state units on a fee -for -service basis They carry out their work at low-cost state pay -scales while improving performance The CSB accounting specialists step in, especially at crunch times and for the complex reporting required for federal grants Perhaps most important, the CSB has allowed program people to give more attention to their highest and best uses, which are program management and customer service Learn more about the Arizona Central Services Bureau at www 3ecompass net/public/ArizonaCSB Transforming the Back -Office Why and How 10 2. Prepare for possible privatization Governments rarely build their own cars, or make their own pens Companies that do this work are typically better specialized for success and serve a customer base extending far beyond an individual government agency or jurisdiction Thus outsourcing has been taking place for thousands of years What is different now is that services as well as products can be coordinated over great distances Payroll calculations do not need to be made by the clerk down the hall Given that payroll is a support function and not core to government, payroll can often be best handled by a unit serving many government organizations Of course, some tasks should be handled only by government employees (typically those requiring decisions to apply the government's coercive powers) Almost all other services are properly open to privatization However, given the controversies that arise when lobs are moved outside government (and especially beyond the government's jurisdictional boundaries), rigorous analysis is needed for the decision to privatize This analysis should confirm that productivity will improve, and that costs will be covered by long-term efficiencies Even with documented benefits, however, outsourcing will not be politically feasible or wise in all situations Where it works, however, it can make a major difference, as San Diego County shows Example Federal A-76 guidance from the Office of Management and Budget "Our success depends on agencies working as a team across traditional boundaries to better serve the American people, focusing on citizens rather than individual agency needs I thank agencies who have actively engaged in cross -agency teamwork, using E-Government to create more cost-effective and efficient ways to serve citizens, and I urge others to follow their lead " - President George W Bush Federal cross -agency teamwork has been designed as "citizen -centered, results -oriented, and market - based " The market -based element pursues competitive sourcing, or regularly examining government activities to determine whether it is more efficient to obtain them from Federal employees or from the private sector Federal OMB circular A-76 provides guidelines that have led to significant outsourcing It lays out 63 pages of systematic guidance on decision analysis for when and when not to outsource See www whitehouse gov/omb/circulars/a076/a76_rev2003 pdf Transforming the Back -Office Why and How 11 3. Prepare for Equity and Transparency Governments care not only about productivity, but also about equity and community Governments care how people are treated, and are organized largely to help those who otherwise could not help themselves Governments also care about making decisions that, even when controversial, are seen as legitimate -- i e , made with the public interest in mind, not a corrupt or factional interest Both equity and legitimacy are important for back -office production Because networked -work can be carried out from many locations, back -office projects can move fobs to low income areas, and can be used to augment other economic development efforts In addition, because digital data makes it easier to gather, store, and analyze information, back - office transformation can improve transparency The public can more clearly see who has done what The public can also be more effectively engaged in decisions about what should be done in the future But if equity and transparency are to improve, they need to become front -burner concerns in planning for back -office reforms With some notable exceptions, this has not been happening Examples South Dakota, Iowa, and Ontario Communication networks, like transportation networks, can enable production to take place at a great distance from consumption This creates opportunities for moving back -office fobs out of high -cost areas to remote locations in need of development For example • South Dakota attracted credit card processing for Citibank in the 1980s While hurting the labor force in New York City, it brought new lobs to Sioux Falls • Iowa beginning in the 1990s has used its Iowa Communications Network to help remote smaller towns to not be bypassed by the Information Age • The province of Ontario has dispersed revenue collection out of high -cost Toronto to regional centers in more remote areas 4 Commit to Back -Office Reforms as Organizational Change Projects IT -enabled reforms allow back -office services to be produced at larger scale, from more remote places, and typically by more specialized and productive