The State Cloud Looms Over Croatia

Today’s governments have long been faced with a continuous demand to achieve the best possible results with minimal resource expenditure, aiming to provide basic services to citizens in a fiscally responsible manner.

The need for responsible resource utilization has become increasingly pronounced in recent years amid rising national debt and a constrained state budget, alongside growing demands from various state programs and projects. Accordingly, many governments are opting to consolidate their activities and share services among state bodies and agencies with the goal of rational resource use and financial savings, as well as strategic utilization of human resources (civil servants). Although we are witnessing numerous examples of the establishment of such shared services in various domains of government activity from administration, IT to education services, there is a wide range of additional optimization opportunities for government activities, particularly through the use of advanced technologies.

For top quality, the concept of shared services for multiple users emerged in the 1980s, and research shows that interest from companies, and increasingly from public sector representatives, is unabated. Several advantages of introducing shared services have been recognized, such as the introduction of processes that represent best practices in a given area, economies of scale, greater quality control of the provided service, lower human resource costs, higher returns on technology investments, standardization, optimization of business processes and practices, etc.
However, before making a decision to introduce shared services, relevant state bodies need to have a clear vision and goal for their introduction – improving service or, for example, reducing costs or both. It is also essential to define whether the goal is to maximize the quality of the future service or to find an optimal solution from a cost perspective, and particularly to define what the future model of providing the shared service will be – a separate company, a reorganized existing department, or an agency of the state administration, etc.

Complex Project Previous experiences of governments across Europe and the world, as well as Deloitte’s involvement in a series of shared services establishment projects, have shown that the decision to introduce shared services in the public sector is complex and often depends on several factors that are not exclusively financial in nature (e.g., involvement of various stakeholders, political interest, and public interest, especially when it comes to redistribution and organization of jobs).
The project of introducing the shared services model and the subsequent redistribution of employees is complex and typically encompasses at least the following phases/steps: (1) assessment of the acceptability and feasibility of introducing shared services for specific types of activities (the relationship of benefits and sacrifices as well as the decision between introducing shared services or, for example, outsourcing certain services); (2) design of the optimal shared services model; (3) development and testing of the selected model; (4) its implementation and activation; and (5) continuous support in evaluating and optimizing the existing model. It is necessary to constantly pay attention to the organization of business and human resources, change management, IT systems, and especially to the overall project management. It is important to note that there is no single, universally accepted model of shared services; rather, it needs to be defined and implemented depending on the characteristics of each organization and its requirements.
Deloitte’s regular research on shared services (conducted since 1999 with participants from the public and private sectors in over 35 countries) indicates that users of shared services (from both the private and public sectors) have experienced standardization of business processes after the establishment of shared services (61%) as well as established and common methods and practices, which consequently leads to resource savings and greater business efficiency.

Examples from Europe Across Europe, there are several successful examples of well-established shared services in public administration. An excellent example is the Irish government, which has established shared services in the area of central government (e.g., accounting, human resources and payroll, learning and development), health, higher education, as well as commercial state organizations. Deloitte’s direct project experience with the Republic of Ireland in implementing a centralized payroll calculation and payment system for civil servants has shown that such a system can achieve cost savings of up to 40%. Similarly, the Finnish government has introduced a shared service center (Certia) in the education sector, which provides unique services: a shared service for finance, human resources, and IT services for nine Finnish universities. The two-year implementation and development period of this system (2008 – 2010) indicates on one hand that such a concept of shared services has long been in use in European countries and on the other hand that it is a process that takes time. Similar examples can be found in the United Kingdom, Denmark, the Netherlands, etc.

New Ministries The Republic of Croatia has embarked on this path with the announced project of establishing a Shared Services Center or the establishment of a state cloud, which should ensure that public administration bodies share technical services (e.g., infrastructure, platforms), standard technical services, interoperability systems (e.g., data delivery security systems, shared data at the level of public sector bodies), and business services sharing certain applications (e.g., public procurement, receiving e-invoices). This is Croatia’s first major step towards shared services, primarily driven by EU development plans and the possibility of financing through EU funds (a total of 30 million euros). The success of the project will largely depend on the good application of the described principles of successful shared services and good project management.
The concept of establishing a state cloud is a new concept that reflects the impact of technological advancement on state activities and priorities. Namely, today’s governments are required to solve 21st-century problems with resources and management structures that are adapted to entirely different business conditions from earlier periods. Therefore, governments often face new challenges by creating new ministries, departments, or agencies that adapt significantly more slowly to changes in the environment and the demands of citizens. On the other hand, governments are expected to adopt a new way of providing services by 2020, to work on creating an open and innovative government, to use the concept of open data and co-creation, and to encourage the use of advanced technologies, especially mobile and digital. The use of mobile technologies, for example, can ensure greater efficiency in internal organization and communication, while simultaneously encouraging greater citizen involvement in the development of specific government solutions and simpler usage of them.

Software Management It is interesting to highlight some of the new technological trends and Deloitte’s predictions (Deloitte Tech Trends 2015: Public Sector Perspective) that will to some extent influence the design and operation of shared services: software will manage everything (software defined everything) as broader aspects of government IT systems (e.g., networks, databases) are expected to be virtualized. Such cloud usage would significantly lower IT costs for the government, ensure much higher operational speeds, reduce the complexity of activities, and improve the ability to respond to adverse external influences (cyber incidents). Several more advanced governments around the world have begun to virtualize their IT resources. However, many governments still face several challenges: from a technological perspective, it primarily concerns the management of existing legacy systems, and from a non-technological perspective, greater automation and standardization also lead to the integration of several different organizations and services, which can pose a challenge for the public sector. Nevertheless, to achieve the necessary step forward in utilizing software management principles in the public sector, it is essential to ensure that the following requirements are met at the level of state administration: to provide educated and experienced professionals who are accustomed to working in such an environment, good coordination of numerous different resources, and to ensure shared networks. From the perspective of shared services, it will be necessary to ensure their gradual adaptation to the virtual environment, but also to ensure good cooperation between the public sector and the community of authorized vendors of certain IT solutions.
It is also anticipated that the existing IT system will be replaced. Along with often outdated IT systems, governments around the world are considering the development of existing key transactional, reporting, and management systems. Accordingly, further adaptation of shared services towards transitioning to cloud services is expected, and often also to the outsourcing of existing shared services if the business case shows that the costs of such services would be lower if performed more efficiently by a third party. It is important to note that any changes in the described direction, especially in the part of replacing the key IT system, require changes in existing resources, additional change management activities, etc.
Guided by the rapid advancement of technology and the increasing demands of citizens for better, fiscally justified services, it becomes indisputable that shared services will be a proposal for the work of future governments. It is also inevitable that the existing concept of shared services is rapidly changing and transitioning into virtual reality, thus raising the question of how ahead of time Croatian and other governments are, and how much they lag behind.