In late June, we sent two of our bravest colleagues, Marta and Marcelo, on a daring mission into the Tundra, close to the Arctic Circle. Even though the temperature was in the mid-80s (mid-20s Celsius), you could feel the glacial breezes. Since our unit focuses on Latin America and the Caribbean, you might wonder what brought them so far north.
The team had arrived in Toronto, Ontario with a mission: to learn more about shared corporate services (SCS) and their potential application to save costs and improve government efficiency in other parts of the world.
In the late 90s, reeling from a financial crisis, the provincial government of Ontario was faced with a daunting task: to cut a third of its administrative budget in one year. In other words, they had to do more with less. Over the next decade the government managed to save C$43 million in direct costs and C$227 million through efficiency gains. Their secret was an innovative solution borrowed from the private sector.
The logic of shared corporate services is very simple. Essentially, it tries to exploit economies of scale. The idea is to merge the provision of the most relevant back-office activities (Human Resources, IT, Financial Management, procurement, etc.) under one single provider.
While this idea has been used in the private sector for a long time, technological advancements have made it cheap and easy enough to be readily adopted for communication, storage, and processing across a wide spectrum of corporations. Now, a few governments are also daring to try it, taking the “corporate” out of sharing services. One of the first pioneers was the province of Ontario in Canada, where we went to investigate. What we found was impressive. Not only did they cut costs to achieve massive savings through the sharing of relevant back-office activities, but they went further to increase government efficiency and service quality.
The success of this initial effort motivated them to study how the scope of SCS could be expanded beyond traditional back-office activities. Now, everything from revenue forecasting and e-waste disposal to travel services is provided by a single entity. To some extent, the driver of this “second generation “of SCS is the ability to take advantage of the “interoperability” developed in the first generation—the fact that different government systems could communicate with one another. For example, when citizens have to fill out government forms, they are now shorter, standardized and automatically populated based on forms they filled out in the past.
So, if there are so many upsides to this model, the question is: why has it not been adopted in more countries? One of the reasons is that in the public sector, ministries are often organized in silos. This can make it very difficult to merge processes and systems, which demands organizational change (some ministers are very attached to their staff and budgets!) The government of Singapore, for example, identified this as the main obstacle for the implementation of SCS. To shift the institutional culture, they needed to convince staff to approach public service from a completely different angle.
As you can see, , which does bear some risks. In countries where they have been implemented, like Canada, the U.K. (now undergoing its second phase) and Singapore, success required a mix of political will and conducive institutional designs.
In Latin America, we have come a long way in implementing back office systems, such as those used for procurement, financial management (IFMIS), and to a lesser extent, human resources. In this context, certain countries in the region could be well-positioned to embark on this bold initiative. For example, Jamaica has already taken the first step to adopt SCS, and a Central American nation has also expressed interest in Bank support to do so (name to be released if it all goes well!) We’re excited to see where this can take us. In the meantime, stay tuned for future publications as we delve deeper into this theme, making sharing less scary!