Shared services model pays off for Minnesota State Colleges and Universities

This blog summarizes the key takeaways from our fiscal resiliency podcast, episode 10.

How do higher education institutions take steps towards fiscal resiliency using a shared services model? A 2021 survey by The Chronicle of Higher Education/Workday noted that 41% of college and university leaders, in part because of the impact of COVID, state they are looking to expand their shared services agreements, including in areas such as IT, enrollment and human resources (HR).

Baker Tilly’s recent Higher Ed Advisor fiscal resiliency podcast features Eric Davis, vice chancellor of human resources for Minnesota State College and Universities (the System), with podcast host and Baker Tilly managing director Christine Smith and Carla Hirsch, Baker Tilly risk advisory practice manager. Together they explored the positive and the challenging aspects of shared services models for university systems. Eric leads the enterprise shared services operations for the System, the third largest educational system in the country. The System is home to 340,000 students and 15,000 employees, including seven universities, 30 colleges, and 54 campuses across the state.

Benefits and challenges

Hirsch noted that the most common perceived benefits of shared services are enhanced effectiveness and efficiency. A shared services model can lead to the reallocation of resources to more strategic functions and the ability to perform tactical functions with more efficiency given increased employee specialization. However, significant cost savings were not realized in the short term and may be less than anticipated by some in the long term. While efficiency is definitely a benefit, whether immediate resource savings should have ever been expected is something that is still up for debate.

Davis emphasized that being clear on intended benefits of shared services and then properly communicating them and the anticipated timeline to put them in place to employees and the larger community is important to achieve the proper buy-in. Hirsch added that it is important to establish how performance relative to those intended benefits will be measured and communicated throughout the process.

The reality

Minnesota State found that the redundancy and standard approaches inherent in the shared service model made it much easier to handle one-time, large-scale changes. The most impactful benefit realized was the positive impact on risk mitigation that came with a more centralized approach to human resources (HR) transaction management.

Davis indicated that the move to a centralized shared service operation significantly strengthened the internal control environment. The model mitigated the risks involved in a 37-institution system where each system managed HR in a slightly different way. The move also made the overall college system more resilient and accelerated adaptations that are necessary when emergencies arise – ranging from COVID-19 to new legal requirements to contract modifications. “We are more adaptable in this environment than we were before,” Davis noted.

Since COVID-19 set in, Minnesota State System employees have been conducting and performing the shared HR services primarily from home offices. Work from home has opened the talent pool to individuals living across the state and not just those who live near a campus, making the system more resilient to unexpected turnover or disruptions. As a result, campus- based HR employees in many cases are shifting from more transactional work to more transformational and strategic work on individual campuses, thus creating business partner relationships across the institutions.

Mid-course corrections

With transformational change comes opportunities to learn, adjust and grow. Davis pointed out that since the shared services project began in 2015, the Minnesota system has had to adapt many times. The system originally had four regional service centers serving a defined group of colleges and universities. Davis credits using dashboards to monitor customer satisfaction across campuses, and the data showed they had to do things differently in response to specific concerns. At the beginning of 2020, Minnesota State System moved to a single, centralized shared service model with specialization by function – HR, payroll, transactions – in teams organized by type of institution to increase responsiveness. “This allowed us to get a handle on inconsistent practices that we observed across service centers, some persistent problems with inaccuracies, and the decline in campus satisfaction that we were seeing.” The realigned structure was in place before the pandemic set in.

By default, the shared service center processes all campus HR and payroll transactions. As of January 1, 2022, campuses can elect to handle their teaching faculty transactions with the service center only performing non-instructional staff transactions. Davis explained they offered this option because teaching faculty transactions are more dynamic as workload and assignments shift through a system, and individual campuses might have unique knowledge and thus, be more responsive than a remote service center. At the time of the podcast, only two campuses had elected to manage their teaching faculty transactions. “This seems an affirmation that the shared services model is one that our campuses will elect to stay with after they have had time to evaluate the cost and benefits of the program.”

Governance challenge

The biggest challenge for colleges and universities planning to implement a shared services model is agreeing on how to transform several different ways of doing the same thing to one, common model approach. Here, Davis mentioned how a distributed workforce under a centralized management structure that works virtually can be as responsive to local issues and inquiries as the original effort of having four regional offices. Having a single management structure has been important in standardizing processes and ensuring that employees receive the same level of training no matter their work location.

Minnesota State System’s standard approach to processing transactions started based on advice principally by the System’s HR and finance community, but over time, has incorporated suggestions from academic and student affairs, IT, and even two school presidents. Integrating the diverse voices has afforded them a well-rounded assessment on the specifics to ensure responsiveness of the service center to the needs of the various constituencies, Davis said.

Underestimating a major challenge

Originally, Minnesota State System’s move to shared services was sold as a cost savings measure for the different colleges and universities. Even though there are now fewer full-time employees (FTEs) providing these services, campuses did not save money to the extent anticipated in the beginning. Part of the reason was that FTEs on each campus might have spent only a portion of their time on what soon was a task assigned to the shared service. When that task was taken away, they still had other responsibilities to fulfill, including monitoring the shared service work.

Early on, it was common for campuses to push back on the fees they had to pay to maintain the shared service center when facing their own budgetary challenges. Smith noted that it is typical of a shared services operation that if the value proposition is not clear to stakeholders, they will start to push back against whatever cost is being allocated to the institution. Smith said that institutions must go into this “with eyes wide open about how to talk about the required investment and be realistic about the type of savings that is being talked about.” Davis explained they had to move past a campus versus shared services hub mindset and emphasize the benefits of a single shared approach to HR and payroll transactions. He says acceptance is growing because of three drivers:

• The pandemic and the need to quickly switch to a remote work environment while maintaining the continuity of operations
• The plan to install a new cloud-based ERP across Minnesota State System created a renewed commitment to a single shared approach to human capital management
• The option to elect a different hybrid model for some services caused campuses to closely evaluate the cost and benefits and if they wanted to take back some of the services

The Chronicle of Higher Education/Workday survey noted that colleges or university systems usually consider collaborations for shared services more favorably than a full merger of schools. Before a system commits to moving to a shared services model, however, it must invest time clarifying and communicating the success criteria for the switch. “Success in this sort of endeavor is just as likely to depend on your change management and stakeholder engagement approach as it is on the investment you make in design or infrastructure of the shared services system,” Davis said.

Hirsch added that college and university systems, before adopting a shared service model, must line up the right sponsors, ensure the project management team has the right skills and capacity to plan the project, and that the institution has the right funding and capacity not just for implementation but for annual operating costs as well.

For more information about readying your institution to enhance student success and fiscal resiliency, or to learn how Baker Tilly higher education specialists can help, contact our team.