Unraveling the difficulties of implementing and operating a public SSC

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1 Unraveling the difficulties of implementing and operating a public SSC Case study towards the effect of governance on the perceived performance of shared service centers in the public sector August 28 th, 2014

2 Disclaimer: This document is based on information from the sources as listed in the bibliography and gathered by means of semi-structured interviews. Although the information gathered during the interviews is verified with the interviewees, unless otherwise noted, there can be differences in the interpretation of that information. The copyright of this document rests with the author. Delft University of Technology is not responsible for any statements made in this document and only responsible for educational coaching and grading of this document from a scientific perspective. KPMG Management Consulting is only responsible for the practical guidance during the graduation period. Both Delft University of Technology as KPMG Management Consulting cannot held responsible for the content of this document. 2

3 Author: E. (Erik) van Zeijl BSc. Master Systems Engineering, Policy Analysis and Management (SEPAM) Graduation chair: Prof.mr.dr. J.A. (Hans) de Bruijn Section Policy, Organization, Law and Gaming (POLG) Faculty Technology, Policy and Management Delft University of Technology 1 st supervisor: Dr. H.G. (Haiko) van der Voort Section Policy, Organization, Law and Gaming (POLG) Faculty Technology, Policy and Management Delft University of Technology 2 nd supervisor: Prof.dr.ir. M.F.W.H.A. (Marijn) Janssen Section Information and Communication Technology (ICT) Faculty Technology, Policy and Management Delft University of Technology External supervisor: Drs. M.J. (Michiel) Aalders MPIM Section Public Sector Advisory KPMG Management Consulting August 28 th,

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5 Acknowledgements You are currently starting to read my final deliverable for completing the System Engineering, Policy Analysis and Management master track at Delft University of Technology. This is the result of many hours of hard work. The challenging work environment at KPMG kept me up and running which helped me to overcome the significant extra time necessary to document information from the interviews and verify that information with the interviewees. First of all I would like to thank dr. Haiko van der Voort, my first supervisor, for his valuable insights and practical guidance from the first meeting till the end of my project. I would alike to thank Marijn Janssen for his sharp questions regarding my thesis. I would also like to thank fellow students for their interest in my graduation project and asking questions about it. Secondly I would like to thank KPMG for giving me the opportunity to experience the consultancy world and KPMG as a company. I experienced KPMG as a professional organization with dedicated professionals. During my graduation project I gained lots of valuable insights from the lange mannen overleg. Special thanks for my supervisor from KPMG Michiel Aalders for keeping me on track and stimulating me to bring my thesis to the next level. Next to that I would like to thank Alexander Raaijmakers for giving me the opportunity to visit Poland and experience the SSC and BPO sector. Third I would like to thank all the interviewees that participated in this project. They gave me valuable insights in their specific situation. I experienced a lot of dedicated people that are willing to make their situation a success. I hope my thesis can help them bringing that success one step closer. Finally I would like to thank my family for their support during my graduation. Special thanks for Eileen van Galen for giving me the freedom to perform the best I could in the given timeframe. She encouraged me to keep going during the final phase of the project. I am pleased to see that I have kept your attention till the end of the first page and I am pleased to say that the pages ahead are even more interesting to read. Thanks for everybody interesting in reading my thesis and enjoy reading it! Erik van Zeijl Delft, August 28 th,

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7 Management summary The increasing pressure on government budget combined with the increasing pressure of society on delivering products and services more efficiently causes more and more government organizations to implement shared service centers (SSCs). Shared services extract business processes from the standing organizations to reduce operational cost and/or improve the quality of products and services as main driver. The establishment and operations of shared services is highly complex, while there are many stakeholders with conflicting interests. The current body-of-knowledge regarding shared services is mainly researched from an economic theory perspective and focused on the private sector. Research focused on the private sector is difficult to transpose to the public sector while there are many differences between those sectors (e.g. dominance position, influence of politics, and different goals and objectives). This research focuses on expanding and improving the current body-of-knowledge regarding public shared services. Public SSCs experience (1) higher operational costs than projected in the business cases, (2) lower quality than expected by the standing organization, and (3) a negative attitude by the standing organization regarding the implementation and operation of the SSC. This research tries to obtain insights and understanding of the effect of governance on the perceived performance of public SSCs. This research objective is achieved by answering the following main research question: What is the effect of governance on the perceived performance of public shared service centers? Literature demonstrates that governance is a broad concept covering a wide variety of aspects. The experience of KPMG consultants is used to get direction in aspects of governance that are likely to have significant effect on the perceived performance of public SSCs. Governance refers to all processes of governing, whether undertaken by a government, market, or network, whether over a family, tribe, formal or informal organization, or territory, and whether through laws, norms, power, or language. Governance differs from government in that it focuses less on the state and its institutions and more on social practices and activities (Bevir, 2013). In this research governance is operationalized in (1) organizational culture, (2) control mechanisms, and (3) roles and responsibilities. This operationalization is determined to cover every possible factor that has a possible effect on the perceived performance. The organizational culture covers the aspects that are not formally described in the formal governance structure. The control mechanisms are mainly related to the formal governance, whereas the roles and responsibilities are the interpretation of the formal governance (role clarity and consistency). The research methodology consists of three aspects. A literature review is conducted to get a good overview of the current body of knowledge and to be able to construct the research framework. Secondly, sixteen semi-structured interviews are conducted with the three most important positions within the system, namely the SSC, corporate control 7 Public sector SSCs National Service Center Jurisdiction (LDCR), Services Organization of the Public Prosecutor Service (DVOM), and Het Waterschapshuis (HWH). Private sector SSCs Heineken, Technicolor, Oriflame, Amer Sports, Delphi and UBS.

8 and standing organization. To exclude effects from the transition phase cases are selected based on their year of establishment. Analyses are made both within cases as between cases. Thirdly, a site visit to Poland is conducted to analyze the differences between the public and private sector. The information gathered during the visit can be used to analyze if findings for the three cases also apply for the private sector. This research approach provides a rich perspective regarding public shared services. Research findings: The high complexity of implementing a public SSC Research analyses were made based on the research framework. This resulted in several findings regarding the research variables that were within the demarcation, but also on aspects that were considered to have little effect. The impact of the transition lasts longer than expected Prior to the data collection the assumption is made that cases that are currently in the transition phase are excluded to reduce complexity. However every case demonstrates that the transition phase has an impact that lasts longer than expected. The standing organization was, and is, hesitant regarding the implementation of shared services. They acknowledged the fact that the system will change, hereby the transition phase is the first possibility for the standing organization to experience the new situation. This first impression had a high impact on the attitude and willingness to change of the standing organization. Cost reduction is the main driver behind the implementation of public SSCs. In most cases quality improvements is stated as a goal to increase support for the establishment. Business cases demonstrate that a multi-functional SSC has the largest savings potential. In combination with the eagerness of the new SSC organization in acquiring as much processes as possible decision makers opt for the multifunctional SSC alternative. With the new multi-functional SSC that is established the main focus of the corporate control is on the SSC. It is expected that the highest savings are achieved by focusing on the SSC. The assistance for and focus on the standing organization is limited, although they need to change just like the SSC. The cultural impact on likeliness to succeed The organizational culture effects the entire organization. The sum of beliefs, expectations, norms and values shared by most employees in a company (Cerovic, Kvasic, & Cerovic, 2011) effects not just the way people interact, but also the institutionalization of control mechanisms and interpretation of roles and responsibilities. Several respondents mention that the reputation of an official is determined by the budget and number of employees under their (direct) responsibilities. This has an effect on the number of forums that are institutionalized, while everybody wants to have a voice in decision making and bear some responsibility. One of the cases demonstrate a reconciliation culture in which key stakeholders are unwilling to cooperate if they were not consulted in advance. Unequivocal dominance causes key stakeholders to have such a high level of autonomy whereby they cannot be forced to change their processes. 8

9 An abundance of forums and mechanisms The three public SSCs demonstrate an abundance of forums and mechanisms. According to the respondents these forums and mechanisms are all necessary to function properly, but also have an effect on the role clarity and consistency. Stakeholders have difficulty in defining the same system. On paper the savings potential is tremendous and can be achieved by the mechanisms that are institutionalized. The mechanisms that are in place are the result of a negotiation between the stakeholders. Whereas nobody wants to lose their voice in the decision making process, the creation of an additional forum is a mean to accommodate that criticism. Complexity of mechanisms increase, while the function remain the same. Reduce complexity if possible The establishment of a SSC has significant impact on the entire organization. Roles and responsibilities will change. The standing organization is accustomed to the as is situation. There is no need for extensive documentation regarding roles and responsibilities. On the other hand the control and SSC want to structure the organization. Roles and responsibilities are formalized and the organization starts to shift to a highly bureaucratic organization. This movement creates friction among stakeholders. Recommendations: The ideal implementation and operation of a public SSC Based on the findings from the cases five recommendations are made regarding the implementation and operation of a public SSC. Put your money where your mouth is The perceived performance is already effected prior to the transition by the expectations that are created. If the corporate control states that one of the main objectives of the SSC is improving the quality of products and services, it must take actions to improve the quality. Manage the eagerness of the SSC Changes in the organization create both opportunities and threats. The SSC experiences the establishment as an opportunity, while the standing organization sees the establishment as a threat. The SSC is hereby eager to acquire as much processes as possible. The corporate control needs to make proper considerations regarding the processes that are being transferred to the SSC and the processes that remain at the standing organization. The SSC capacity and capabilities need to match the workload, but also the expectations by the standing organization to make a good first impression. Align two worlds The corporate control has to focus on aligning the SSC and standing organization. There are several difficulties for the control. There are different ways of thinking by the SSC and standing organization. There will be discussion about the level of specificity, processes, mechanisms, performance, and many other aspects. It is put to the corporate control to maintain a cooperative organizational culture. 9

10 Centralize dominance position Unequivocal dominance is a phenomena that increases the difficulty of controlling public organizations. Currently the control does not have the means to enforce regulations. The decentralized (sub)organizations have sufficient autonomy to neglect corporate strategy. It is preferred that co-decisions are made, but in case stakeholders do not act according to formal agreements the control needs to have sufficient means to enforce compliance. Reduce complexity to increase efficiency This research demonstrates that there is an abundance of forums and mechanisms institutionalized that not all have a direct function. This abundance increases complexity and reduces role clarity. Stakeholders find difficulties in the interpretation of roles and responsibilities. Reducing this complexity creates a simpler system that is understood by stakeholders. The focus of successfully implementing and operating a SSC must be on change management. Change management need to have a prominent place during and prior to the transition. The framework below is developed for organizations to start a discussion among stakeholders, and give clarity regarding their role in the new situation. Corporate control SSC Standing organization Organizational culture - Convey vision and mission - Centralize dominance position - Intermediate between SSC and standing organization - Customer oriented organization - Acquire process if they deliver the expected quality - Stick to the agreement - Contribute to mission and vision Control mechanisms - Alignment between SSC and standing organization - Control based on cost and quality - Product- service catalogue - Ensure connection with the standing organization - Actively use feedback from standing organization - Organize demand explicitation - Structered escalation - Provide sufficient feedback Roles and responsibilities - Determine policy - Control based on performance - Define baseline standardization - Deliver in accordance with agreements - Act according to roles and responsibilities Figure 1: Governance framework The formal decision of establishing a SSC is in most cases based on a positive business case demonstrating high savings potential. The standing organization is convinced by the corporate control that the SSC reduces operational cost and increases quality. This creates high expectations by the standing organization. Change management is of utmost importance and key stakeholders need to have the right mindset. This framework is a support tool for organizations to start a discussion among stakeholders and creates food for thought. The framework gives stakeholders an indication on how to act in the new situation. In this framework both findings from the cases, as recommendations are incorporated to support organizations in their journey towards successful shared services. 10

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13 Contents Acknowledgements... 5 Management summary... 7 Table of figures Terms and definitions Introduction Problem analysis Report outline Research design Research objective Research question Explorative research approach Literature research Semi-structured interviews Relevance Shared service centers History of shared services Motives, drivers and success factors Shared service center vs. outsourcing Transition Governance Operating model Organizational structure Organizational culture Control mechanisms Professionalism Roles & responsibilities Measuring performance Public vs. private shared service centers The Global Business Service journey Research framework Case study design Selection criteria cases Cases National Service Center Jurisdiction (LDCR) Service Organization of the Public Prosecutor Service (DVOM) Het Waterschapshuis (HWH)

14 Poland site visit Semi-structured interview Results and analysis Main results interviews LDCR DVOM HWH Analysis Live up to expectations The need for functional mechanisms Change the mindset to reap benefits The consideration between low and high specificity Improving performance Verification findings Shared services centers in Poland Verification Conclusions and recommendations for future research Ideal implementation and operations of a public SSC from a control perspective Shared services is beneficial for everybody, but especially the SSC No need for changing a good process according to the standing organization Why do public organizations deviate from ideal? Public SSC frameworks Limitations Scientific contribution and future research Reflection Bibliography Appendix I: Scientific article Appendix II: Semi-structured interview Appendix III: Schedule Poland visit Appendix IV: Interview reports LDCR DVOM HWH

15 Table of figures Figure 1: Governance framework Figure 2: Report outline Figure 3: Evolution of positioning of business services (University of Michigan, 2013) Figure 4: Portfolio purchasing model Figure 5: Transition strategies Figure 6: Operating models Figure 7: Positions within organization structure (adapted from Janssen & Joha, 2006, and Strikwerda, 2010) Figure 8: GBS Journey model Figure 9: Research framework Figure 10: Case selection Figure 11: Overview LDCR Figure 12: Former overview DVOM Figure 13: Current overview DVOM Figure 14: i-managers made decisions regarding project specification and budget Figure 15: Overview HWH Figure 16: Heineken's hybrid sourcing model Figure 17: Delphi's GBS locations Figure 18: Oriflame process improvement Figure 19: Differences in the GBS journey of public and private organizations Figure 20: High level SSC framework Figure 21: Governance framework

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17 Terms and definitions Governance: Governance refers to all processes of governing, whether undertaken by a government, market, or network, whether over a family, tribe, formal or informal organization, or territory, and whether through laws, norms, power, or language. Governance differs from government in that it focuses less on the state and its institutions and more on social practices and activities (Bevir, 2013). Governance structure: Organizational culture: Performance management: Professionalism: Role clarity: Shared services: The hierarchy of committees, boards, bodies, or forums that execute the management of, and oversee the delivery of, the products and/or services of the shared service organization (SSO) (Grant, McKnight, Uruthirapathy, & Brown, 2007). The sum of beliefs, expectations, norms and values shared by most employees in a company (Cerovic, Kvasic, & Cerovic, 2011). A continuous process of identifying, measuring, and developing the performance of individuals and teams and aligning performance with the strategic goals of the organization (Aguinis, 2009). The understanding of goals, objectives and functions of related organizations and departments, the ability of organizations to cope with external adaptation and internal integration, awareness of its position and function in a larger network of actors, and ability to exploit new ideas into customer value. Individuals beliefs about the expectations and behaviors associated with their work role (Kahn, Wolfe, Quinn, Snoek, & Rosenthal, 1964). Shared services is a collaborative strategy in which a subset of existing business functions are concentrated into a new, semiautonomous business unit that has a management structure designed to promote efficiency, value generation, cost savings, and improved service for the internal customers of the parent corporation, like a business competing in the open market (Bergeron, 2003). 17

