Why Shared Service Center fail in Germany: A question of governance and management

Shared Service Center (SSC) in public sector are on the reform agenda of many western countries. The main objective is to bundle public services to achieve cost reduction and improvements in service quality. SSC could named as... [ view full abstract ]

Shared Service Center (SSC) in public sector are on the reform agenda of many western countries. The main objective is to bundle public services to achieve cost reduction and improvements in service quality. SSC could named as production place for primary repetitive tasks that can be standardized. To do so SSC require not only information technology and standardization of task execution but also new governance modes such as purchaser-provider-model and so called service level agreements. The expectations are high but governments facing considerable implementation difficulties. Especially in Germany SSC are to the contrary of the existing administrative organizational culture which is more characterized by hierarchal control than of contracts and negotiation. In Germany SSC are in a kind of transformation phase which is currently stagnating. In this article we explore and discuss if SSC are in general an inadequate model for the public sector. Or to be more concrete: Why do SSC fail and which implications does it have for the design of governance and management?

To answer this question, we carried out an empirical, explorative, qualitative case study research approach in a shared service agency at the federal level (Bundesverwaltungsamt*). We conducted semi structured expert interviews, specifically ten interviews with representatives of the SSC and with representatives of the customer authorities. In addition, the findings were enriched by long-term empirical experiences and investigations at the federal, state and local level in Germany and international experiences based on case studies.

We follow an explorative approach. Therefore, we apply an inductive analysis using sensitizing concepts to interpret the empirical findings. Sensitizing concepts give a general sense of reference and guidance in approaching empirical instances. In this special case we use governance-related aspects in matters of the implementation mode, incentive theory approaches, contract theory considerations and more management-focused aspects.

The empirical findings point out, that failing shared service center in Germany causes two reasons: on the one hand inappropriate institutional setting and frame condition (external factors), on the other hand internal management failures (internal factors). In general, several problem areas for shared services are: the prevailing implementation mode ‘voluntary and negotiation’, the financing structure, as well as internal structures or dysfunctions in the design, namely lack of standardization, underdeveloped distribution and lack of implementation management as well as governance problems.

Based on the interpretation of the empirical findings we resume and discuss the implications of the reasons of failure for the design and governance requirements of SSC. We illustrate three different scenarios that relate and gradually adapt the external frame conditions and action requirements within SSC. Thereby we show different ranges of change strategies for governance and management and identify elementary conditions for SSC becoming an appropriate service model for public services.

*It provides shared services to other federal government authorities in the area of human resources, finance, procurement, organization, internal services, law or information technology (IT).