Shared Services and Cost Reduction Motive in the Public Sector

ABSTRACT

The intention of this article is to understand whether and how shared service centers can help reduce costs in the public sector context. We identify the sources of cost reduction for shared service centers and discuss the obstacles to making use of them. In order to illustrate and complement the theoretical discussion and the literature review, empirical insights from two Estonian cases are provided. The case studies indicate that when the context is enabling, shared service centers can help reduce back-office headcount. However, the total costs and benefits of the public-sector shared service centers are not calculated and remain unknown.

Keywords:

• Shared service center (SSC)
• motives for shared services
• cost reduction
• public sector
• back-office
• accounting
• case study
• Estonia

Acknowledgments

The author gratefully acknowledges the constructive comments of Prof. Ringa Raudla and the participants of the Working Group on PA Reform at the NISPAcee conference 2015, where an earlier version of this article was presented.

Funding

This work was supported by the Estonian Research Council grant PUT-1142 and by national scholarship program Kristjan Jaak, which is funded and managed by Archimedes Foundation in collaboration with the Ministry of Education and Research.

Notes

¹ Enterprise resource planning (ERP) system is an integrated modular (“out-of-the-box”) software from global vendors such as SAP, Oracle, and Microsoft Dynamics. An ERP system consolidates the data from different organizations into one database (Dempsey et al., 2013). Public administration ERP could be called Government Resource Planning (GRP) systems; however, this term is not used by software producers (Ziemba & Obłąk, 2013).

² Depending on the author and the concept of what failure means, the ERP failure rate ranges from 40–90% (Aloini et al., 2007; Khaparde, 2012).

³ For example, within the finance function these mid-office functions can be treasury, management accounting, and analytics (Ernst & Young, 2013).

⁴ Since fall 2015 under the Ministry of Finance.