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19 1. Introduction The Dutch government announced an additional budget cut of 6 billion euro in 2014 (Vries, 2013). On the other hand the service level of the Dutch government is not meeting the expectations of both citizens as politicians (TNS NIPO, 2013). An often heard argument for countering both aspects is the shared services model (EY, 2013). Shared services is the consolidation of similar business function in a (semi-) autonomous business unit (Bergeron, 2003). There is no real point in history from which men can state that they introduced the first shared service center (SSC). Shared services is the result from a constant need to improve businesses. Businesses need to improve their quality and reduce their cost. After standardization and centralization companies started to create autonomous business units that need to reduce the overall cost of the organization for a certain processes, in most cases a transactional process. The shared services concept is mainly efficiency driven, in a majority of cases the governance is neglected. Since 2000 some public organizations established a SSC, or at least it had some characteristics of a SSC (e.g. ISZF, CDC, P-direkt). This trend has continued over the past decade, with the introduction of more and more SSCs in the public sector. The last years public organizations are not focused on single function SSCs, but mainly on multi-functional SSCs. Consolidating multiple business functions in one center can generate the highest possible efficiency gains, but also increases the complexity of managing the operations Problem analysis This research focuses on the Dutch public sector. The perception of KPMG is that the performance of public SSCs is lacking, and that there are many factors influencing the performance that are not researched sufficiently. Vital questions for successfully operating a public SSC are still unanswered. The first observation is that the cost reductions calculated in the business case are not achieved. The operational cost of the SSC are higher than expected. Secondly the service level is lower than proposed in the business case, and experienced to be insufficient. Thirdly the culture and attitude of stakeholders is negatively affected by the establishment of a SSC. Higher cost, lower quality, and negative effect on culture are three things that are not preferred. It is uncertain if these observations can be explained by underperformance of the SSCs, or expectations that are too high. The majority of available literature is based on private sector SSCs. There are differences between the public and private sector (de Bruijn, Wagenaar, van der Voort, & van Wendel de Joode, 2004; Maat, Pilon, Tuinder, & de Wit, 2004; Ministerie van BZK, 2005). Although there are differences between the public and private sector, the research regarding public SSCs is limited. In many cases public organizations have different goals and objectives than private organizations. However the governmental organizations increasingly look like businesses. Currently public organization begin to feel the pressure of delivering more service with the same means, or the same service with less means. The shared services concept seems a good alternative for countering this problem. However public organizations are unable to reap the benefits from SSCs. 19

20 1.2. Report outline In the second chapter the research design is elaborated. This covers the main research question, but also the research approach and relevance of this research are discussed. In chapter three a literature review is executed to describe the current state-of-art of SSCs. The fourth chapter describes the case study design. Based on the literature review a theoretical framework is developed that is used in this research. Also the cases used in this research are described in chapter four. The fifth chapter gives a clear overview of the information gathered in the interviews. Also analyses are made to analyze the impact of the three research variables on the perceived performance. In the seventh chapter conclusions, recommendation, limitations of this research and possibilities for future research are presented. Figure 2 displays the various steps that are conducted during the research project. This entails the research goal, during what research phase and with what method, and the thesis structure. 20

21 Desk research Field research Desk research Research analysis Research phase Thesis structure Formalizing research project 1. Introduction 2. Research design Background information Literature study 3. Literature review Relation shared service center, principal and internal customer, and performance of public SSCs Semi-structured interviews/case studies 4. Case study design 4.2. Cases (data collection) Synthesis of data collected during interviews 5. Results and analysis 6. Comparison public and private SSCs Finalizing research project 7. Conclusions and recommendations Figure 2: Report outline 21

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23 2. Research design This chapter describes the research design. The current body-of-knowledge has knowledge gaps of which this research tries to fill one. The main research question is given, followed by the approach for answering the main research question. Social and scientific relevance is made explicit in the final section Research objective As the first chapter clearly demonstrates there is a movement within the government to implement multi-functional shared services centers (SSCs), but vital questions are still unanswered. The governance of SSCs is highly complex because of many reasons. One of them is the interdependencies between actors. The shared services concept is main driven from an organizational efficiency perspective, while many departments are reviewed based on their own performance. The performance of public SSCs is lacking. Governance is considered to be a factor that has significant impact on the perceived performance. However the research covering the impact of governance on performance is only limited. Based on the current knowledge gaps regarding public SSCs the following research objective is formulated: This research tries to obtain insights and understanding of the effect of governance on the perceived performance of public SSCs Research question The problem statement clearly demonstrates the need for research regarding relations between stakeholders that are involved with shared services. Based on that problem statement the following research question is defined: What is the effect of governance on the perceived performance of public shared service centers? Governance is a broad concept that covers a wide variety of aspects. It is hereby the research area is delineated in order to execute the research within the time span of eighteen weeks. Based on findings from both the literature review and experiences of senior KPMG consultants the following variables are considered to be both an operationalization of governance and have significant impact on the perceived performance of public SSCs: Culture The sum of beliefs, expectations, norms and values shared by most employees in a company (Cerovic, Kvasic, & Cerovic, 2011). Mechanisms A set of formal and informal governance mechanisms that are used for effective and transparent corporate-, business- and IT-governance in terms of management control, assurance and behavior. Role clarity and consistency 23

24 Individuals beliefs about the expectations and behaviors associated with their work role (Kahn, Wolfe, Quinn, Snoek, & Rosenthal, 1964). The three variables represent different aspects of governance. Culture can be seen as the informal governance, mechanism as the structure of the organization, and role clarity and consistency as the interpretation of the formal structure. In chapter 3 it is elaborated upon the link between these variables and the governance Explorative research approach Answering the main research question requires explorative research. This research is explorative because it researches a relation between variables that is currently unknown. This research tries to provide explanations on the impacts of certain variables on the perceived performance. The focus is hereby mainly on a qualitative assessment of these relations. This can low or high impact, and positive or negative. There is currently little information regarding these relations. A literature review is conducted to develop a research framework. Semi-structured interviews will are conducted to gather specific information regarding the relations Literature research The state-of-art of SSCs is found by conducting a literature study. The most important information for further analyses is collected. The literature study does not solely entail scientific articles, but also newspaper, websites and reports. It is recognized that a lot of information is irrelevant for the research and the literature study will demand a lot of energy. For finding scientific articles databases of Science Direct, Scopus, Web of Knowledge and Google Scholar are used. The outcome of the literature review forms the theoretical foundation of the research Semi-structured interviews Interviewing stakeholders forms the main research component of the research project. The focus of this research is on the SSC. There are four types of stakeholders that are interviewed during the research project. The first is the owner of the SSC. The owner determined to establish a SSC and can be the superior of the SSC according to the organizational structure. The second stakeholder is the management of the SSC. The management is formally accountable for the performance of SSC. The third stakeholder are people from the operational layer of the SSC. The ones that provide the service or product to the customers of the SSC. The fourth stakeholders are customers of the SSC. Semi-structured interviews have several strengths and weaknesses (Newton, 2010). But are also well suited for gaining insights and understanding of relations (Gillham, 2000) Relevance This research has a high societal relevance. In general the image of the public sector is being too expensive to inefficient (Jacobs, 2008; Boonstra, 2013). This research can help public agencies to get a better understanding of SSCs and thereby sustain or improve their customer service level at lower cost. But more important is that in the current situation vital questions are still unanswered while public 24

25 organizations are implementing, or planning to implement, shared services. It is reckoned by KPMG consultants that public entities are currently struggling with the governance of SSCs. In combination with the goal of many public organizations to establish a multi-functional SSC can have huge negative impacts on society. Secondly this research is relevant for KPMG. Delivering excellent professional services is of key importance for a management consultancy firm. Having a better understanding of public SSCs can increase their level of service. Thirdly, this research contributes to the limited body of research on public SSCs. The research uses stateof-art research in the theoretical foundation. This can be used as a good document to get a clear view on the current state-of-art of shared services. Delft University of Technology can use the knowledge from this research to improve the curriculum taught at the university. Next to that organizations can use this research as supporting material in the decision-making process related to the introduction of a SSC. 25

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27 3. Shared service centers In this chapter the focus is on the theoretical perspective on shared services. Various subjects are discussed as motives, drivers and success factors, but also the difference compared to outsourcing and the difference between public and private SSCs. The different aspects of governance are presented. Performance management is important to determine the performance of organization. The overview of various aspects of governance and the shared services concept results in a research framework History of shared services In shared service centers (SSCs) similar business functions are extracted from business units and consolidated in a separate and accountable (semi-)autonomous business unit or organization (Bergeron, 2003; Janssen & Joha, 2006). Decades ago many organizations were decentralized. There were many autonomous departments with the focus on responsiveness. Although departments were part of the same organization they organized their processes differently. Decentralization facilitates diversification of products and growth. This can be experienced very positively for some business functions, but for transactional processes there is no need for a diversification of products. A disadvantage of decentralization is that organizations were unable to compare various departments. The need for comparability caused organization to standardize their transactional processes. Top executives were able to compare performances of departments. However there were still only limited number of performance indicators institutionalized. To cut overhead organizations started to not only standardize, but also centralize business processes. The focus was mainly on efficiency and control. Single departments remained on site to perform a specific function. The step after centralization is the establishment of a SSC. As mentioned earlier, SSCs are the (semi- )autonomous business units or organizations. The relation between the SSC and departments differs from the centralized model that there is a client-provider relationship. The SSC has an own shop of products and services. The customers of SSC are departments within the same organization. The movement from the decentralized model towards the shared services model is displayed in figure 3. Figure 3: Evolution of positioning of business services (University of Michigan, 2013) Although it states that shared services is the next step after centralization there are huge differences between those two concepts. Where centralization activities are both physically as functionally 27

28 centralized, shared services consolidate activities nor functionally. With functionally the formal centralization, thus accountability, is meant. Although in many cases this also causes a physical centralization (Scully, Schuler, & Frisby, 2013), it is not a necessity. A second notion is that it may seem that the figure above is a sort of timeline on which organization move towards the right, it is not. Historically organizations are constantly moving back and forth between decentralization and centralization/consolidation (Legare & Bechtel, 2001; Gospel & Sako, 2010) Motives, drivers and success factors The establishment of a SSC can have many different motives. In a majority of cases reduction of operational cost is mentioned as the main driver, and thus motive, behind the establishment of a SSC (Burns & Yeaton, 2008; Sungard, 2010; Fersht, Filippone, Aird, & Sappenfield, 2011; Australian Institute of Management, 2012; EY, 2013). Cost reduction is seen as a defensive goal. Improvement of level of service against the same cost is an offensive goal. By improving the level of service organizations can improve their competitive advantage. Next to cost reduction also higher efficiency, meeting compliance/regulatory requirements, higher quality of service, transform/re-engineer processes, reduce redundancy, standardization and economies of scale are often heard drivers of implementing SSCs at public agencies (Burns & Yeaton, 2008; Fersht, Filippone, Aird, & Sappenfield, 2011; Borman & Janssen, 2012). These motives can be categorized and extended to a large list of strategic (and organizational), political, technical and economic motives (Baldwin, Irani, & Love, 2001; Janssen & Joha, 2006). Here it can be seen that the majority of reasons is strategic and/or organizational. Focusing on cost reduction does not make the implementation of a SSC a success. There is lots of research towards critical success factors (CSFs) of SSCs (Institute of Management Accounts, 2000; Walsh, McGregor-Lowndes, & Newton, 2006; Burns & Yeaton, 2008; Sungard, 2010; Miskon, Bandara, Gable, & Fielt, 2011; KPMG, 2012; Bowden-Hall, 2012). The enumeration of these CSFs is likely to be more than 100 different CSFs. This is mainly because of scoping of the research, number of cases used in the research and focus of the research. Almost every research gives different names to certain findings, there are two aspects that are present in every enumeration. Communication and top level support is considered of utmost importance for successfully implementing and operating a SSC. Communication is considered to be more important during implementation, while top level support is constantly an important factor. After implementation there are still several CSFs that can make or break the success of SSCs. Important factors are the monitoring and managing of costs, accountability issues, use of service level agreements and performance accountability (Walsh, McGregor-Lowndes, & Newton, 2006). These four CSFs suggest that there is a need for a performance management system (PMS) and clear embedding of the SSC in organizational institutions. The main motives and success factors are enumerated in the table below. 28

29 Low Profit impact High Motive Cost reduction Quality improvement Higher efficiency Meeting compliance/regulatory requirements Transform/re-engineer processes Reduce redundancy Critical success factors Communication Top level support Monitoring and managing costs Accountability issues Use of service level agreements Performance accountability 3.3. Shared service center vs. outsourcing The shared services model is an organizational model that competes with outsourcing of business processes. Organizations can determine to establish a hybrid model in which the best of both shared services as outsourcing can be implemented. Arnold (2000) combined the perspectives of transaction cost economics and the core competencies concept to determine the right choice between the shared services model and outsourcing. The level of specificity (Williamson, 1989) and focus on core competences (Kruger & Homp, 1997) influence this decision significantly. The shared services model is more suited than outsourcing in case of higher specificity, hereby the transactional cost will be lower, and strategic importance. The portfolio purchasing model of Kraljic (1983) can be used to determine the right alternative. This model differentiates products and services based on profit impact and supply risk. Products and/or services with a low profit impact and low supply risk are more suitable for outsourcing than products and/or services with high profit impact and high supply risk. In light of the decision between the shared services model and outsourcing the supply risk is dominant in the decision. A schematic overview of the decision level based on the categorization according to the portfolio purchasing model is given in figure 4. Leverage products (medium level) Strategic products (top level) Low Supply risk High Routine products (low level) Bottleneck products (high level) Figure 4: Portfolio purchasing model According to Arnold (2000) the focus of outsourcing is on processes that have low supply risk. The shared services model is more suited for processes that have high supply risk. The starting point in 29

30 outsourcing is the contract, or SLA (Carmel & Tjia, 2005), while the focus of shared services is more from an organizational perspective. The transactional cost of outsourcing are hereby higher compared to shared services. There are three principles of outsourcing governance that are important (Carmel & Tjia, 2005): 1) Need for communication channels; 2) Relationship management; 3) Need for constant reporting. Although these three principles make sense on first sight there are some implications. The first two principles are in line with each other. By means of communication channels the quality of the relationship can be improved, and by means of relationship management the commitment of both parties increases. Trust will eventually influence the quality of the relationship. However the need for constant reporting implies that there is no trust between the organizations. The trust paradox applies on this point. Compared to the shared services model these three principles are similar. The degree of application can differ because of the relationship between actors. There is already some level of trust between the SSC and organizations before the processes are executed by the SSC. A specific public sector factor is the political arena in which organizations are acting. Although privatization can have a positive effect on profit (Eichholtz & Ouwerkerk, 2006) and technical efficiency (Peeters, 2005) it is not always the primary driver behind organizations. An example of that is the debate covering the employment status of cleaning staff at governmental organizations (Dikkenberg, 2013). In this situation the government decided to establish a governmental cleaning service that will execute the same activities that currently are done by a private organization. The cost of cleaning governmental properties will rise compared to the current situation. However the employment status of the cleaning staff will improve. They will get better conditions of employment which the government, and thus society, will pay for. It is arguable that this measure is the outcome from negotiations between the political parties that form the government. Although the shared services concept is mainly based on economic theory, such decisions are definitely not Transition Chapter 3.2 demonstrates that communication and top level commitment are of utmost importance for successfully implementing a SSC. The transition phase is highly complex and can follow different strategies. There is a strategy needed for improving the processes, but also a strategy for the duration of the transition phase. As mentioned earlier the goal of a SSC is in many cases both cost reduction as quality improvement. Cost reductions can be achieved by centralizing operations, move. Quality improvements can be achieved by improving the processes, improve. According to KPMG the physical centralization of operations can reduce the cost with 10%. From a cost perspective centralizing processes as quickly as possible seems legit. To have the largest savings potential organizations need to centralize the processes as quickly as possible, so organization will follow the move & improve strategy. 30