people However, while it is IT capability that makes new methods possible, implementation requires serious organizational change The people asked to change can understandably become anxious in the "musical chairs" environment of productivity Improvement projects Transforming the Back -Office Why and How 12 Given these realities, projects should not be delegated to technology managers and/or consultants alone Line managers need to be in charge, and especially managers from the units being created to deliver the new services Production transformation should typically proceed as modularly and incrementally as possible Quick, decisive, digestible phases are preferred For each phase, leaders need to establish clear outcome measures and accountability Example Federal "line of business" reforms The Federal government arguably provides the largest, most visible, and most difficult arena for organizational change Despite the difficulties, cross -cutting projects have made significant progress including, for example, E-Payroll, an effort projected by 2008 to consolidate 26 payroll centers down to 4, annually saving more the $100 in payroll processing costs per federal employee per year To implement such projects, Federal leaders have developed management tools focused on the basics of organizational change These include • Strategic Management of Human Capital - to put processes in place to ensure the right person is in the right job, at the right time, and is not only performing, but performing well, • Improved Financial Performance - to accurately account for the taxpayers' money and give managers timely and accurate program cost information to inform management decisions and control costs, • Budget and Performance Integration - to ensure that performance is routinely considered in funding and management decisions, and that funded programs achieve expected results and work toward continual improvement For more on Federal transformation work, see www 3ecompass net/public/FederalEGov 5. Negotiate and Manage Good Service Level Agreements A common problem with back -office transformation is fear that the new providers -- typically workers from a larger, consolidated site -- will not be as responsive as the current staff Reduced costs, at least as seen by local managers, may not appear worth the risk of reduced responsiveness The goal, however, is increased efficiency AND equal or better responsiveness This is often possible But there is always the need to build good relationships between service providers and recipients These relationships benefit from good service level agreements SLAs can improve transparency into cost, quality, timeliness, reliability, and other issues of concern to consumers and/or producers What is most important, of course, is not just gathering the SLA measures, but using them effectively Performance reviews must foster learning and improvements in the producer - customer relationship The overarching goal is improved trust and performance Transforming the Back -Office Why and How 13 Example Service Level Agreements in San Diego County The outsourcing described above involved a 7-year, $644 million contract Its progress so far has produced pragmatic lessons about service level agreements • Define objectives before the first contact with suppliers • Define how performance will be measured • Establish a strong governance model during the selection process • Set realistic user expectations for the transition - performance will usually degrade for a period before it improves • Create a well-defined process for handling disputes as they occur • Establish performance measures that relate to user satisfaction - Be careful about measuring at the enterprise level - Make sure all metrics are auditable • Allow for contract flexibility — you can not anticipate all the changes that will occur in technology over a period of several years For more on San Diego County outsourcing and SIA'S, see www 3ecompass net/public/SDCounty0utsourcing 6 Reinvest for Continuing Innovation Back -office transformations shift work from one model to another In general, governments are moving to "shared service" models where support work is handled by specialized organizations rather than by local staff that can't offer equivalent efficiencies The reality, however, is that the shift to get started must be followed by continuing innovation Governments must keep up as well as catch up with new ways of business A critical issue is finding resources for innovation Funds are not likely to come only from traditional operating budgets This is because budget -building seeks primarily to find what it will cost next year to deliver services like this year While this analysis is necessary, it misses what back -office transformation is all about i e , serious, cross -program, multi -year innovation Innovations will often benefit from new staff and consultants Primarily, however, innovation depends on continuing access to capital funds, central development funds, and new savings and revenues This does not mean that government lacks the financial capacity for