A recent blog (read it here) shows that working capital funds are growing at a faster rate than appropriated funds and suggests this represents a government-wide trend in centralizing administrative services. But is working capital the only way for government to centralize? Certainly not. Conversations between CEB and dozens of US federal government executives over the past 12 months have suggested agencies are experimenting with a number of different ‘centralizing’ options. Here are a few:

1.       Technology Share—For a number of reasons, implementing new systems in government can be a challenge. The net result is that some agencies are simply more efficient than others at conducting the same task because they have the right tools to do so. Instead of trying to re-create those same systems in-house, some agencies are now simply asking to ‘rent space’ on those that are already up and running.

2.       Co-Located Technology Share—This looks a lot like the Technology Share option, but staff from the agency that is renting space are physically located with the provider’s team and system. The benefit here is that staff can learn from their peers, but executives do not have to make as many formal changes to their function’s organization chart.

3.       Centers of Excellence —Instead of renting space on a system, agencies fully outsource a specific transaction or administrative task to a peer organization (most commonly to a peer agency within the same Department). This enables functions, such as finance or HR, to become highly proficient at one particular task, and provide that task to a broader community in a more efficient way.

4.       Department-Led Centralization—Backed by deep analysis and likely external benchmarking, Department leadership prioritizes areas for focused efficiencies. While recommendations can support any of the three methods outlined above, Department-led centralization often migrates more services to a centralized shared service center. In order to ensure success, these centers generally operate in a matrixed management structure and measure themselves against very tangible performance objectives.

5.       Outsource within Government—Partially driven by supply and partially driven by demand, agencies are increasingly looking to outsource administrative services to other government entities. In these instances, the department might centralize services first via working capital and then outsource that service to an external provider, or agency executives may outsource directly to the provider. Some of the most common providers include the National Business Center, the National Finance Center, the Administrative Resource Center and the Program Support Center, to name a few.

Has your organization tried any of these? What do you think works best?

As federal budgets continue to face Congressional scrutiny, will government agencies respond with increased centralization? My thoughts are yes, but with a caveat.  Federal agencies will increasingly sift toward centralization of administrative services first, and fast. Programmatic services, however, will remain a challenge to centralization.

Over the past 9 months, CEB Government Practice conducted an in-depth analysis of US federal working capital, supply and franchise funds that accounted for $134 Billion in FY 2011. These funds enable a wide range of administrative services including Information Technology, Finance, Human Capital, Procurement, Security, Facilities, Printing, and Legal, among others. And, while on average these funds account for roughly 2% of a Department’s or Independent Agency’s total budgetary outlay, some make up as much as 10%.

They’re also growing faster than appropriated funds. Since 2009, the compound annual growth rate (CAGR) of a Department’s or Independent Agency’s working capital fund has outpaced that same Department’s or Independent Agency’s total budgetary outlays CAGR by 4%. This fact is probably the underlying cause of many fund customer CFO concerns that centralized services aren’t “taking their fair share of the cuts.” However, it probably also represents the centralized service provider’s response that “customers aren’t asking for less, they’re asking for more.”

Conversations with CFOs, CIOs, and CHCOs across government tell me that regardless of who is right, more—not less—will be funded via working capital moving forward.

Do you interact with your organization’s working capital, franchise or supply fund? Do you have ideas of new services that could benefit from the economies of scale working capital provides? If so, please share them below as everyone in government can benefit from another cost-savings opportunity.

When a leadership team is faced with major decision making, having accurate and relevant metrics on their performance dashboard makes a difference. Deciding what to include can be difficult, but individuals selecting metrics should focus first on keeping it simple. Yet, that doesn’t seem to be common practice as over and over again we hear the same concern from executives, “I’ve got access to hundreds of measures and indicators, but it’s too much information to absorb. It’s like I have all the pieces of the puzzle but no way to actually put the puzzle together. ”

To help individuals new to dashboard design, the GFR consolidated numerous studies on metrics into a single checklist “Designing Metrics That Matter”.

When selecting what to measure, make sure that the metrics represented on a dashboard are relevant to the underlying question of interest. If a metric captures information that decision makers consider a poor indicator of the question at hand, then they will likely ignore the metric when making decisions. However, due to lack of necessary data, it is sometimes difficult to achieve perfect relevance. Thus, you may have to rely on metrics that ‘get at’ the issue, but do not perfectly represent it.

Along with including relevant metrics, make sure the metrics you are using are as free as possible of measurement errors. Such errors include imperfect data, poor interpretation of survey questions, and incomplete data files. When designing metrics, leadership teams should consider both relevance and measurement error issues, and attempt to build a dashboard that is both on-point and believable.

Representing input, output, and outcome metrics on a performance dashboard is another crucial step in impacting decision making. While input and output metrics play a key role in providing quick insight into the size and role of a specific function, outcome metrics aim to demonstrate the overall value that a specific service provides. Without outcome metrics, you will often be able to answer questions about what you are doing and how much it is costing you, but will have a harder time answering why you are doing it and what the return on the investment will be. FAA has created clarity on this front by aligning around a single metric.

When solid metrics are absent from a dashboard, decision-makers are often misled, and don’t always take the best route to benefit stakeholders. In developing and representing metrics that include concrete, relevant data, you can feel confident in the efficiency and effectiveness of your agency’s dashboard.

Right or wrong, the finance function often gets stuck being the ‘bad cop’ for an organization. Not in the way we might traditionally think of an IG or Counsel playing that role, but in a much more daunting way. Functions that monitor rule breaking operate within strict guidelines, and typically come in and point out where someone went wrong. In this period of belt tightening, Finance is a different kind of ‘bad cop’ — the kind of cop that comes in and decides what stays and what goes. And that my friend, is never an easy choice.