31 Optimalization improve & move If quality improvement is one of the goals of the SSC the processes need to be improvement. This improvement of the processes can occur decentralized. Choosing for decentralized improvement can have an effect on the savings potential and transition time. If processes are uniform and standardized, the standing organizations experienced the service level that they can expected in the new situation. This strategy is the improve & move strategy. move & improve Local Shared services Figure 5: Transition strategies Next to the choice between move & improve and improve & move organizations need to determine a timeframe in which the transition will be final. There are two commonly used strategies. The first is a big-bang. The second a phased approach. From a cost perspective a big-bang is more beneficial than a gradual transition. The phased, relatively slow, approach can increase the support for the transition. The various strategies can be summarized in the following table. transition strategy Move & Improve Improve & Move Big bang Maximize savings potential Decrease consolidation efforts Phased approach Increase support Increase support and decrease consolidation efforts 3.5. Governance The governance of SSCs ensures that (1) there is agreement on what needs to be done, (2) everyone acts as planned, and (3) SSC operations stays fit for purpose as the organization demands change and improvements (Herbert & Lu, 2013). Governance refers hereby to all processes of governing, whether undertaken by a government, market, or network, whether over a family, tribe, formal or informal organization, or territory, and whether through laws, norms, power, or language. Governance differs from government in that it focuses less on the state and its institutions and more on social practices and 31

32 activities (Bevir, 2013). Governance covers all aspects from the operating model till the attitude of employees. The following sections covers all aspects for the operating model, in which only the highlevel organization can be identified, till the roles and responsibilities, for which the low-level organization is described. Making the translation from high-level to low-level there are six categories identified: operating model, organizational structure, control mechanisms, culture, professionalism, and roles and responsibilities Operating model An operating model bridges the gap between the company s strategy and detailed organization design. In essence the operating model dictates where and how critical work gets done across a company (Cooper, Dhiri, & Root, 2012). The operating model gives no insights in the hierarchy within the organization. A survey conducted by PriceWaterhouseCoopers (2008) reveals that companies are adopting one of three shared services model. This differs from section 3.1 that there are multiple alternatives for organizing the operations of shared services. The following three operating models are commonly adopted: The centralized approach All business functions are placed into one center that is responsible for all departments of the organization. This operating model is considered to generate the most efficiency gains compared to the other operating models. The centers-of-excellence approach This operating model is focused on building expertise. Business function are placed into singlefunction SSCs. The focus of the centers is only on one business function. Hereby the internal rate of improvement is considered to be higher than multi-function SSCs. The regional clusters approach The first two operating model made a distinction based on business function, whereas this operating model uses demographic characteristics as input of the operating model. Both the centralized approach as the centers-of-excellence approach can be combined with this operating model. These operating models are schematically displayed in figure 6. 32

33 Centralized approach Centers-ofexcellence approach Regional clusters approach Multi function SSC Single function SSC Single function SSC Single or multi function SSC Single or multi function SSC Figure 6: Operating models The operating model that is determined has a high impact on further decisions regarding the governance Organizational structure The organizational structure can be seen as the hierarchy of committees, boards, bodies, or forums that execute the management of, and oversee the delivery of, the products and/or services of the shared service organization (SSO) (Grant, McKnight, Uruthirapathy, & Brown, 2007). The positioning of the SSC within the organizational structure gives an indication of its position within the governance structure. The shared services model is a concept that can be positioned between centralization and outsourcing. Strikwerda (2010) identified six possible positions of the SSC within the organizational structure. Although not all six alternatives can be marked as a SSC they are all mentioned. This demonstrates the gray areas that lies between shared services, outsourcing and centralization. The six alternatives are displayed in figure 7. 33

34 Principal Supporting staff Centralization (c) (50%) Shared Service Center (e) Business unit 1 Business unit 2 Business unit..n Shared Service Center (b) Outsourcing (f) Shared Service Center (d) Shared Service Center (a) Figure 7: Positions within organization structure (adapted from Janssen & Joha, 2006, and Strikwerda, 2010) Model A: SSC as an internal joint-venture The first model is an SSC established by means of an internal joint-venture. The SSC is established by multiple business units without interference of higher rankings. The business units that established the SSC finance the SSC from their supporting budget. In case the SSC results in cost reductions, the business units can use those savings for other purposes. According to Strikwerda (2010) this model is not implemented that often. A reason for choosing this model is to overcome resistance from other business units. The management of the SSC is likely to be less stable because there are many actors accountable and hereby the power of the SSC is scattered across the units. Model B: SSC as infrastructure The second model is a SSC as infrastructure. The SSC is managed as another business unit with the principal, or board of directors, determining the budget of the SSC. The SSC will provide the infrastructure for the other business units and hereby create a plug-and-play environment. In practice this organizational form is often used in the banking sector. In case of multiple functions, there are also multiple SSCs. Those SSC are aligned next to each other, hereby the organization will be organized as a matrix. Model C: SSC as supporting staff The third model is a form of centralization. It is hereby questionable if this can be marked as a SSC. According to Bergeron (2003) a SSC is a separate, (semi-)autonomous business unit or organization. In case of organizing the SSC as a supporting staff department it is questionable if this is a SSC. The cost of the SSC are distributed among departments based on activity based costing. For this model the 34

35 organization must be cautious for the fact that the SSC will be seen as a supporting staff department. In that case the relation between the SSC and departments will not be a client-provider relationship and the focus of the SSC will neither be on providing the best service towards their customers. This is caused by the ingress of the supporting staff culture (Strikwerda, 2010). Model D: SSC as a division within a business unit The fourth model is implemented in organization that have one dominant department in workload. In the past situation every department was responsible for their own processes, while in the new situation there is one department that specializes in executing certain processes. The relation between the SSC and the dominant department is the most important relation because that department is responsible for the main workload and hereby cost. The SSC, within the dominant department, can be used by other departments. This way efficiency gains can be achieved because there is no need for organizing the processes at every department. Model E: SSC as an external joint-venture The fifth model covers partnering with an external organization. The entire organization collaborates with an external organization. The external joint-venture can be seen as one party bringing in the expertise, and the other the workload. Both parties are responsible for the operations of the SSC. This can be the case for public-private-partnerships (PPP). The SSC as an external joint-venture can also be an inter-organizational SSC. Inter-organizational SSCs are more complex than captive SSCs. There are more actors involved and hereby more interests needs to be taken into account. Stakeholder management becomes more important. This also causes a higher likeliness of choosing the most moderate alternative compared to captive SSCs. Model F: Outsourcing The six model is outsourcing of business processes. This is the next step after the external joint-venture. The external organization is fully autonomous and accountable. Cases that outsource processes will not be selected based upon the high number of differences between shared services and outsourcing. In chapter 3.3 these differences are discussed together with their similarities Organizational culture Quality of the relationship has a significant impact on the perceived IT outsourcing success (Alborz, Seedon, & Scheepers, 2005). The quality of the relationship is influenced by (1) communication, (2) trust, (3) personal bonds, (4) commitment, (5) conflict resolution, (6) flexibility, (7) participation, (8) cooperativeness, (9) information sharing, and (10) listening (Sauer, 2014). The combination of these factors can also be considered as the organizational culture. There are many different definitions used for organizational culture (Schein, 1990; Kim, Lee, & Yu, 2004; Park, Ribiere, & Schulte Jr., 2004; Armstrong, 2006; Metnick & Wozniak, 2010). In this research organizational culture is defined as the sum of beliefs, expectations, norms and values shared by most employees in a company (Cerovic, Kvasic, & Cerovic, 2011). In addition, the definition of Abu-Jared et al. (2010) is used, that definition states that organizational culture refers to something that is holistic, historically determined (by 35

36 founders or leaders), related to things anthropologists study (like rituals and symbols), socially constructed (created and preserved by the group of people who together form the organization), soft, and difficult to change. Hereby the focus is on the fact that it is historically determined by founders or leaders, which implies that the quality of relations between the founder or leader with other organizations have a major impact on the quality of the relation in the future. Trust forms an important aspect of the organizational culture. Trust and control are both complements and substitutes (Nooteboom, 2010). Good relationships require the right mix of control and trust (Cox & Marriott, 2003). Complete trust is not advised, because where trust ends one need control. On the other hand complete control cannot be achieved, trust begins where control ends. While designing the relation it is important to consider the type of control. This can either be opportunity control, or incentive control (Nooteboom, 2012). Opportunity control limits the action space by either contracts (outside a relationship), or hierarchy (inside the relationship). As chapter demonstrates that contract has no enforceable value in the shared services model, this causes opportunity control to be less dominant outside a relationship. Incentive control shapes actions based on rewards. This may result in dependence inside relationships. Relational mechanisms are considered to be the mechanisms that has an indirect effect on the process. Organizational culture is an important aspect regarding shared services. Organizations that differ in many way are not likely to cooperate. This is the same for the social lives of people. People spend their spare time with people that represent the same norms and values. The culture is influenced by many factors. As the definition of Abu-Jared et al. (2010) demonstrates an important aspect is history. Next to that there are numerous factors influencing the culture. As mentioned earlier formal governance primarily relies on formal mechanisms (Yu & Liao, 2008; Li, Xie, Teo, & Peng, 2010). Relational mechanisms are more situation specific (Kaptein, 2014). The implementation of minor measures can have significant impacts on operations. An example of that was the workload of cleaners at a large corporation. Although there was a clean desk policy there was still lots of garbage on the desks that was not thrown in the trash can. In this case the workload of the cleaners significantly rose. With the rising workload the pressure on the cleaners increased, and the cleaning company was unable to deliver the service they agreed upon. The corporation discuss the complaints of the cleaning company with their employees. The employees did not see any problem, because it is the job of the cleaners to clean the office. That was the reason for hiring a cleaning company. To tackle this problem the corporation and cleaning company displayed a picture of the cleaners at the office. They gave the problem a face. This mean had some effect, but still there was too many trash left on the desks. This causes the corporation and cleaning company to decide to clean the office during working hours. This mean had significant effect on trash left on the desks. The employees of the corporation saw the effects of leaving their trash, which causes them to behave more appropriate. This is an example of a relational mechanism that have a indirect effect on the process. The mechanism change the mindset of employees and hereby the workload of the cleaners. For relational mechanisms this is seen often. There is no theory that described the mechanisms that organizations have to implement, because every organization is different and asks for different 36

37 mechanisms. Relational mechanisms, and hereby informal governance, build on positive reinforcement by focusing on the beliefs, knowledge and capabilities of the target (Geykens, Steenkamp, & Kumar, 1999). There are some mechanisms that can give guidance to organizations on how to deal build trust. Trust can be build by the following mechanisms: Define and agree what trust is and how it should be preserved Build trust with clear rules of engagements Define collective goals and objectives Act your half of the relationship, be a good and representative example Focus on trust based on information instead of blind trust Be mild in case of misunderstanding, make quick work of abuse Dare to experiment and learn by experience Give confidence, trust and responsibility. Hold a steady course, keep calm, also when things tend to go wrong Make contact personal Control mechanisms There is a wide range of mechanisms that are applicable on SSCs. The main distinction for control mechanisms is the difference between formal and relational mechanisms (Huang, Cheng, & Tseng, 2014). This distinction is made based on the purpose of the mechanisms. On one hand there are the formal mechanisms that have a direct impact on the process. On the other hand there are relational mechanisms that have an indirect impact on the process. This mechanisms focus on the relation between stakeholders. Formal governance primarily relies on formal mechanisms (Yu & Liao, 2008; Li, Xie, Teo, & Peng, 2010). Formal mechanisms are insufficient as single instrument for maintaining a good relationship (Lusch & Brown, 1996; Cox & Marriott, 2003). An important aspect is the distribution between formal and relational mechanisms for maintaining and promoting an effective buyer-supplier relationship (Poppo & Zenger, 2002; Cai, Yang, & Hu, 2009). The highest level of control that formal mechanisms can achieve is a contract. A concise definition of a contract is a written or spoken agreement, especially one concerning employment, sales, or tenancy, that is intended to be enforceable by law (Oxford Dictionaries, 2014). On this last aspect the shared services model differs from the outsourcing model. In case of an outsourcing relationship contracts is a good starting point. However the fact that SSC are formally seen as the same organization as their clients contract cannot be enforced by law. According to literature the service level agreement (SLA) is the starting point at the establishment of a SSC. The SLA has less value in the light of opportunity control, but can be used as starting point. The SLA need to address the following issues (Kris & Fahy, 2003; Marciniak, 2013): What the client expects; What the supplier will supply or deliver; How frequently it will be supplied; 37

38 To what quality standard; What the client s obligations are; What happens if the supplier doesn t meet these expectations; What happens if the client doesn t meet their obligations; What resource both have if there is failure on both sides; A description of the services to be provided, including end products to be delivered; Skills that the supplier must possess, and levels of service to be provided Pricing and billing, including charges for services provided and the charging method; Service standards, including deadlines, timescales, response times and other specific performance indicators. Here it must be noted that there are no relational mechanisms described in the SLA. The purpose of the SLA is hereby to be a true control mechanism based on factors that can be measured. The starting point of the relation between SSC and organization is, in many cases, the SLA. On this point shared services does not differ from outsourcing. However the energy put in the contract, or SLA, is way more with outsourcing than shared services (Sauer, 2014). This is because of two reason. The first is that there is no connection between the organizations prior to the contract. The level of trust is hereby lower, and organizations are likely not willing to take the risk. The second reason is that the contract is likely to be effective for many years. The impact of the contract is hereby effective for many years. Small errors in the contract can have huge impacts. Next to the starting point of shared services, the SLA, there are many other formal mechanisms that can be institutionalized by organizations. Another mechanisms that is effective in many organizations is a performance management system (PMS). A PMS gives an indications of the performance of an organization based on a set of predetermined indicators. PMSs are used quite often, and decisions are made based upon information from those reports. This causes PMSs to have significant effect on the operations of SSCs. On this aspect the question rises on how the performance of SSCs can be measured? What is performance? A question that is very difficult to answer, because there is more than just performance based upon indicators from the KPI reports. There are numerous factors influencing the operations at SSC, and hereby the performance. These factors can be both quantitative, as qualitative. Organizational culture is an aspect that isn t present in many PMSs, while it does have significant effect on operations. In chapter 3.6 the theory about measuring performance is further elaborated. PMSs are institutionalized not solely to improve the processes, but also by high level officials to keep some kind of control over the processes. With a focus on control the level of trust will be influenced. People tend to trust each other less if they check, or control, every move they make. The trust paradox is the phenomena that is the link between control and relational mechanisms (Hagel, 2011). Everybody will agree that trust is important and that both parties strive for building trust. In time of increasing pressure on delivering performance and high uncertainty this trust will become increasingly important. Trust between organizational starts with one person, or small group, of each organization starting to trust each other (Sauer, 2014). This trust will be institutionalized in rules and procedures on how these organizations will work together. However institutionalizing trust is almost impossible. This causes 38