innovation We are talking priorities here Funding can come from reallocations and efficiencies But the budget process must explicitly make room for innovation Transforming the Back -Office Why and How 14 Example The Defense Advanced Research Projects Agency Continuing funding for innovation is difficult to find in government There are few examples of systemic success Much that is innovative flows instead from individual, ad hoc initiatives -- as new administrations take office, as agencies respond to new legislative requirements, as compelling new technologies like the Internet become "ripe;' etc Perhaps the best institutional example of continuing innovation --for keeping up and staying ahead, notjust for catching up -- comes from the Defense Advanced Research Projects Administration (DARPA) Born in response to Sputnik in the 1950s, DARPA has sustained a long-term, bipartisan coalition to ensure that the nation does not fall behind in military technology As a result, DARPA has been allowed to execute high -risk projects extremely early on the learning curve From such work, of course, came the TCP/IP communications protocols of the Arpanet which has now become the Internet For more on DARPA, see www darpa mil/ 7. Develop Governance Structures for IT -Related Investments Because the next wave of transformation will focus on the full value chain -- e g , on entire jurisdictions for shared services and the entire health care community for electronic medical records -- initiatives will raise new and difficult issues of governance Governance is the system for deciding who gets to decide in settings where consensus is impossible or dangerously slow Governance defines the decisions to be made and then assigns roles to the parties to be involved In changes involving multiple programs, jurisdictions, and sectors of the economy, the change process often begins on a voluntary basis People agree to work together to see what can be done In some cases, voluntary coordination may be all that is needed However, back -office transformation may well raise issues requiring authoritative decisions If we consolidate e-mail systems from dozens to a handful, who gets to decide which systems will make the handful'/ We need a formal governance structure In negotiations to define governance, it's possible to ask for formal power too soon, if so, the community seeking reform may reject the idea because members may not be willing to sacrifice local sovereignty It's also possible to wait too long, locking yourself into overly fragmented systems The window of opportunity for transformation may open only briefly Transforming the Back -Office Why and How 15 T h e Report Other governance problems relate to how broadly authority is distributed It's possible to engage too many people in decision -making, resulting in procedures that water the analysis down and drag on forever On the other hand, it's possible to engage too few people, squeezing out needed expertise or making it too easy for those in power to be corrupted or otherwise lose sight of the public interest Back -office transformation requires coordination among multiple independent institutions and individuals The coming years of transformational work will therefore confront leaders with difficult governance problems Example New York City Housing Authority Many governments persist in thinking about technology -related reforms as "technology protects," thus to be delegated to technology managers The focus is too often on reducing technology costs, not on using technology for net -positive contributions to mission and strategy NYCHA has addressed these problems by defining decision processes along with related rights and responsibilities NYCHA IT protect and portfolio governance begins at protect initiation (before most governments begin thinking about protect management) and extends through planning, execution, protect close-out, and ongoing supporUmaintenance NYCHA not only defines decision processes in detail, it provides technology -based tools and templates to help in making those processes operational NYCHA frequently assigns business unit directors as protect managers (when the primary challenges are organizational rather than technological) and requires protect initiators to gain support from an appropriate higher -level executive as protect sponsor Learn more about approaches to governance and protect management at www 3ecompass net/public/ITGovernance The above guidelines for back -office transformation will, unfortunately, not guarantee success Real -world work is too difficult for that Following the guidelines, however, should definitely improve your odds Experience in both the private and public sectors is emerging to help with the next wave of change Transforming the Back -Office Why and How ju — Table 2 — Back -office transformation Guidelines from emerging experience 1 Leverage economies of specialization and scale 2 Prepare for possible privatization 3 Prepare for equity and transparency 4 Commit to back -office reforms as organizational change protects 5 Negotiate and manage good service