Take travel expenses for example.  It sounds like an easy win. In an ideal world,  government employees would find cheaper ways to get places, still being able to conduct business as usual but at a lower cost using proven tactics. These tactics include buying tickets three weeks earlier, ‘shopping around for best deals’, booking online, and other strategies that most of us use in our personal travel choices. In many organizations, if you don’t follow these rules, you simply don’t get reimbursed.  While this may seems harsh, it tends to drive the right desired behaviors.  For example, a Government Finance Roundtable analysis of employee travel showed a high-maintenance traveler could spend $1500 on a three day trip to Chicago from DC while an ideal traveler could schedule that same trip for only $805.

Many government CFOs however, are unwilling (or perhaps unable) to rely on such tactics to achieve 10% -20% reductions in travel costs.  Instead, they rely on across the board travel cuts, which may impede mission achievement  While this will guarantee hitting cost saving targets, CFOs worry about long-term impact.  

 In a recent meeting of 19 US Federal CFOs, one CFO asked, “By cutting finance travel costs I know I am reducing the effectiveness of our people-based internal controls. Does that mean I’m simply transferring today’s travel costs to future year compliance costs?” Perhaps.

Travel may seem benign relative to choices that impact people. Departments have High Priority Performance Goals so aligning budgets to the programs that support those goals should be easy, right? Well, that is certainly the intention, but the problem isn’t determining which programs align more than others, it’s getting the people behind those programs to align with the decision.  Ending funding to someone’s life’s work, leaving dolphins stranded on beaches, equipping agents with old vehicles, deferring systems maintenance, and closing locations, are all examples of choices CFOs make that greatly impact the people behind the programs. These choices are never easy, and the politics of cost cutting are even harder than the economics.   Successful organizations, such as the Department of Commerce  will bring program managers into discussion early and often, ensuring transparency in the resource allocation process.

Federal agencies have invested heavily in finance technology for the past decade, with mixed results.  The private sector hasn’t fared much better — only 24% of the controllers recently surveyed by CEB believe they are realizing a positive return on their finance technology investments; less than half expect to break even or do better in the future.  IT vendors and consultants want to sell you the solutions to these problems; what they don’t tell you is that realizing a return on your technology investment is difficult and rare.

All the major forces that will impact Government Finance over the next five years have a technology component to them – this includes everything from continuous drive for process improvement, standardization of processes, electronic invoicing, faster decision-making and greater regulatory pressures. That said, many of the government finance executives we speak with do not feel prepared to successfully manage these large-scale IT investments.

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I just came across this report from the UK National Audit Office that examines the UK experience over the past 8 years as they tried to move many administrative activities into a shared service center.

In a nutshell, the study concludes that, despite significant cost and effort, the planned benefits of the initiative have not been achieved. By creating complex services overly tailored to individual departments, the government has increased costs and reduced flexibility. There has also been a failure to develop the benchmarks necessary for measuring performance and to date, the government has spent far more on the initiative than anticipated.

In some ways, I’m not surprised. The whole point of having a shared service center is to monitor performance continuously and optimize to common processes. If you’re customizing at every step and you aren’t tracking performance, you shouldn’t be surprised that outcomes aren’t what you expected. One government agency that has done this quite well is NASA — fifty six services consolidated across ten distinct centers with rigorous measurement and transparency in place.

So what’s the moral of the story? Shared services can work in government, but require some very deliberate steps.

At a recent meeting with federal finance & procurement executives, that conversation focused on how deeply critical mission support activities (administrative costs) may be impacted in future budget years.  While we are focused on how best to trim these activities, how concerned are we about the morale in these functions?  Judging from the conversation, I’d say a lot.

One executive, from a law enforcement agency, shared a great story.  She discussed how an agent came into a procurement staff meeting and talked about how he had been shot, and how a special bullet proof vest procured by the Acquisitions Department had saved his life.  ”That story went such a long way in reinforcing how important their job is, and really served to energize the procurement staff,” she noted.   In times where administrative functions are under pressure, such gestures go a long way.  Have you shared mission success with your mission support staff lately?

As government agencies brace for protracted pressures on administrative or ‘mission-support’ spend in the coming years, much of the conversations with government finance executives has focused on how to reduce “shadow” administrative activities done in the field which could theoretically be provided centrally.  Executives argue, rightly, that there is tremendous duplication of effort that creates unnecessary complexity, increases errors and prevents an agency from taking advantage of technology.   But centralization doesn’t solve the problem either; in fact, without standard processes and procedures and robust technology, centralization can create more harm than good (at least from an efficiency perspective.) There is no perfect organizational structure and no singular model for which activities or functions should be centralized or decentralized. The decision depends on the agency’s mission and a particular function’s goals. The key is to ensure that functions are “fit for purpose.”

Fit for Purpose

The benefits of becoming a well-connected organization are tangible and compelling: organizations that have invested more in structural “connective tissue” (elements such as incentives, information flow, informal connection points, and decision rules, forums, and collaborative mechanisms), outperform their peers.  At the same time, cost should be one of many considerations. When measuring a function’s performance, Finance and Procurement leaders should select a limited number of metrics (recommended: no more than five) that link directly to agency mission and keep the team focused on what’s important. Keep in mind that if you restructure your function, it should be because either the current structure is impeding mission execution or it is sub-optimizing the performance of a critical business process.  If your goal is actually to get visibility and transparency into performance, centralization is one of many potential solutions to that problem.

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