39 organizations to institutionalize control mechanisms. Mechanisms that have a counter effect on trust, because why does one institutionalize control mechanisms if they stated that they trust each other? This trust paradox is a phenomena on which organizations are constantly struggling. Another aspect that is institutionalized in (almost) every organization are the roles and responsibilities. This mechanisms is implemented to control the capabilities of the employees that are responsible for executing the processes that are stated in the SLA. The institutionalization of roles and responsibilities creates a paper-reality. On paper the system should function according to these roles and responsibilities. In theory this is ideal for the situation, however that is not how the world works. Role clarity is an aspect that is likely to have significant impact on the perceived performance of SSCs. In chapter it is elaborated on the theory considering role clarity and consistency. Financial management on cost, budget and contingencies is also a control mechanism that is often applied. With the focus on cost, budget and contingencies lots of information is lost and the complexity of organizations is reduced. In private organizations the focus is in many cases more on financial aspects than public organizations. Public organizations have different motives for their actions. These motives also influence the culture of public organizations and hereby their control Professionalism Professionalism is a integral component of the organizational culture. This research defines professionalism as the understanding of goals, objectives and functions of related organizations and departments, the ability of organizations to cope with external adaptation and internal integration, awareness of its position and function in a larger network of actors, and ability to exploit new ideas into customer value. In regards of this research professionalism can be both on the SSC-side as the client-side. Between those two perspective there is a large difference. As mentioned earlier SSCs are semi-autonomous business units that should operate and run like a business. Their focus have to be on the customer. Professionalism of the SSC is hereby mainly determined by their ability to adapt to client demands, improvement of business processes, and ability to strengthen its position as best alternative for their clients. On the other hand there is the professionalism of the client. The goal of the client is that the SSC reduces cost and/or increases the level of service of the organization. Important issues for client professionalism is the understanding of the shared services model and its operations. Prior to the implementation of a SSC the people were more direct colleagues, than in the new situation. The high standardization of shared services is one of the main reasons it can achieve cost reductions. Whereas the SSC is designed and established to increase efficiency, the departments are not. Those departments need to adapt to the new situation and realize that the only way of reaping the benefits of the SSC is to change habits. An important aspect that links professionalism with trust are the competencies of employees (Friebe, 2013). Both sides expects the other side to be competent for the situation. From the client perspective 39

40 an expert is expected that delivers high service for a low price. While from the SSC perspective a competent client is expected that works according to the prior determined rules and procedures in which the SSC is likely to work as efficient as possible and hereby the gains are maximized. These differences in perspectives can be supported, and enhanced via various mechanisms. An example of that is the opportunity for employees to experience the other side of the table. People do not only know what to expect, but also understand the impact of their actions. Having a better understanding on what is expected from yourself, and what you can expect from the other has a positive effect on professionalism Roles & responsibilities Research by Smith (1953) states that unclear rules in operations and decision making causes less group productivity. Roles and responsibilities are both aspects of role clarity. Within an organizational setting roles are activities and behaviors that are expected based on the position within the organization (Katz & Kahn, 1978). Role clarity is determined by how clear individuals know goals, objectives, purposes and expectations (Hall, 2008). Role clarity is composed out of goal clarity and process clarity (Sawyer, 1992). Goal clarity entails the extent to which the outcome goals and objectives of the job are clearly stated and well defined. Process clarity is determined by the extent to which the individual is certain about how to perform his or her job. It can be said that on one hand clarity is covered by institutions, and on the other hand by how well individuals know those institutions. Role ambiguity, so lack of role clarity, occurs when the terms of domain, fulfillment, and consequences are articulated insufficiently (Schaubroeck, Ganster, Sime, & Ditman, 1993). A study among Swedish diabetes nurses demonstrates that experience has a significant positive effect on role clarity (Boström, Hörnsten, Lundman, Stenlund, & Isaksson, 2013). According to Collins (1982) performance management systems also contributes to role clarity. Research by Hall (2008) confirmed the positive impact of measures on role clarity. Further research demonstrates that the non-financial measures have a higher impact on role clarity than the financial measures (Lau, 2011). Both types of measures were significant in that research, and hereby confirming the relatively old research of Collins (1982). McEnrue (1984) demonstrates that the impact of role clarity on job performance is higher for high competencies, than low competencies. The previous paragraphs can give the feeling that there is always a need for high role clarity. However there are also situations in which low specificity is desired. Low specification of roles can lead to increased motivation, higher satisfaction, and greater innovation (Lyons, 1971). However for SSCs the focus is not on innovation, but on efficiency. This asks for a higher specification of roles. Specificity in the goals that need to be achieved has a significant impact on performance. Organizations that have a clear goal perform better than organization that solely have an ambition (Locke, 1968). Public organizations often only state an ambition or vague goal (Kool, 2007). It is hereby more likely that public organization will underperform in respect to private organizations. Role clarity is not solely important for the operation, but also in respect to the decision making structure. Transparency regarding responsibilities can be seen as the most important reasons for a 40

41 structured decision making process. (1) The lack of clarity regarding decision-making roles, (2) absence of formal accountability frameworks for support, (3) not clear what the consequences are for not following through with implementing decisions are stated as flaws in the decision making structure of hospitals (Vestal, 2009). It is unclear if these reasons are also applicable for SSCs. There is scientific work that is pro specificity, but there is also scientific work that is con. Organizations are constantly balancing between institutionalizing only core roles and responsibilities and writing heavy manuals that described every single but and if. Focusing too much on describing everything will result in documentation that is the result of valuable discussions, but eventually will be a heavy manual that ends up on the shelf (Goold & Campbell, 2003). Managers that think about using those manuals will be labeled as bureaucrats. The focus should not be on the process, but on the essence of the roles, or purpose of functions (Goold & Campbell, 2003). Documentation do not need to entail excessive detail. The level of clarity should be sufficient for all stakeholders. Role clarity cannot be determined based on documentation because it is likely that people do not read those Measuring performance An important question organizations should ask is whether the SSC performs as it should and if it performs better than the old situation? Studies stated that important factors after implementation are the monitoring and managing of costs, accountability issues, use of service level agreements and performance accountability (Walsh, McGregor-Lowndes, & Newton, 2006). This underpins the need to manage the performance of SSCs. Performance management is a continuous process of identifying, measuring, and developing the performance of individuals and teams and aligning performance with the strategic goals of the organization (Aguinis, 2009). Performance management systems (PMS) are essential for benchmarking organizations. Performance management is mainly based on quantifiable factors. However the factor that are difficult to quantify, as frustration, loss of faith, expectations, political obstacles, freedom, and power, have a significant impact on the success or failure of the SSC (Baldwin, Irani, & Love, 2001; Janssen & Joha, 2006), but they are not taken into account. Research demonstrates that those indicators, the nonfinancial indicators, are the ones that are the true drivers of performance and early signals of change (Plasek, 2005). By combining the above-mentioned statements it can be said that PMSs do not improve the performance of organizations. This seems to be a rather strange conclusion based on the fact that such systems are implemented to improve the performance of organizations. Research by Holland (2006) substantiates that PMSs do not contribute to the perceived business improvements. That research states that three out of ten employees do not believe that performance management systems help to improve performance. It must be noted that perceived performance is measured in that research and no performance based on numerical performance. As mentioned earlier the majority of indicators used in performance management systems are easily quantifiable. The majority of indicators are also lagging indicators. Lagging indicators are the output of processes, but can only be measured after the process. This causes measures to have effect relatively 41

42 late, perhaps too late. Leading indicators do have an earlier effect on the processes, but there is also more uncertainty about the validity of those indicators. The indicators used in PMSs must be measurable, relevant and accountable (TU Delft et al., 2010) and measure the output of the processes (Thiel, 2009). Indicators that measure the outcome of processes do not measure the performance of the system (e.g. the number of burglaries is not a good indicator for the performance of the police department, because the cops do not execute the burglaries). In some cases there can be flaws in the performance management system, in combination with an ever changing world various sources state that performance management systems need to have a certain level of flexibility (Thiel, 2009; Yigitbasioglu & Velcu, 2012). However an increased level of flexibility decreases the comparability of indicators. While benchmarking is essential for good performance management systems (Marciniak, 2013). Next to the preferred flexibility, different stakeholders prefer different reports regarding the performance (Doeswijk, 2013; Yigitbasioglu & Velcu, 2012). Although the line of reporting may differ, the right person must get the right information. In practice this is experienced more difficult than in theory. For public organization there are some differentiations compared to private organizations regarding performance management systems. Kool (2007) states that (1) there is a higher demand for the stories behind the numbers, (2) politics leads to ad-hoc requests that decreases comparability, and (3) vague ambitions lead to less value of performance management systems than concrete goals. Next to that there are both internal as external factors influencing performance management systems in public organizations (Mansor, Chakraborty, Yin, & Mahitapoglu, 2012). Leadership, internal management commitment, employee engagement, and performance-oriented culture are considered internal factors that have significant effect. On the external side there are citizens, labor unions, elected officials, and legal requirements that influence the performance management systems. Another important aspect of performance management systems is the law of decreasing effectiveness (Bruijn & Helden, 2005). This states that the more ambitious the function of performance information is, the greater the risk of perverse effects is, and the less effective the system is. Organization have to assess if the function of the performance management system is in line with the capabilities of the organization. Organizational culture can be very important on this aspect. The above-mentioned information clearly states that performance management of SSCs is a complex and difficult process. The non-quantifiable factors are likely to have significant effect on the performance of the SSC (Plasek, 2005), together with internal factors, like leadership and engagement, influencing the performance management in public organization the best way to assess performance is just asking stakeholders. The real performance of organizations is hereby not the performance as stated in the KPI reports, but performance perceived by stakeholders. Next to hard measureable performance there is a soft, difficult to quantify part of performance that cannot be ignored. Research demonstrates that perceived performance and customer satisfaction are redundant (Johnson, Nader, & Fornell, 1996). Customer satisfaction surveys is hereby an easy to use instrument to get insight in the perceived performance of organizations. 42

43 To measure the real performance the perception of stakeholders need to be taken into account. This perception is not the same for every stakeholder within the system. Soft factors like culture can differ between various departments. The nature of a SSC contributes the likeliness that there are cultural differences between the SSC and departments. This is substantiated by Herbert and Seal (2012). To overcome these differences individual performance need to be measured. According to Polyhart, Weekley and Baughman (2006) this is a key determinant of organizational success and competitive advantage Public vs. private shared service centers Throughout this chapter various differences between public and private SSCs are discussed. In these paragraphs the differences are enumerated. The first difference is the scope of public organizations. Private organizations are profit driven organization. Over the past few years corporate social responsibility became increasingly important, but is the first aspect to cut budget on if necessary. Public organizations are established to serve the citizens. They serve the society, and can be for many cases (e.g. safety, law and order, etc.). A second difference between public and private organizations is that public organizations are more interested in the stories behind the numbers (Kool, 2007). Within private organization it is normal to state that it doesn t matter how things are done, as long as they get done. Such statements are less likely to be stated at public organizations. This difference is linked to the first difference as public organizations are not focused on making profit. Thirdly, it is not always the case that there is unequivocal dominance within the public sector (Maat, Pilon, Tuinder, & de Wit, 2004; Ministerie van BZK, 2005). This stimulates organizations to use the wellknown Dutch poldermodel, and decreases the speed of the decision making process. Increasing number of involved organizations increases the complexity of the system and likeliness of poldering. In some cases there might be benefits to reap from inter-organizational shared services, but this must be determined case by case. Fourthly, there is the characteristic of politicians to state only vague ambitions instead of concrete goals. This leads to less value of PMSs. PMSs are designed for measurable factors that can be influenced by decision makers. Also the monopolistic character of many public organizations decreases the value of PMSs. Benchmarking becomes difficult, and the only measure that can be applied is the internal rate of improvement. Next to that there are both internal as external factors influencing PMSs in public organizations (Mansor, Chakraborty, Yin, & Mahitapoglu, 2012). This can be external factors like citizens, labor unions, elected officials, and legal requirements. These factors decrease the applicability of PMSs at public organizations. Finally there are three reasons identified by Fyfe (2006) why implementing SSCs in the public sector is more difficult than in the private sector. The lack of long-term commitment to change and up-front investment are seen as possible causes. It is doubted if these are not also applicable for the private sector. Within the government it is not always the case that there is unequivocal dominance. Also the 43

44 differentiation between agencies reduces the economies of scale that can be achieved (de Bruijn, Wagenaar, van der Voort, & van Wendel de Joode, 2004) The Global Business Service journey The next step after successfully implementing a shared service center is the establishment of a global multi-functional center using a hybrid delivery model (KPMG, 2014). Hybrid models are a mixture between the shared services model and outsourcing. The purely transactional processes are outsourced, and the SSC focuses on the more complex processes. KPMG developed a framework in which companies can determine their level in the GBS journey (Bertheaud & Furlong, 2012). This framework is displayed in figure 8, and will be used to assess if there are any differences in the journey of public and private organizations. Figure 8: GBS Journey model There are two possibilities on which companies can organize their GBS. The first is a centralization of processes to one location for their global support. Secondly companies can determine to establish multiple smaller organizations to cope with time zones Research framework This research focuses on the influence of governance on the perceived performance of public shared service centers (SSCs). As mentioned in the previous sections, governance is a broad concept covering a wide variety of aspects. In these paragraphs the main research variables are identified and forms the foundation of the interview structure. Based on experiences of KPMG consultants the focus is on four variables: (1) organizational culture, (2) control mechanisms, (3) role clarity & consistency, and (4) perceived performance. Hereby there are various levels on which these variables are applicable. In this 44

45 research the focus of culture is on the professionalism of both the SSC as the client and covers more than just the formal governance. Control mechanisms are applicable on an organizational level and mainly focused on the formal governance, while roles and responsibilities are focused on specific actors and the interpretation of the formal governance. Control mechanisms can either focus on the formal process and is tightly regulated, or focus on the relation between the stakeholders and hereby less regulated and loosely coupled with the culture. The research framework as used in this research is displayed in figure 9. Organizational culture (1) Client professionalism SSC professionalism Trust paradox Control mechanisms (2) Relational mechanisms Governance Perceived performance (4) Formal mechanisms Role clarity & consistency (3) Roles & responsibilities Criteria given by interviewee Clarity Figure 9: Research framework 45

