Thirty-two percent of public-sector leaders say that they will invest more in government shared services in 2025, according to Forrester data. The stakes are high: Efficiency, cost-effectiveness, innovation, and agility all hinge on selecting the right model. But can a shared services model really deliver all these benefits, or is a service provider approach more effective? In practice, these models are often blurred, and many government entities find themselves struggling to maintain balance between centralization and flexibility. Just ask the 61% of public-sector technology leaders who told us that IT shared services in their organizations need to improve!

In its ideal form, shared services represent a centralization strategy: one that reduces redundancy, standardizes processes, and enables cost savings across multiple agencies. By consolidating core operations such as finance, HR, or IT services into a single, efficient unit, governments aim to streamline processes and cut down on waste. But without rigorous management, shared services can devolve into a service provider model, losing sight of their core mission and sacrificing the efficiencies they were designed to deliver.

The Challenge: Service Provider Behaviors In Shared Services

A key factor in the failure of shared services is when government entities lose sight of their primary objective: internal efficiency. When centralized units begin treating individual departments as external clients, offering tailored solutions to each, they risk slipping into a service provider mindset. The problem with this shift is twofold: It undermines the intended cost efficiency and introduces significant complexity.

This was evident in Australia’s Department of Human Services (DHS), where a promising centralization effort deteriorated into fragmented execution. By giving in to individual departmental demands, DHS lost the cohesion and rigor essential for shared services success, leading to disjointed systems, integration failures, and mounting costs.

Similarly, Shared Services Canada was created to streamline IT and administrative services for the federal government, but its struggles to keep pace with technological advances, and communication breakdowns, have turned it into a fragmented service provider, plagued by complexity and inefficiencies.

A Different Path: When A Service Provider Model Succeeds

A service provider model can offer more flexibility. By focusing on the specific needs of each agency when a model customizes its offerings, diverse needs are met with high-quality, specialized solutions. It works best when agility is paramount and when the government agency in question needs to innovate or respond rapidly to changing requirements.

Singapore’s GovTech, which has become a key player in the country’s digital transformation, is a good example. Its focus on customized services has enabled it to drive significant modernization, delivering innovative, scalable solutions that align with the evolving needs of the Singapore agencies while staying nimble enough to support multiple clients.

Similarly, as part of the Department of Homeland Security, the US’s Cybersecurity and Infrastructure Security Agency (CISA) operates a shared services center under the Cybersecurity Quality Service Management Office program. Providing standardized cybersecurity services to federal agencies, this initiative bolsters security posture while maintaining high levels of compliance. CISA’s ability to adapt and provide tailored cybersecurity services to different departments demonstrates how a service provider model can work effectively in complex environments.

Choosing Between A Shared Service Or Service Provider Model

As governments consider adopting these models, it’s essential to understand the core attributes that drive success. To prioritize the success of each model:

  • Use shared services for cost efficiency and standardization. Here, the focus is on centralization of key administrative functions while ensuring operational efficiency. This means a laser focus on standardization across agencies to limit redundancy and maintain cost efficiencies. A clear governance structure with accountability for all participating agencies is needed for alignment and to minimize fragmentation. Maintaining a focus on shared goals rather than departmental differentiation is critical, with strong cross-agency collaboration reinforcing this model.
  • Create service providers for complex needs requiring agility and innovation. Here, the objective is customization of services tailored to the unique needs of each agency. High levels of flexibility allow agencies to adapt to evolving demands and technological advancements, with service-level agreements providing clear, measurable outcomes and client satisfaction. An emphasis on innovation and cutting-edge solutions that support the evolving needs of government agencies is the hallmark of an effective service.

Stick To Your Operating Principles

Understanding the difference between shared services and service providers is crucial for effective implementation of these common machinery-of-government patterns. This means ensuring that, whichever approach is chosen, clear operating principles are established and communicated to both the customers and employees. These principles should embody the value that customers can expect to derive from the products and services offered. Specifically:

  • In the case of shared services, this means supporting enabling IT investment that focuses on stabilizing, operating, and protecting service delivery, plus consistently meeting commitments, which creates trust internally and externally.
  • For service providers, this means (with the former focused on streamlining processes, delivering insights, and optimizing mission outcomes and the latter focused on breakthrough innovation) replacing instincts with insights and inspiring new ways to achieve outcomes with emerging technology. Often in collaboration with the agency’s own IT function, service providers will also support investments during cocreation activity — where existing and emerging technologies are made widely available to civil servants to help them creatively tackle complex social and environmental challenges.

Success lies in recognizing the right model for the right customer goals — and staying committed to them. I’d love to hear how your agency engages with these models. Forrester clients can schedule a guidance session to discuss how to improve use of these models.

(This blog post was written in collaboration with Chiara Bragato, senior research associate, as part of Forrester’s research and continuous guidance for public-sector and government leaders.)