level agreements 6 Reinvest for continuing innovation 7 Develop governance structures for IT -related investments Success requires early preparation and sustained commttmentttt Conclusion: Leadership for the Next Wave of Change Leaders in government are shifting focus with technology applications To date they have used e- services to transform many direct interactions between government workers and the public The result has been "online, not in line" government on an "anytime, anywhere" basis Meanwhile, back -office production has been relatively untouched Until recently Moving to transform the rest of the value chain is what's up next Compared to the past, the changes required for back -office transformation will involve more people, with greater disruption of job content and relationships Serious organizational learning will be required Leadership will not primarily be technical in the sense of applying previously developed solutions Leaders instead must promote adaptive change, helping workers develop new solutions and learn new roles In this process, leaders must help their followers cope with loss, or at least with the fear of loss Ominously, back -office transformation represents another wave of change that simply must be mastered Jobs are moving to new locations around the globe, and local producers can't afford much government inefficiency without becoming uncompetitive Transforming the Back -Office Why and How 17 But the threat can be mastered We have succeeded with earlier transformations in the division of labor, adapting to dramatic improvements in transportation and communication The new wave of change will be different, of course, but many of the leadership lessons will apply We can learn much by paying close attention to those at the front of the wave At the eC3 symposium we tried to do this We examined emerging practice to develop workable guidelines for those preparing to take the next steps ahead We hope you find these guidelines useful Transforming the Back -Office Why and How 18 Attachment A: Symposium Participants Name PK Agarwal Denise Blair Cornelia Chebinou Dan Combs Glen B Gainer, III Helene Heller Neal Hutchko Gopal Khanna William Kilmartin Elaine Marshall Jerry Mechling Mike Moore Aris Pappas Clark Partridge Kinney Poynter Jeff Rosengard Jan Sylvis JD Williams Tim Young Organization Chief Technology Officer, California Assistant Deputy Director, Infrastructure Branch, Information Systems Division, Department of Motor Vehicles, California Washington Office Director, NASACT President and CEO, Global Identity Solutions LLC State Auditor, West Virgma Senior Advisor, NYC Department for the Aging Policy Analyst, NASACT Chief Information Officer, Minnesota Strategic Alliance Director, Accenture Secretary of State, North Carolina Lecturer in Public Policy, Kennedy School of Government, Harvard University Chief Information Officer, County of San Diego Senior Director, Microsoft Institute for Advanced Technology in Governments State Comptroller, State of Arizona Executive Director, NASACT Senior Vice President, The Hackett Group Chief of Accounts, State of Tennessee Vice President of Application Solutions — State and Local Government, Oracle Associate Administrator of E-Government and I T , U S Office of Management and Budget Transforming the Back -Office Why and How 19 Attachment B: Published Resources Traditional Publications Lynda Applegate, Robert Austin, F Warren McFarlan, Corporate Information Strategy and Management (McGraw Hill, 2006) Thomas H Davenport, Process Innovation Reengfneenng Work through Information Technology (Harvard Business School Press, 1993) Stephen Goldsmith, William D Eggers, Governing by Network (Brookings 2004) Richard A Caralli, Managing for Enterprise Security (CMU/Software Engineering Institute Technical Note 2204-TN-046, 2004) Michael Barzelay, Breaking Through Bureacracy (University of California Press 1992) Industry Sources Accenture, Shared Services Performance Measurement and KPIs Accenture, Successful Shared Services Environments In Govemment AT Kearney, Shared Services in Government AT Kearney, Success through Shared Services Booz Allen, Shared Services - Real Value or Fad Gartner, Implementing Successful Shared Services to Government Gartner, What Every IT Leader Should Know About Shared Services Gartner, Enterprise Architecture and Shared Services Research Agenda Mercer, Shared Services Case Studies Transforming the Back -Office Why and How 21 The People • PK Agarwal, California Dept of Technology • Denise Blair, California DMV • Cornelia Chebinou, NASACT • Dan Combs, Global Identity Solutions • Glen Gainer, State Auditor, West Virgnia • Helene Heller, NYC Department for the Aging • Neal Hutchko, NASACT • Gopal Khanna, Minnesota C.1.0 • William Kilmartin, Accenture _ Elaine Marshall, Secretary of.State; North Carolina_ _- ==- -Jerry-Meefiling; 'Harvard--Universify�_--�' m=�4w-== Kirney�Pc =Jeff-Rosei t 2 How? nt-hisi6n's -3,m,C- t.is:.i,+�^x:t ar`n eau""F n'�`ryuBr`a7 =I £' 3=a`�r.w `�''}{� r`yS`ir'vr rh iAtI.SY'a=. y�1, 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