46 46

47 4. Case study design Chapter 2 gives a clear overview of this research. It entails the knowledge gaps, research objective, research question and research approach. In this chapter it is elaborate on that based on the theoretical foundation from chapter 3. The selection criteria are described in chapter 4.1. This results in the cases that are used in the research. In chapter 4.3 the starting point of the semi-structured interviews is given Selection criteria cases The goal of this research is to obtain information about the link between governance and perceived performance of public shared service centers. It is determined to have a high comparability between cases to obtain more specific information about the relations. The research is mainly focused on three cases that fulfill the selection criteria. The cases need to fulfill two criteria. The case should be multi-functional. It is preferred that the SSC has one director for all functions. Based on a qualitative assessment it can be determined to take SSCs with multiple single functions into account. The case should be in the public domain. The research is scoped on this aspect that the SSC should be a governmental SSC. There are huge differences between national and local SSCs. Collaborations between various municipalities that established a SSC are hereby out of scope. Next to three cases that fulfill the selection criteria, a site visit to Poland is conducted to compare the public sector with established SSCs in the private sector. The site visit is used to get a clear overview of current SSC practices in Poland. Also BPO centers are visited to get a better understanding on the differences between BPO and SSC. Three cases will be used to test the impact of role clarity & consistency, control mechanisms and organizational culture on perceived performance. The site visit will be used to compare public and private sector SSCs. This is schematically displayed in figure 10. Public SSCs LDCR DVOM HWH Poland site visit Figure 10: Case selection 47

48 4.2. Cases Based on the above-mentioned selection criteria various cases are selected. These cases are described in the following paragraphs National Service Center Jurisdiction (LDCR) The National Service Center Jurisdiction (LDCR) is located in Utrecht. The LDCR was established in 2012 with the approval of the Council for the Judiciary and all presidents of the courts. The focus of the LDCR is on the business support functions. Prior to the formal approval two separate business cases were developed to analyze the impact of a shared service center on the cost. There were three alternatives considered: (1) local, (2) regional, or (3) national. Eventually the national alternative had a larger savings potential and had hereby the preference of the stakeholders. From the two business cases the stakeholders (Council for the Judiciary and presidents of the courts) determined which business support function should be organized at the LDCR. Currently the following business support functions are organized at the LDCR: Finance Procurement and facility management Collection of court fees and costs of proceedings Advice in the field of HRM Recruitment Information services These function were either extracted from the courts, or from the Council for the Judiciary. Currently the LDCR delivers services to all courts and other justice authorities (SSR, SpitIT, and the Council for the Judiciary). According to the website of the Dutch Judiciary the LDCR is managed by a board of principals. Board members of the courts can be member of the board of principals. The quality of services by the LDCR is the primary focus of the user council. Eventually the Council for the Judiciary the responsible for the system. In the same building as the LDCR SSR and SpirIT are located. SSR is the training and study center for the judiciary. SSR was founded more than fifty years ago in There are training programs for both the judiciary as the public prosecutor. Both the public prosecutor as the judiciary are principal of SSR. SpirIT is the ICT service provider for the judiciary. The focus of SpirIT is to disburden the judiciary in the field of ICT. ICT should support the primary process of the judiciary Service Organization of the Public Prosecutor Service (DVOM) The Public Prosecutor Service is the entity of public prosecutors in the Netherlands. Together with the judges the public prosecutor forms the judiciary. Based on the situation the public prosecutors determines if someone will be prosecuted from their actions. The public prosecutor is independent, this means that politically loaded files cannot be influenced by politicians or the media. The highest authority within the public prosecutor service is the Board of Procurators General. The board is 48

49 responsible for the policy regarding investigation and prosecution, but also need to ensure that there is coherence, consistency and sufficient quality in the enforcement of criminal law. Just like the Judiciary the public prosecutor was influenced by the restructuring of the Dutch judicial footprint (in Dutch: herziening gerechterlijke kaart). The number of district courts were reduced from nineteen to ten located in the same cities, and often same building, as the Judiciary. The DVOM is located in Utrecht to have a central location in the Netherlands Het Waterschapshuis (HWH) In 2006 Het Waterschapshuis was founded by the managing directors of more than 20 water authorities in the Netherlands. HWH was assumed to become the management-, control-, and executive organization in the field of IT for numerous water authorities within the Netherlands. There were six formal goals described at the start of HWH: improve quality of management; reduce cost; increase efficiency of IT; increase innovation; enhance the image of the water authorities as a professional government organization; increase collaboration between water authorities. HWH supports the water authorities in the field van IT. The water authorities are responsible for the management of flood defenses, regional water management, and wastewater treatment. The Dutch Water Auhorities (in Dutch: Unie van Waterschappen) stimulates knowledge sharing among water authorities and represents the water authorities in the national and international arena. Currently there are 24 water authorities of which 23 are represented by the Dutch Water Authorities. The operations of HWH should support the water authorities in achieving their goals. Water authorities communicate their assignments to HWH. After signing of the collaboration agreement HWH starts the process. They guide the process from procurement to implementation to operations, maintenance and management. HWH supervises the collaboration. They help water authorities to formulate their demands and will implement those demands. From the start in 2006 HWH was a foundation, currently HWH is a common regime (in Dutch: gemeenschappelijke regeling) (CR) of the water authorities. It is a public body with a separate legal status. The CR acts as a supporting organization and purchase organization for the water authorities. This way HWH contributes to improving the business and information processes of the water authorities. The water authorities have the following means to affect the CR: they decide on the creation, modification and removal of the CR. They suggest taking the responsibilities and powers; 49

50 they appoint their representatives for the general management of HWH. This must be persons who have information and accountability to their water board. The representatives are mainly members of the general management of the water authority and sometimes the dike warden; they are informed on the execution of tasks by receiving the budget- and the annual reports; they can give their views and opinions on the (draft) budget Poland site visit The SSC and BPO sector is more mature in Central and Eastern Europe than in Western Europe. A site visit to Poland is done to acquire information regarding the SSC and BPO sector in Poland. Over the past 8 years the Polish employment in the SSC and BPO sector grew from employees to the current employees (ABSL, 2014). Solely in Krakow people are employed in the SSC and BPO sector. The annual KPMG Global Pulse survey shows an uptick in organizations interest in the use of shared services. The Polish SSC and BPO sector demonstrates a similar growth pattern. Global organizations from various sectors established a SSC in Poland over the past years. A three day site visit was conducted to discovers characteristics of the Polish SSC and BPO sector. Next to SSC and BPO centers also investment agencies and recruitment agencies were visited to get a good perspective on the sector. A total of twelve companies were visited. The schedule of the three day visit can be found in appendix III. From those twelve companies six are directly applicable for this research: Heineken, Technicolor, Oriflame, Amer Sports, Delphi and UBS. Each of those companies is introduced briefly in the following paragraphs. Heineken is a Dutch brewing company founded in Throughout history Heineken acquired various other brewers like Amstel and Scottish & Newcastle. The former brewery in the center of Amsterdam was transformed to a Heineken museum in Heineken beer is produced all over the world while constantly seeking to deliver the same level of quality, which is a difficult job working with natural products. Technicolor is a color motion picture process invented in Britain s Kinemacolor is the first major color motion picture process, Technicolor is second. The saturated levels of color are the key selling point of Technicolor. In the past it was commonly used for filing musicals, costume pictures and animated films. The maturity of the process also increased the applicability to less spectacular dramas and comedies. Oriflame is a Swedish cosmetics group founded in The company mainly sells nutritional and personal care products. Annual sales exceeds 1.5 billion euro with a sales force of approximately 3.6 million independent consultants. Oriflame has almost direct employees and produces their products at five production sites located all over the world. Amer Sports is a Finnish sports company founded in Amer Sports sells brands like Wilson, Atomic and Salomon, but also less known brands Arc teryx, Suunto and Mavic are part of Amer Sports portfolio. Currently Amer Sports employs approximately employees. 50

51 Delphi is an automotive parts manufacturing company with currently over employees in 32 countries. Delphi is one of the world s largest automotive parts manufacturers and owns 126 manufacturing sites and fifteen technical centers. UBS is a Swiss global financial services company headquartered in Switzerland. Many mergers led to the current company of which earliest predecessor goes back to UBS employs more than people in more than 50 countries. Their operations are mainly focused on managing private wealth assets, in which it is world s largest. Just like many other banks UBS had a public capital injection to survive the financial crisis of Semi-structured interview Data is collected via semi-structured interviews. The purpose of the semi-structured interview is to obtain an in-depth perspective on the organizations, and hereby knowledge about the relation of multiple variables on the perceived performance of public SSCs. Semi-structured interviews are preferred over surveys based on the high complexity of the systems and need to capture the perspective of the interviewee as much as possible. Hereby not only the answers of the interviewees can be important, but also the emotions of the interviewee. While there is no good indication on possible responses on questions the interview structure should be adaptable to the circumstances. During the interview it is up to the interviewer s judgment to either continue to the next subject, or elaborate on certain subjects. The main objective of the interview is to gain knowledge and insights into the four main research variables, as stated in the research framework (figure 9). The interview structure is adapted to the specific interviewee that is interviewed. The main structure of the interview is the same for every interviewee, certain highlights of the interview structure are different. An example of this is the difference between knowing how the SSC is managed, by the principal, or having an idea or perception about how the SSC is managed, by the client. The four variables are each measured differently. The interview is structured according to the following structure: 1) Introduction 2) History of organizations (both public organization as SSC) 3) Discuss the organizational structure 4) Control mechanisms 5) Roles and responsibilities 6) Culture 7) Performance 8) The ideal situation according to the interviewee A good demarcation is necessary to prevent information bias. An information bias is the need for more information, however more information does not always lead to better conclusions. During the interviews the interviewer must give enough context and room for the interviewee to speak freely, while taken the value of information into account. 51

52 Data triangularity is applied during the interviews to verify data given by interviewees. There must be caution with verifying previously gathered data prior to the interviewee discussing the subject. There must be clear distinction between data given by the interviewee and data verified by the interviewee. 52

53 5. Results and analysis A total of sixteen interviews are conducted for three cases in the Dutch public sector (LDCR, DVOM, and HWH). Next to that six relevant interviews are conducted in Poland. The interviews conducted in Poland are not verified with the interviewees, while the (majority of) Dutch interviewees verified the information gathered during the interviews. The reports of the interviews can be found in appendix IV. In this chapter various perspectives on case level are described and analyzed. Secondly analyses between cases are made Main results interviews In these paragraphs the main results from the interviews are presented. The period of conducting interviews gave the researcher the opportunity to verify information gathered in later interviews. The anchoring bias was kept in mind during the interviews to create an objective perspective on the systems. The information as presented in the following section is based upon information gathered during the interviews unless stated otherwise LDCR Seven interview are conducted to create a rich perspective on the entire system. Based on the information provided by the interviewees a structure overview of the system is developed. The relative positions of the interviewees are displayed with stars in figure 11. Cheaper Judiciary There were two goals for establishing the LDCR. The first is cost reduction, the second quality improvement. All interviewees stated that these were the two goals the LDCR should achieve. The representative from the Council of the Judiciary stated that the main reason was cost reduction and that quality improvement was added afterwards to increase support. It was decided by the Presidents of the Courts and the Council for the Judiciary to prepare a business case to analyze the impact of the LDCR on the operational cost. During this period there were some voices stating that the proposed new organization has to develop the business case, however the Council for the Judiciary reacted on that by saying that the LDCR will affect the entire Judiciary and everybody needs to cooperate within the business case to get a good perspective on the impact of a SSC. Two separate business cases were developed for various business support functions. The business cases considered three alternatives: (1) local, (2) regional, and (3) national. Local was the status quo scenario in which all processes were decentralized. In the regional alternative the processes of a couple of courts will be consolidated. While the national alternative consolidates all processes into one center. Based on the positive outcome of the business cases and practical preferences of stakeholders it was decided to organize the following business support functions on a national level at the LDCR: Finance Procurement and facility management Collection of court fees and costs of proceedings Advice in the field of HRM 53

54 Recruitment Information services On an administrative level the business case was sufficient to agree with the proposed changes. However on a operational level there was little willingness to change the system. There was some fear of losing their job, or being transferred to another location. Some say that it is common that there is reluctance. This is linked to the status quo bias, which is a cognitive bias (Samuelson & Zeckhauser, 1988). There were some voices to keep things as they were before the LDCR was established. On an administrative level those voices were present, but not dominantly present. Some interviewees state that there is a large difference in agreeing with the transition by the presidents and acting as that they agreed with the transition. Although the presidents formally agreed and there is a mandatory truck system, they still kept processes like procurement organized as they were. According to the representative of the Council for the Judiciary the unequivocal dominance within the Judiciary causes high complexity and leads to slower transition and a more complex decision making process. Multiple interviewees state that the planning for the establishment of the LDCR was unfortunate from a strategic perspective. There is no clear position in the system by whom of these statements are made. Different reasons for the bad strategic decision are given by the interviewees. Some link the restructuring of the judicial footprint (in Dutch: herziening gerechterlijke kaart) as main reason for unnecessary complexity, while others link it to the implementation of a new financial system, Leonardo. The LDCR was staffed by employees that were transferred from the Courts to the LDCR, and temporary workers. According to the Council for the Judiciary there was no other choice, because these people have a permanent contract and the Judiciary should act as a good employer. The goals of a governmental organization differ from those of a private organization where the focus is mainly on making profit. At the start of the LDCR it was not unthinkable that employees began forming groups based on their origin. However that was not the case. This was mainly because of the bad transition. It was decided that the Judiciary would use the move & improve method instead of the improve & move method. Processes were hereby not standardized. The chosen strategy determined that the processes were transferred to the LDCR, and then improved. With the numerous processes the LDCR started with a lot of work. This caused the employees of the LDCR to work from early in the morning till late in the evening, and sometimes during the weekend. The LDCR would prefer the improve & move strategy to improve the transition. Although the Courts need to review their processes to improve the connection with the LDCR, they maintained their own process. According to employees of the LDCR there were three reasons for this attitude: (1) they heavily invested in their own processes, (2) the processes were uniform from their perspective and had proven to work, and (3) they thought the decision might be reversed and everything would be organized as it was. The third reason is related to the acting of the presidents of the Courts. Some of them agreed upon the establishment of the LDCR, while acting as they didn t. An example of this is the fact that between (18%-25%) of procurement is done by the LDCR. To stimulate procurement the LDCR currently communicates a ranking with the procurement statistics per court. 54

55 Although it seems trivial that people do not want to rank last it is an effective mean to increase the percentage of procurement done via the LDCR. Mechanisms from experience During the interviews mechanisms were given by interviewees in relation to the LDCR. Based on the information acquired during the interviews a structured overview of the system is developed. The stars indicate the positions of interviewees in the system. At the LDCR managerial and operational positions are interviewed. Council for the Judiciary (owner) Determines budget Advice regarding budget and measure performance Board of principals Determines PSC LDCR (SSC) Products and services Advice regarding the PSC Customers Contact regarding the processes hearing in User council hearing in Liaison officer Figure 11: Overview LDCR The various mechanisms that are mentioned during the interviews are schematically displayed in the table below. These mechanisms are linked to the entity that is responsible for the mechanism. The entity, function, and composition of the boards are given. 55

56 Entity Function and responsibilities Composition Council for the Judiciary Determine budget of the LDCR based on the products and services determined by the board of principles, and measure performance of the LDCR. Board of principals Determine product and service catalogue (PSC). User council Advises the board of principals regarding the PSC. LDCR Liaison officer Delivering products and services to their customers, and advises the board of principles on cost of products and services. Communicate the performance (e.g. % of procurement via LDCR) with their customers. Contact for the LDCR regarding the processes. The liaison officers are specialized in a field of expertise (e.g. finance, HRM). Two judicial administrators and two non-judicial administrators. President and two non-judicial administrators. Employees that are in direct contact with the processes (e.g. manager finance) and a liaison officer. Non-judicial administrator is chair of the council. n/a Every court has one liaison officer. Based upon the information gathered during the interviews there are four notable observations regarding the mechanisms. The first observation is that there is a large difference between interviewees working in the administrative layer of the Judiciary and interviewees working on an operational level. The starting point of the administrators is the triangle Council for the Judiciary, board of principals and LDCR. For operational employees the starting point is the LDCR and the people they come in contact with, namely customers and liaison officers. The owner of the SSC stated that he would be pleased if the employees at the LDCR weren t bothered by the administrative setting. Their focus must be on delivering good service to the Courts. The second observation is that there is no customer satisfaction mechanism implemented. The LDCR states that there is no need for that because they already know that they are not performing well. The large room for improvement restrains them from implementing such mechanism. On the other hand there is a dissatisfaction mechanism, if customers are dissatisfied with the service of the LDCR there is a four layer escalation model implemented. The first layer is direct with the employee that serve the customer, the second layer is via de user council, the third via the board of principles, and last via de Council for the Judiciary. An often heard complain is that customers tend to start at the highest escalation level that is within their grasp. Presidents tend to complain at the Council for the Judiciary, while it would be better to make their dissatisfaction clear to the LDCR directly. 56

57 The third observation is that the interviewee on a managerial level at the LDCR and a representative of the Council for the Judiciary did not mention the customers as part of the mechanisms. Whereas the customers, representative of the user council and operational LDCR employees did mention them in an early phase of the interview. The fourth observation is that the liaison officer was seen as an important part of the system to function properly, however that mechanism was not mentioned by the representative of the Council for the Judiciary. Based on those two findings it can be stated that the higher in the organization the less connected the interviewees are with the operations. Their focus shifts from the customer towards the administrative setting. Reconciliation culture The culture within the Judiciary is that there is a high need for reconciliation. The LDCR states that they struggled with that at the start of the LDCR, but managed to implement several consultation bodies that increased the performance of the LDCR. The perception at the LDCR is that Courts are not willing to cooperate if they were not consulted prior to the decision and had the opportunity to give their input. The new managing director of the LDCR currently actively searches the connection with the Courts. Based on the interviews with administrators it can be stated that the stakeholders are in a cooperative mode and seek opportunities to improve the performance of the system as a whole, while the employees on an operational level at the courts cannot oversee the entire system. LDCR employees stated that there is a need for tight rules and regulations for optimal functioning, if there is a small opening in those rules the customer will use it and destroy the possible efficiency that can be gained. According to the LDCR it is therefore impossible to achieve efficiency gains. One LDCR employee suggest that it is not always the case that there is a need for efficiency gains in means of monetary gains. Improvement of knowledge can also be a benefit. The social component has a much bigger impact on the performance of the system than the technical aspect, and should be the focus of managers. Article of Association to describe roles and responsibilities The shared services concept is a difficult concept to comply with having a high need reconciliation. This comes back in the role consistency. Everybody in the system complains about the role consistency on the operational level. The majority of interviewees state that there is low role consistency at both the LDCR as the Courts. The representative of the Council for the Judiciary states that the roles and responsibilities are clearly described in articles of Association. These articles of Association are also applicable for SpirIT and SSR. These articles of Association are better known at LDCR than at SpirIT and SSR. This is mainly caused by the age of the organization, whereas LDCR started with the articles of Association from their establishment. SpirIT and SSR already were in operation at the moment those articles of Association were introduced. Just like the mechanisms, the interviewees opinion on role clarity and consistency reflects the level they operate on. 57

58 The business case performs better All interviewees currently value the performance of the LDCR as sufficient, but only just sufficient. It is interesting to see that the valuation of the LDCR manager is in line with the other interviewees, while the operational LDCR employees value their performance higher and the customers performance lower. The operations of the LDCR were more expensive than projected in the business case. This led to complaints from the Presidents to the Council for the Judiciary. The Council for the Judiciary started to make more stringent agreements with the LDCR regarding their budget. This was stated by interviewees on an administrative level. Operational LDCR employees stated that the business case was not well thought through. According to the business case there were no extra costs for sorting mail, while solely the finance department receives 400 to 500 invoices on a daily basis. A new department was created to manage all incoming mail. On this aspect it can be said that the Judiciary tries to conform the operational cost to the business case, while there were modifications in comparison to the business case. The Judiciary applies single loop learning on this aspect instead of double loop learning. Almost all interviewees state that there is a large difference in performance of the finance and HRM department. Finance is valued to be just sufficient, only the LDCR operations value it to be good, while HRM is valued to perform good by the majority of interviewees. The type of work was the only reason given to explain the difference. Finance is focused on production, while HRM isn t. HRM is mainly advisory of Courts and hereby diverse work, while finance is monotone. According to the LDCR the performance of the LDCR is measured by means of budget, quality and customer satisfaction. In the interview with the Council for the Judiciary it was suggested that the main focus of the Council for the Judiciary is on meeting the budget. Interesting is to see that although customer satisfaction is a criteria there is no mechanism to measure it. LDCR in a nutshell Summarized it can be said that the LDCR experienced a challenging transition. Reflecting on the transition the majority of people would suggest that there would be more standardizing prior to the consolidation of processes. The difficult start of the LDCR stimulated the creation of an own culture as LDCR, but also magnified the differences between the LDCR and the standing organization. The LDCR was focused on rules and procedures while the standing organization is willing to hold on to their former processes in which they had invested time and energy. Although there is consent among decision makers there are still difficulties. The unequivocal dominance is seen as one of the major complexities of the system. Although the performance of the LDCR is not on the level as it should be the interviewees all state that they think the LDCR will meet that level in the near future DVOM For this case four interviews are conducted. Based on the information acquired during the interviews a schematic overview of the system is developed. The relative positions on the interviewees are displayed with stars in figure 12 and

59 Prolong the transition to increase support Prior to the DVOM there were already some public SSCs established. The Board of Procurators-General followed the trend that was started some years prior to the establishment of the DVOM in According to the DVOM the main reasons for the establishment was cost reduction and professionalization. To stimulate the professionalization operation directors were appointed to improve the operations of business support functions at the public prosecutors. Prior to that decision the Chief Public Prosecutor managed the operations part-time. There was a long transition period chosen to reduce the impact of the transition and increase the support. For finance the Board of Procurators-General choose to reduce the number of locations to four (Amsterdam, Den Bosch, Dordrecht and Zwolle) as the first step in the centralization. The second step was to cut that by half, so only Den Bosch and Zwolle remained. The third and final step was to centralize all the finance activities at the DVOM at the start of The entire transition period for the finance function is hereby seven years. Not all processes were transferred towards the DVOM. Some of the processes remained decentralized although they were formally centralized. For HR the advisors remained at the public prosecutors. Also workplace support and functional IT management remained decentralized. The public prosecution is not a IT focused organization. Hereby there are mainly difficulties with IT. The public prosecutors determined that these focused should be organized decentralized. The remaining functions are centralized in Utrecht. The status quo bias can be recognized at the DVOM. Just like the LDCR the operational employees at the public prosecutor reacted on the plans that everything should remain the same. There are three reasons given for this lacking support: 1) uncertainty about their job at the public prosecutor; 2) the power of the local offices reduced; 3) fear of decreasing quality of products and services. On administrative level there was support for the plans, to increase the support on the operational level the Board of Procurators-General choose the use the improve & move strategy. The support increased, but also the benefits were smaller. The DVOM would prefer a big-bang introduction of the DVOM to increase the possible benefits as much as possible. The importance of three stakeholders Recently the governance structure of the DVOM changed. One of the things that remained is the mandatory truck system. According to multiple interviewees there was no clear separation of ownership and commissioning practice. Based on the information acquired during the interviews a schematic overview is developed of the mechanisms in place from the start, but also the new situation that is currently operational for almost 1,5 year. The stars reflect the relative positions of the interviewees. Some interviewees have multiple positions in the new governance. This causes the new situation to have more stars. 59

60 PAG (support staff) Board of Proscurators- General Impactanalysis of changed legislation Determines budget Experiences with DVOM Customer Products and services DVOM Determines PSC OOD (Principal Meeting DVOM) Customer request Customer request and PAG analyses Advises User council Fields of study (e.g. HRM, ICT, FM, Finance) Figure 12: Former overview DVOM Operations meeting (operations directors) Meetings to discuss operations Corporate director (control) Parket generaal College van Procureurs- Generaal Formal determiniation of budget Hearing in Director operation (specialized in a certain field of study) (business) DVOM director (delivery) Meetings to disucss the primary process Director operations DVOM User council (superior officers) Figure 13: Current overview DVOM An interesting finding is that all interviewees emphasize the importance of the tripartite consultations. All public prosecutor offices are cut on their budget by the Board of Procurators-General based on the products and services that the DVOM will deliver. In the previous situation there was no clear separation of ownership and commissioning practice. This caused the belief among customers that the DVOM will deliver the products and services according to their specifications. In a decentralized organization that will not work and choices have to be made. Currently there is a clear separation of control (by the Corporate director), business (commissioning practice by operations director), and delivery (by the DVOM). There is a concise escalation mechanisms in place for the DVOM. The first is directly towards the DVOM. The second is via the tripartite consultations. 60

61 According to the DVOM there is an overrepresentation of complaints. The DVOM responds to this by developing a performance management system that creates transparency, and places the statements of the Chief Public Prosecutors into perspective. A customer satisfaction survey is part of the performance management system to capture the difficult to quantifiable variables. To improve the relation between the owner and the DVOM the corporate director is also director at the DVOM. The owner gets a better perspective on the performance of the DVOM. The sky was the limit The DVOM states that the culture of the public prosecution has a significant impact on their performance. There is a culture in which everybody gets what he or she wants. An example was given by the DVOM. Suppose that there a choices given by the DVOM for the purchase of a mobile phone, and the Chief Public Prosecutor wanted another phone it needs to be arranged. The creation of such a culture is related to the fact that the public prosecution always had sufficient money. The government valued safety and was willing to invest in that. Currently there are budget cuts for the public prosecutor. The budget in 2018 will be 25% lower than the current budget. To achieve such a cost reduction the public prosecutor want to reduce cost of real estate. The remaining reduction will be equally divided among organizations. According to the DVOM the board of Procurators-General sees the DVOM as one of the areas to achieve those cost reductions. Role consistency limits savings potential The employees of the DVOM tend to feel to be crisis managers. The DVOM can generate huge cost reductions, however that will only be the case if customers comply with the rules that are institutionalized. In the paper reality the roles and responsibilities are clear and the system works. However reality demonstrates that the majority of stakeholder is not role consistent, and that this prevents the DVOM to function properly. An example of that is the constant stream of incidents that reach the board of Procurators-General. The Chief Public Prosecutors form the user council. This council is connected with the board of Procurators-General. Although the primary process should be discussed during the meetings there are also signals from the Chief Public Prosecutors towards the board in case they are unpleased with a situation. Different service, different performance There is a large differentiation between departments regarding the performance of the DVOM. From the business perspective there are three departments that perform sufficiently: HR, ICT and procurement. Although these departments are valued to perform sufficient, there are some notes that are made. The first is the scalability of the HR department. HR advisors work decentralized. This decentralization limits flexibility. In case the HR advisor in Maastricht will be ill replacement should be arranged by the DVOM. This will come from one of the other public prosecutors, but there will be hesitation by the HR advisor due to the large distance. The public prosecutor in Maastricht prefers to have the flexibility to arrange a HR advisor locally. This will be much quicker. 61

62 ICT is valued to perform sufficient by the public prosecutor, however the cost need to be reduced in the near future to be successful. ICT is valued to be insufficient by the DVOM. A possible explanation is that the performance of the DVOM is measured partially by their budget depletion. Procurement is stated to generate huge cost reduction, although the DVOM thinks that the public prosecutors do not value procurement to perform sufficient. They lack the expertise in the field of procurement, but do a good job in contract negotiations. Possibly the public prosecutor does not bother that the DVOM have insufficient knowledge, because there is a high need for customer intimacy. Both the DVOM as public prosecutor state that the finance department performs insufficiently. The workforce at the DVOM is not capable dealing with the workload. The DVOM states that approximately 25% of the invoices are special invoices and require more work. Their goal is to have 90% standardized and 10% customer intimate work. The DVOM argues that they are doing a good job at facility management, while the public prosecutor argues that facility management is too small to centralize. Rules from the government obliges public prosecutors to tender their facility management combined with the construction and maintenance of new real estate. In that case the DVOM does not do any facility management. Another option is that the public prosecutor is located in a building with another organization. In that case the DVOM is also not doing any facility management. This reduces the number of buildings tremendously. Some say that decentralization of facility management should be considered a reasonable option. The corporate director is not willing to give any valuation to department of the DVOM. The interviewee only states that the performance of the DVOM is measured via the diamond methodology. The Board of Procurators-General focus on three aspects: (1) budget, (2) performance indicators, and (3) attrition. Performance indicators are variables like customer satisfaction, but also specific process indicators like percentage of invoices paid within 30 days. According to the DVOM these performance indicators are only for internal uses, and that performance of the DVOM is measured by budget depletion and attrition. The corporate director states that there are two main requirements to have a successful system. The first is that it is clear what the roles and responsibilities are within the system, the second is that stakeholders are role consistent. Although role consistency is very important, the interviewee thinks that there will always be situations in which people will not be role consistent. DVOM in a nutshell The DVOM was established from a cost reduction perspective. The DVOM preferred a big-bang transition instead of the relatively slow transition as it occurred. The DVOM is eager to reap as much efficiency gains as possible. The Board of Procurators-General choose to increase support instead of efficiency gains. The governance structure of the system demonstrates a clear separation of control (by the Corporate director), business (commissioning practice by operations director), and delivery (by the DVOM). All interviewees stated that the DVOM is moving from a shared service center towards a central support function. The business can determine the products and services that will be delivered by the DVOM, but the DVOM can introduce strict rules that customers need to comply with. The perception of the 62

63 interviewees is that in the shared services concept the compliance with the rules by the customers is less important. According to the interviewees there are two important aspects in order to make the system work. The first is that everybody should understand the system and be on the same page. The second is that everybody should be role consistent. If one of those is not fulfilled it will be very difficult to have a successful system HWH For this case five interviews were conducted. Based on the information acquired during the interviews a schematic overview of the system is developed. The relative positions on the interviewees are indicated with stars in figure 15. Started with a motive HWH was established in 2006 with the motive to improve the cooperation between water authorities. IT changes quickly these days, hereby consolidation of knowledge and expertise can be a mean to keep up with the progress. One of the interviewees stated that there was a motive for the collaboration, namely the procurement of a product for the elections. A foundation was established in which 27 water authorities participated. Throughout the years the number of water authorities gradually decreased due to several mergers. Currently there are 24 water authorities in the Netherlands. The cooperation between the water authorities should be done by consolidation of demands from the various water authorities and call for tender. So HWH would be a tendering organization, however the legal status of HWH gave some implications for it to be a tendering organization. The Dutch Water Authorities (in Dutch: Unie van Waterschappen) did not have any control over the foundation except from determining the conditions of employment. Although there were some implications there were no commercial organizations that make it pending before, as it did not improve their opportunities for winning the next tender. HWH was staffed by employees from various water authorities. HWH states that the employees have sufficient capabilities to execute their job, but that they are not the high potentials from the water authorities. The interviewees from the water authorities state that the employees that were transferred to HWH were either not functioning properly, or were on the remediation list. This could imply that there was not sufficient commitment by the water authorities. One interviewee thinks that the employees of HWH were eager to proof themselves as being competent and valuable. This caused HWH to be very eager in acquiring new projects. Some of the water authorities state that there were some improvements in the capabilities of HWH, but those were acquired from the market and still incapable in executing the job sufficiently. The first big project of HWH was the development of a tax system (TAX-i) for all water authorities to collect their taxes. The Dutch Water Authorities was formally owner of HWH. All water authorities participate in the Dutch Water Authorities. This causes all water authorities to feel owner of HWH. The TAX-i project failed. There were multiple reasons given by interviewees. HWH states that there were two main reasons for failing: (1) project description was insufficient, and (2) i-managers had too much control over the specifications. The i-managers made financial decisions, although they were not 63

64 authorized to make financial decision. According to HWH there should be clear separation between ownership and business. During the TAX-i project the i-managers acted as both. Feeling owner of HWH caused every water authorities to made their special exemption in the project specifications. This is verified by an administrator of a water authority. The administrator states that he had insufficient control to make any changes. Among water authorities there are different perspectives on the failure of the TAX-I project. Some state that the competencies of HWH are insufficient, while other state that there was too much control by the i-managers. An administrator of a water authority states that there was scope creep. The i-managers had the possibility for adding more and more requirements to the project. During the meetings of the governing board the majority of representative prepared a monolog about the problems they encountered instead of constructive statements regarding HWH. Eventually the governing board was unable to govern HWH. Program council/ i-managers (control) HWH (delivery) i-managers (business) Figure 14: i-managers made decisions regarding project specification and budget Political mechanisms overrule formal mechanisms The failure of the TAX-i project caused the water authorities to change the foundation into a common regime (CR). There are two unanimous decisions required for this change. The first is the creation of the CR. This was no problem, everybody agreed. The second is the transfer of possessions from the foundation to the CR. There was lots of hesitations regarding this decision. Some water authorities thought that not agreeing with this decision they could not held accountable for the losses from the TAX-i project. Eventually every water authority agreed on both decisions, but one water authority left the CR. Based upon the interviews information is gathered regarding the mechanisms that are in place. There mechanisms are displayed in the figure below. 64

65 i-platform Governing board HWH (20+) hearing in Executive board water authorities advises Program council Advice based on business case Executive board HWH (5) Business case based on client demand Market products HWH Procurement and maintenance Customers (water authorities) Client demand Customer request Supervisory committee i-managers, directors, managers Figure 15: Overview HWH There are two ways in which the demand for new product and/or services can reach HWH. The first is via a supervisory committee. There are multiple supervisory boards for various fields of study. The second is via i-managers, directors or managers. All can request for new products and/or services delivered by HWH. HWH will develop a business case which it delivers to the program council. The program council will decide if a project is feasible based on the business case and advice of the i- platform. Some say that the i-managers can determine a lot and the program council always adopts the advice of the i-platform. Other state that the program council makes a deliberate choice. The executive board formally assigns the project to HWH. The executive board always adopts the advice of the program council. The schematic overview of mechanisms and entities demonstrate that there is a high complexity. Not only the knowledge regarding these mechanisms and entities differ between interviewees, also the perception regarding the operations of HWH differ between interviewees. Some state that HWH develops software for the water authorities, while other state that HWH solely tenders it on the market. According to HWH the second is correct. The connection with the market is quite formal with service level agreements (SLA) and contracts, while the connection with the water authorities is quite informal and non-committal. There are only little requirements for the water authorities regarding HWH. The budget of HWH is determined by the products and services that are planned to be provided. It is uncertain how the budget exactly determined. According to an i-manager 45% of the cost are fixed, the 65

66 remaining 55% is variable. While HWH states that the water authorities only pay for the projects that they are part of. The interviewee noted that it is strange that all water authorities bear the risks, also of the projects they are not part of. The projects are assigned to HWH based upon the demand from the water authorities, and the monetary effects of the project. HWH prepares as business which is delivered to the program council. HWH is responsible for acquiring their own project, but can have significant impact in the decision making process by manipulating the business case to emphasize the benefits. There are two mechanisms are not known by the interviewees, or not institutionalized. The first is an escalation model. None of the interviewees knows the manner in which projects should be escalated. One of the interviewees states that this is also underexposed in the new situation, HWH 2.0. The second is a performance management system. An i-manager states that he is happy that there is none, because he is unable to demonstrate the effect of HWH in this operational cost. The unwillingness to cooperate in a SSC Culture is stated as an important factor by all interviewees. HWH relates culture to their opinion that water authorities are not willing to cooperate. The reputation of an officer is related to two things: (1) the budget for which they are responsible, and (2) the number of people they manage. Interesting to note is that the success of HWH decreases both at the water authorities. The i-managers had high control. They had the ability to make HWH a success, but that also meant that their reputation decreased, and maybe their function would disappear. This is a decision that cannot be questioned from the i-managers. Another cultural aspect is the difference between the land characteristics of the water authorities. In the west the focus is on dikes, while in the east the focus is on rivers. There is no consent among water authorities about the first alternative to analyze possible projects. Some say the line of thinking should be first national and then regional, while others prefer to think regional and then national. This has huge implications for HWH. The attitude of the water authorities is insufficient to make HWH a success. Although every water authority stated that they are willing to cooperate there are several indications that they are not. The first is the high need for exemptions in projects for their processes. Their attitude is that the system should be adapted to their processes, and not the other way around. Secondly, there is a constant focus on differences and problems, instead of similarities and solutions. This non-constructive attitude does not increase the performance of the system. Third, there are statements from some of the interviewees that they did not had any belief in HWH. The i-manager stated that he did not bothered the establishment of HWH and just kept going as he did before the establishment. This hints to a selffulfilling prophecy. The establishment of HWH has huge implications for all water authorities, if those are not willing to invest time and energy in the project it is doomed to fail. Fourthly, there is the staffing of HWH in which the water authorities expect the other water authorities to supply their high potentials while they are not obliged to do so. The staffing of HWH can be 66

67 considered to be a problem of many hands. Every stakeholder states that the competencies of HWH are important for the system to be successful. HWH was staffed by the water authorities, but none of them transferred their high potentials. In the new situation HWH will be staffed by the water authorities based on the projects they acquire. The majority of the interviewees think that HWH will not get the best people for the job. Also an i-manager states that not the best will be transferred. Water authorities encounter decreasing budget, while workload remains the same or even increases. According to the i- manager the water authority is unable to make a high potential employee available for HWH. Those employees are too important for the operations at the water authority. What do they do? The roles and responsibilities are not clear to the majority of stakeholders. At least they do not act as they know them. All interviewees state that stakeholders are not role consistent. An administrator of a water authority states that almost every representative in the executive board of HWH did not made any comments regarding the control of HWH, but was focused on problems in the primary process, or prepared a monolog of their vision for HWH. The board was, and is, too big for the chair to delineate the right information of three hours of unstructured monologs. By three of five interviewees it is mentioned that i-managers wanted a lot of control. They formulated the project, but also decided if the project should be executed or not. The i-managers were both principal as owner. With the proposed HWH 2.0 the director have his thoughts regarding the positioning of the i-managers. He argues that the i-managers position themselves in such a way that they will be (informal) principal again. According to HWH the business should be more present as a principal. The impact of one project The performance of HWH is valued differently by the interviewees. Interesting to see is the difference between the two i-managers that are interviewed. One was not willing to put any effort in HWH, and values that HWH performed significantly insufficient. The other i-manager states that the situation is more complex just to value the performance of HWH as insufficient. HWH could not operate as it should also because the water authorities did not act as they should. Hereby he values the performance to be around the turning point between sufficient and insufficient. The administrator of a water authority states that the performance of HWH is insufficient. Always was and always will be insufficient. The uncontrollability is considered be the main reason for the underperformance. The administrator was unable to mention projects that were successful. He remembers HWH constantly mentioning that they bargained a 80% discount on Oracle licenses, but these were never used. The interviewee is administrator at one of the first movers of the TAX-i project. The water authority had to make a lot of extra costs, because HWH could not deliver a good product. Together with other first movers they stated that they wanted HWH to deliver the tax collection system because they had no other option. HWH values its performances to be rather good, but the TAX-i project had tremendous impact on the perception of water authorities. The obstruction from foundation to CR is an example of decreased 67

68 support by water authorities. The director of HWH states that HWH delivers the same products and services for 25% less budget than last year. This is realized by internal improvement of processes. According to the director of HWH the trust of water authorities in HWH is still sufficient. Also during the TAX-i project there was still sufficient support. He recalls that the first movers of the tax collection system wanted the system because they had faith in HWH, not because there was no alternative for them. HWH in a nutshell In 2006 there was a motive for establishing HWH. The eagerness of HWH caused them to acquire more projects than they could manage. The organizational aspect was organized insufficiently. The voice of the i-managers was too big. The i-manager experienced that they were owner of HWH, and hereby HWH should deliver a product that fit their processes. The scope creep and bad performance of Logica caused the first major project, TAX-i, to fail. This had huge influence on the support for HWH. The soft aspects has a huge influence on the attitudes of the stakeholders. Not all stakeholders support HWH, the competencies of HWH employees is doubted, HWH is considered to be uncontrollable, and some stakeholders did not see the added value are all reasons for not putting an effort in the system. It is doubted by all interviewees if the new situation will succeed. Some explicitly stated they do not want to participate and will focus on regional collaboration, but still they are part of the common regime Analysis In the previous sections analyses are made based upon single cases. There is a good overview of the various organizations. Based on that overview analyses are made for the various dependent variables of this research. The findings are structured based on the theoretical framework. In addition the establishment and transition is added as an variable due to the possible impact on the perceived performance. Some characteristics of the cases are summarized in the following table. Case LDCR DVOM HWH Established in Goal Cost reduction and Cost reduction and Cost reduction quality improvements professionalization Transition Big bang Phased approach Phased approach Functions Finance, HR IT procurement and Finance IT Procurement facility management ICT (hybrid) collection of courts Facility management fees and costs of proceedings Procurement HR advice Recruitment information services Mechanisms Customer demand Customer demand Customer demand 68

69 exploitation exploitation exploitation Escalation model Escalation model Performance feedback Tripartite consultations Culture Reconciliation culture Analyze and prosecute Autonomy Roles and Clear, reasonable acting Becoming more clear, Unclear responsibilities reasonable acting Perceived performance Sufficient and improving Sufficient and improving Insufficient and reorganizing Performance measurement Cost Cost, attrition, but PMS for internal use Cost Live up to expectations Cost reduction was given as the number one reason for the establishment of a shared service center by the interviewees from all three cases (LDCR, DVOM, and HWH). All choose for the centralized operating model that have the highest potential savings. Only the DVOM choose for a hybrid model in which some of the services are decentralized. There can be conflicting interests by stakeholders. There will always be a tension between operational excellence and customer intimacy. The clients do not want to adjust their processes, while the SSC do not want to make any adjustments to their system because that decreases the possible efficiency gains. There are several strategies for organizations. The first is the creation of exemptions in the software. Based on the cases this strategy is unsuccessful. The second is having no exemptions and only accept requests that fulfill the prior determined rules. The customers are obliged to comply with these rules. This can be successful, but there will be no, or little, client-provider relationship. The DVOM is a case in which it moves from SSC to centralization. The third strategy is to develop a interface between various systems and processes like Heineken does. This can be feasible on paper, however in light of scalability and critical mass this strategy seems to be infeasible. The management of the SSC is eager to perform and exceeded the expectations. They are eager to acquire as much processes as possible, because they can do it cheaper and better. The gains need to be maximized by centralizing as much as possible. Many agreed to do, possibly because it is difficult to disagree with the statement that centralization is more efficient. In relation with this eagerness and willingness to maximize the possible gains the public SSCs prefer to have a big-bang transition. This eagerness of the new management can be linked to the observation that public organization tend to jump from level one to level four in the GBS journey model of KPMG. The cases demonstrate different transitions. LDCR used a big-bang, DVOM gradually transferred, and HWH gradually acquired new projects while the business as usual remained at the water authorities. None of the cases managed to perform well from the start. 69

70 The need for functional mechanisms The interviewees reflect their thoughts regarding the mechanisms to the level within the organization they are. So administrators focus on the administrative setting, while operational employees do not experience and know more than the mechanisms they come in contact with. The different focus also can be identified in the attitude of operational employees regarding the administrators. It does not bother them what the administrators do, they are focused on delivering. Based on the three cases there must be clear separation of control, SSC and standing organization. Each of them has a separate role in the system. It is almost impossible for stakeholders to be on more than one position in the system. Each position have a specific function. The corporate control must keep the overview of the situation, assign budget and makes decisions based upon objective information. The standing organization must determine requests from the business. The SSC must determine if it is able to deliver what service level for which price. Having two positions creates conflicting interests. If the standing organization is also on the corporate control position there are chances that scope creep occurs and projects will become more expensive. This happened with the water authorities in the Netherlands. Based upon the interviews it can be stated that a good functioning mechanism for explicating the customer demand is mandatory. Without this mechanism the SSC can start projects that are not fulfilling any demand. However theory demonstrates that the client-provider relationship can work if the customers do not explicate their demand. The customer focus of the SSC will analyze possible demands and tries to sell them to their customers. None of the cases had a fully, operational performance management system (PMS). LDCR recently developed a PMS to reduce the overrepresentation of incidents at the Council for the Judiciary. The main focus of the owner of the LDCR is however still cost. The DVOM is a similar situation as the LDCR, but the owner also focuses on budget depletion and attrition. The water authorities are solely focused on cost. It causes them to have no idea what the impact of HWH was on the business. It can be said that LDCR and DVOM made progress with developing a PMS, while HWH is lacking on this aspect. The performance given by the DVOM is partially based on metrics from their PMS. The perceived performances given by the interviewees was almost similar. The PMS can be a reason for that observation. A problem every case struggles with is the consequences for not complying with the rules. This seems like an easy aspects, but the unequivocal dominance makes it hard for stakeholders to oblige stakeholders to do things as they want them to do. For the LDCR the Council for the Judiciary is owner, but they do not have a lot of control over the courts. For the DVOM the Board of Procurators-General does not have a lot of control over the public prosecutors because they are meant to be independent. For HWH all water authorities in the common regime are owner of HWH, but nobody has more control than their own water authority. 70

71 Change the mindset to reap benefits The organizational culture is the sum of beliefs, expectations, norms and values shared by most employees in a company (Cerovic, Kvasic, & Cerovic, 2011). A SSC can be described as a technostructure that constantly seeks opportunities to increase efficiency, while the standing organization is most likely to be a professional organizations that relies on knowledge and expertise of a limited number of employees. During the interviewees a large majority of interviewees argues that the public sector is more complex than the private sector. The employees are better protected by their conditions of employment than employees in the private sector. This causes organizations to retain employees employed that are not functioning sufficient. The cost of firing an employee are higher. Next to that some of the interviewees argue that people in the public sector are too kind to each other. An administrator of a water authority stated that it was pre-arranged to tell HWH what they thought of them. Eventually they told them what they were thinking, but the situation remained the same. There was nobody that made the decision for the abolition of HWH. There is no clear difference in culture between SSC and standing organization. Some state that there are significant difference between those two, while others state that they are the same. It is observed that the management of the SSC is eager in acquiring as much processes as possible in the shortest possible time, while the standing organization is reluctant for transferring processes to the SSC. Trust is stated as one of the main factors that does have significant impact on the perceived performance and future for the SSC. Trust is difficult to achieve, the organization need to take the right measures. Both DVOM as LDCR introduced personal contact in their processes. This was preferred by the standing organization, while the employees of the SSC did not see the advantages of personal contact. The culture of a organization can also increase the complexity of a SSC. The nature of public prosecutors tells them to investigate and judge about things. For the primary process this is good, but the DVOM can experience such approach as destructive instead of constructive. If the DVOM hears to much complains their attitude will be badly affected. There need to be a proper consideration in the complaints that reach the SSC The consideration between low and high specificity The roles and responsibilities need to be clear to a certain level. In case the roles and responsibilities are unclear, every stakeholder will do something else. According to the literature roles and responsibilities should not solely be stated in documentation, but also articulated sufficiently. In the LDCR case it became clear that roles and responsibilities are clearly defined in articles of Association, but articulated insufficient. However in this case several interviewees stated that roles and responsibilities organically evolved. Although roles and responsibilities are articulated insufficiently and some evolved over time, the roles and responsibilities are known till a certain level. 71

72 The level of specificity differ between interviewees. The interviewees from a SSC, except one, prefer high specificity of roles and responsibilities and want everybody to comply with the roles and responsibilities, while the other interviewees argue that it only produces bureaucrats. The quality employee of the LDCR does not prefer rules, he prefers a broad mission, shared values and a good mindset. The employees of the LDCR should do what is necessary to fulfill the customer demand. The mission of the DVOM is being an excellent service provider. However the DVOM makes the movement from SSC towards centralization without communicating it as it can have bad influence on the perception of employees. These two cases demonstrate that there are huge differences between the culture of a technostructure (SSC) and professional organization (standing organization). The SSC prefers tight regulation, while the standing organization prefers increased freedom. The roles and responsibilities of the LDCR were determined from the start, but still there were some adaptations to them over time. Roles and responsibilities change based upon experiences and are likely to change over time. Theory states that roles and responsibilities need to be articulated sufficiently to have a positive effect on the performance. Based on the interviews there is one major assumption behind that statement, namely that the mindset of the standing organization should be right. The current perception of the LDCR is that the standing organizations constantly seeks manner to circumvent regulations. A possible reason for this observation is the fact that the standing organization does not want a SSC Improving performance Perceived performance is different for every interviewee. The first observation is that interviewees have different perceptions regarding the factors that determine the performance. For HWH the support was insufficient. One of the most important aspects is top level commitment. According to the interviewees that was sufficient, but probably top level commitment needs to be interpreted as decision-maker support. In the situation of HWH the customers, i-managers, had a lot to say in the decision making process. They had influence on both the assignment for HWH, as the budget. It was expected that HWH would deliver products and services that were exactly what they were demanding. The role of the i- managers was to big in this situation. The other two cases, LDCR and DVOM, demonstrate that a clear separation of control, delivery and business have a positive effect on the performance. Decisions need to be made by these three stakeholders, with one stakeholder that can bite the bullet. The stakeholders that are in the tripartite consultations need to have sufficient control over their organization to positively affect the perception of the employees, also if the decision has a negative effect on some of them. Next to the commitment by decision makers the mindset of both the SSC, owner as standing organization need to be right. All need to be in a cooperative mode. This is also linked to the decision maker support where it need to prevent the possibility of a self fulfilling prophecy in which one of the three important stakeholders neglects to put in an effort. In addition, the effort that is put in by the stakeholders need to be constructive to have a positive effect. Solely delivering destructive comments creates an us/them culture that does not have a positive effect on the perception of stakeholders. 72

73 As mentioned earlier in this report unequivocal dominance is one of the main differences between the public and private sector. Unequivocal dominance causes longer decision making processes and more alignment. No decisions could be taken without the support of the decision makers. Increasing number of decision makers causes the complexity to increase and the individual control to decrease. This was one of the main reasons for the underperformance of HWH given by the administrator of a water authority. From a ownership perspective the SSC should be controllable. A factor that is possible to have more effect on the perceived performance is the transition and communication prior to the transition. Expectations are created prior to the actual transition. The SSC needs to fulfill those expectations. The possible benefits need to be realistic, the business case prior to the decision have to give a good perspective regarding the savings potential. Important aspect that is neglected often is the quality of services and products. This is hard to monetize, but essential in the valuation of the performance. The organization has to increase the support for the plans as much as possible to prevent unforeseen actions from stakeholders. Organizations can exaggerate in their plans to centralize as much processes as possible. The DVOM demonstrates that not all processes are suitable to be organized in a SSC. The culture of the organization can have an effect on this. The legal environment at the public prosecutors causes them to have no connection with IT, hereby there is a high need for IT support. For another organization, that needs less support, organizing IT in a SSC can work. The decision makers and transition managers need to have the ability to emphasize with the standing organization. It is likely that they invested heavily in organizing their own processes. From their perspective the processes are efficiently organized and perform well. It is a difficult process to change processes in which a lot of time and energy is invested. Finally the perceived performance is subjective and determined by a actor specific set of factors. If someone solely hears voices from customers stating that the performance is insufficient, one can start to believe it. The cases demonstrate that negative experiences are articulated more often, and people tend to neglect the escalation model and express their bad experiences with the SSC as high as possible within the organization. This can cause a overrepresentation of incidents at the top of the organization. Both the LDCR as DVOM are currently busy with the development of a performance management system that sets incidents into perspective. 73

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75 Interfaces 6. Verification findings In the previous chapter the three cases from the public sector are compared and preliminary conclusions are drawn. In this chapter the experiences from the Poland site visit are presented. It must be noted that solely the perspective of the service centers are acquired during the site visit and that there is no information regarding the perspective of customers and owner of the SSC Shared services centers in Poland During the site visit a total of twelve companies visited. From those twelve there are six companies (Heineken, Technicolor, Oriflame, Amer Sport, Delphi and UBS) that are used in this research. The first four are all financial SSCs or part of GBS. Delphi is currently outsourcing their financial processes, but are planning to establish a captive SSC. UBS outsources their transactional processes and has organized high-end processes at their SSC. Heineken currently employs 700 people at their SSC located in Krakow. The SSC was established in 2012 and currently serves 24 European countries. In comparison with 2012 the scope of the SSC has expanded and the SSC is starting to outsource processes that are been fully developed. From the GBS board of Heineken cost is considered to be an important factor. From the 24 transitions Heineken learned that communication is the most important aspect. Communication with the host countries should start months before the actual transition to keep them involved and committed. Service provider Heineken FSSC Figure 16: Heineken's hybrid sourcing model Various countries make use of different systems. Heineken FSSC chooses keep working with the system used by the host country. The SSC would like to see that the countries work with the same systems prior to the transition, however that is unlikely to become reality. The SSC develops an interface between the 75

76 system and processes of the standing organization and the internal processes at Heineken FSSC. Internally the SSC focuses on process improvement via Lean Six Sigma. They have four different levels for lean six sigma: (1) foundation (everybody can attend this training online), (2) yellow belt (60 appointed employees attended this internal training), (3) green belt (30 appointed employees attended this internal training), and (4) black (currently two employees attend this external training). Next to those trainings Heineken tries to implement the Heineken DNA via on-boarding trainings and internal marketing. Technicolor established their SSC in 2009, while prior outsourcing their financial processes to Accenture. Dissatisfaction regarding the management style used by Accenture led to the decision of establishing a SSC. Currently the SSC in Warsaw serves 21 European entities. Another SSC of Technicolor is located in Ontario. Technicolor Poland is located in Piasiczno, a smaller village close to Warsaw. To have a clear separation between Technicolor Poland and the SSC another office location was rented. Warsaw was chosen as a location to increase the easiness of employees to go to work (prior they worked in Piasiczno 10 kilometers from Warsaw). Currently all accounting processes are organized at Technicolor FSSC. At the start in 2009 they started with only accounts payable and accounts receivable. The number of processes increased over time. The decision to quite outsourcing was also determined by the fact that Technicolor was planning to focus on quality instead of quantity. Technicolor FSSC offers a wide variety of training programs combined with medical insurance and sports subscriptions to attract new employees. Their attrition rate was 11% in 2013 and projected to be 13% in Technicolor FSSC implemented LEAN for continuous improvement of their processes. The goal of Technicolor FSSC is to become partner of the European entities instead of a service provider. Oriflame Financial SSC was established in 2009 with the focus to serve the European market. This focus was extended to GBS. The GBS model of Oriflame is organized with four offices (New Delhi, Mexico, Russia and Warsaw). Next to the financial processes, Oriflame is currently analyzing the possibilities to organize HR processes in their GBS. The main reason for establishment was cost reduction and quality improvement. The SSC is located at the factory in Warsaw due to vacant office space. Transition took around three months. The director would tried to acquire more foreign employees to improve communication and transition if he could do it again. 76

77 Figure 17: Delphi's GBS locations Currently the focus is changed from cost reduction and quality improvement as main objective to quality improvement as main objective. Quality improvement is mainly achieved via better alignment between countries. Eventually the board should benefit from the consolidation of financials. Oriflame uses a three-layering approach: level one is purely transactional and outsourced to India, level two has some complexity and is outsourced to India with coaching, level three are complex processes that require specific capabilities and are located in Warsaw. Oriflame uses a triangular meeting structure to improve their business. This is displayed in figure 18. The Center of Excellence is organized over all locations and focuses on technological improvements. The process owners are responsible for the process architecture. The super users are appointment users that come in contact with the process on a daily basis. Modifications of the process must be approved by these three stakeholders to make sure that there is support and the new situation is likely to work. Center of Excellence (technology) Process owners (process) Super user (practice) Employees Figure 18: Oriflame process improvement Amer Sports established a financial SSC in October 2011 with the focus on EMEA. The main goal of the establishment was the creation of transparency and improvement of control across countries. The cost aspects was less important from Amer Sports perspective. SSC design, and mapping of people and 77

78 processes already began in At the start of the SSC there were only two processes: purchase to pay and record to report. It was chosen for those two processes because it did not require any language capabilities nor contact with the customer. The board of Amer Sports is pleased with the current results of the SSC and hereby planned to also organize invoice to cash at the SSC. This is a more complex process and requires more language capabilities. The SSC has a dedicated delivery team per country. Teams exist of approximately 10 to 12 people. Delphi outsourced their finance and accounting activities to Genpact. The processes were organized in India, which is relatively cheap. A couple of years ago Delphi was close to bankruptcy and hereby have a strong focus on the operational cost. Delphi encountered problems with the knowledge about the processes and language capabilities of Genpact. The performance of Genpact was sufficient compared to the performance indicators that was agreed upon by both Delphi as Genpact. This is called the KPI paradox. However Delphi experienced the feeling that Genpact underperformed based upon the problems and complaints by employees. This caused Delphi to currently run a pilot in which it analyzes the possibility of organizing the processes at a captive SSC while remaining to be cost-effective. The interviewee argued that the operational SSC cost are higher, but there is lot of efficiency to be gained in reducing rework. Delphi is top down organized. Decisions are made by high ranked employees. This is one of the reasons that an us/them culture was created at the start of the pilot. There was lacking communication towards the standing organizations. It was reckoned that the performance of Genpact was insufficient and it needed to be improved. The strategy for that was a captive SSC. The standing organizations hereby thought that they did not have to change anything, it is the job of the SSC to arrange things as it should. The SSC currently encounters such problems on a daily basis. The SSC is hereby unable to perform as it would like and is focused on keeping the operations going and come in control. UBS has a captive SSC in which middle-office processes are organized. UBS started their KPO (knowledge process outsourcing) in 2007 with asset management and fund services. Currently there are almost employees at UBS KPO center in Krakow. UBS KPO focuses on the more complex processes, therefore they do not work with rules and procedures but mainly with frameworks employees should comply with. This gives their employees more responsibilities and challenges. The annual growth of employees is approximately 50%. Before the transition the center makes an assessment of the processes at the standing organization. The transition will only occur if the assessment is sufficient. The improve & move strategy results in a 97% satisfaction rate for the transition of processes. Approximately 5% of the workforce are dedicated to continuous improvement. The roles and responsibilities are clearly defined and both the SSC as customers are stimulated to be role consistent. Communication to their customers is seen as an important aspect. Monthly newsletters and performance is communicated to keep connected with their customers. The center is formally a cost center. The interviewee stated that they would like to become a separate entity delivering services to more companies. 78

79 6.2. Verification This research focuses on shared services in the public sector. Differences between public and private sector can have significant effect on the perceived performance. Preliminary conclusions regarding the impact of governance on the perceived performance are hereby reflected on six cases in the private sector to determine if those findings are public sector specific or applicable of shared services in general. An important is that there is no information gathered from the owner, principal and customers of the private SSCs. There are minor differences in the motives for establishing a SSC. The public SSCs are mainly focused on cost reduction, quality improvement is added as motive to increase support for the establishment. There are differences between the private SSCs. Some of them are focused on cost reduction, but the majority has an offensive goal namely quality improvement. This is reflected in the dedicated continuous improvement teams, or focus on continuous improvement in the governance structure of the private SSCs. The transition between public and private SSCs differs that public SSCs are focused on cost reductions and hereby choose for a big bang approach to maximize the savings potential. Private SSCs use a phased approach which can be linked to the quality improvement. The complexity decreases choosing for a phased approach. Risks are reduced and lessons learned from previous transition can increase the performance of future transitions. The transition is considered to be of utmost importance for the perceived performance of the SSC by the standing organization. The global business services journey developed by KPMG states that there are five levels in the journey. For private organizations it is the journey they take. All SSCs visited in Poland are single function SSCs, that can be positioned to be level two of three. The public sector chooses to make the jump from level one, a decentralized organization, to level four, a multifunctional SSC. This can be a transition that is too big to handle. A possible reason for this large jump in the GBS journey is the strong focus on cost reduction neglecting the managerial impacts and importance of change management. These different journeys are displayed in figure

80 Figure 19: Differences in the GBS journey of public and private organizations It is observed that the private SSCs are mainly international oriented. Customers are mainly European or global entities. The overarching organization is both owner as principal (e.g. executive board of Heineken N.V.). Next to that the dominance position is clear for the SSC. There is a clear perspective on whom makes the decisions regarding the future of the SSC. For the three cases in the public sector it is observed that they are domestically focused, and encounter alignment problems regarding decision making. During operations there are large differences between public and private SSCs. The private SSCs have limited contact with their customers. The products and services are determined by the principal. The SSC need to delivers those. While public SSCs interacted with their customers in various forums. There is a wide variety of performance management systems implemented at private SSCs. Some of them implemented an extensive PMS, while other are mainly focused on cost. The satisfaction of customers is determined via customers surveys at almost all private organizations. With valuation by customers form an important aspect in the control of the SSC. This increases the pressure on the SSC to deliver better quality and improve satisfaction. The eagerness that is observed at public SSCs is also presented at private SSCs. However that eagerness is tamed by the phased approach. The Polish SSC and BPO sector struggles with retaining employees because of this eagerness to develop themselves. There are two strategies that private SSCs follow. The first is the acquiring of more complex process and outsourcing the processes that are completely 80