Facilities Management is in the midst of a significant transformation. ‘A blinding flash of the obvious’ I hear you say. We are an industry that is beset by commoditisation, with procurement junkies prescribing every last input based directive. Only this week I received a substantial tender from a procurement agent which actually prescribes the rates at which they are prepared to purchase our Facilities Management offering, no more, (no less would be difficult!).
As one might expect these rates are miserly, to say the least, but to make matters worse they have arrived at these paltry numbers by prescribed the management fee based on a per square metre basis without any understanding of the scope of work, the areas under management, the condition of the assets, or the manpower required to deliver a quality service.
To the best of my abilities, I cannot fathom how these absurd rates have been arrived at other than being plucked out of thin air. I should remember to encourage the agent to eat a better breakfast in the vain hope that it will stop him sucking these rates out of his thumb later in the day. But change is in the air, the world out there is beginning to realise that there are increasing numbers of drawbacks to this penny-pinching model.
I am not suggesting for one minute that the Client should not be on the lookout for reasonable savings. After all, no one wants to outsource and pay more for managing their facilities, but there are factors at play here which are often difficult for clients to fully understand. Firstly there is a quality level below which professional and reputable providers should not go.
The issue of service quality here is not as easily defined as our brethren who produce physical products. The intangible nature of services means that it is often a perception that is used to determine service quality and this like ‘beauty’; it is in the eye of the beholder. Secondly, Clients rarely understand the full extent of the direct costs, let alone the indirect costs, of their facilities. This lack of understanding leads to unrealistic expectations around the level of savings, even on first-generation outsourcing deals, which get progressively smaller with each squeeze of the stone.
But times they are changing while cost continues to be a key competitive factor it is not the primary driver of outsourcing in a modern economy. With the increasing complexity of the workspace, its technology and what it takes to manage the governance aspects, access to expertise and specialist service providers outside of the organisation is needed. Instead then of a commodity service approach underpinned by corner cutting and inferior service experience Facilities Management providers need to focus their efforts on adopting an outcome delivery approach and in so doing, increase the value to organisations by directly linking their service to measurable organisational outcomes.
1. Outsourcing as a Strategic Tool
With this move to a more strategic agenda, we have the ability to move away from a commoditised service delivery approach. An industry survey by the world’s largest Facilities Management company ISS indicates that 76% of respondents Believe that FM services will increasingly be outsourced in the future. As service providers, we need to grab this opportunity with both hands and ensure that we can improve and uplift our service and increase and critically measure the value of our service to our Client’s organisation.
Facilities Management operators have been in a long a painful race to the bottom in terms of compression of margin and prices cannot be driven down any further without seriously compromising quality, safety and service experience. In addition, the ever increasing governance load on suppliers for what amounts to a net zero increase in service experience has added additional cost pressures. The key for service providers, therefore, is to capitalise on this opportunity and effectively differentiate ourselves from our competitors by focusing on outcome driven collaboration and a long-term strategic approach to our contracts.
Having made the move from input based contracts to an output based service we must maintain momentum up the value continuum to outcome-based contracts. It is a curiosity of Facilities Management that in-spite of the magnitude of the costs involved and the business related resources that go into the provision of a Facilities Management service, the outputs from those services do not lead to any obviously measurable business outcome at the other end. This puts Facilities Management at odds with pretty much every other business service our clients procure. We cannot hope to survive with this lack of a demonstrable value proposition.
The move to connect Facilities Management to business-related outcomes is the next innovation that deserves our attention. This can only be achieved with a deep understanding of our clients business and the context in which the services exist on a contract by contract basis. This is the messy, emotional and awkward side of the equation where the value is perhaps more subjective and potentially fraught with idiosyncratic and awkward conversations around trying to prove value add through empirical measurement.
This co-collaborative view needs to be reciprocated by those procuring Facilities Management services within Client organisations. In practical terms, this means less of an emphasis on cost and the minutiae of contracts, SLA’s and penalty ‘farming’ and an increasing willingness to work together and share information in an alliance type of partnership built on mutual trust between client and service provider.
This is a win-win situation, the move to a more collaborative approach may not achieve the same level of outright cost savings but it will engender a trust that will allow the service provider to adopt additional levels of risk. This will bring its own rewards for the Client. The best providers will pivot and adapt their services to support agreed strategic goals, they will be not restricted by a focus on cleaning a certain amount of rooms within a specific timeframe, for instance.
Emerging trends suggest there will be an increased emphasis on innovation in Facilities Management outsourcing and FM support service outsourcing. Also, as Facilities Managers continue to consolidate suppliers and service providers to reduce costs and make procurement more efficient, it is crucial that specialist providers deliver insights in their specialist areas. These insights and innovations are key in helping Facility Managers lead the market and achieve heightened performance in specialist areas for their client organisations. Many of the challenges that organisations face today are multifaceted and complex, requiring multiple specialist services that FM’s cannot effectively deliver without third-party support.
However, these providers must not only be judged on their compliance records or ability to deliver specialist services but on their ability to form relationships and work collaboratively with Facilities Management companies, developing comprehensive and competitive solutions for client organisations.
2. Consolidate Suppliers and Support Services
Meeting complex challenges often calls for solutions and services from multiple suppliers. Though this approach can have its merits, it can lead to a needlessly fragmented supplier base, creating unnecessary complexity for Facilities Managers. To reduce the risk, waste and expenses created by these complex and fragmented supplier bases, Facilities Management companies should seek to consolidate even the most specialised services where possible. Facilities Management companies need to be exploring opportunities to consolidate multiple services from single suppliers as a way of improving value. While consolidation should never compromise delivery and there will be instances where niche services providers are undoubtedly the best option, there are many benefits to consolidating FM support services:
Reduced purchase and management costs
As the number of suppliers reduces, buying power naturally increases. Similarly, consolidation also allows FMs to achieve greater savings on indirect spending and landing costs such as shipping, handling, taxes and duties or fees. There’s also the hidden costs to consider. More suppliers mean more transactions, more time spent managing supplier relationships, and more resources spent sourcing suppliers. Magnified over the course of years, the cost savings achieved via consolidation can be significant.
Research from the Hackett Group shows that beyond cost savings, improved compliance is one of the largest benefits of supplier consolidation. While each supplier’s track record for compliance and delivery against SLAs will vary, having fewer suppliers enables Facilities Managers to more actively and effectively monitor and manage performance and address it accordingly.
More strategic relationships
Fragmented supplier bases inevitably create silos and barriers to effective communications between parties. By consolidating service providers, Facilities Managers can focus their resources and effort on a much smaller pool of suppliers, exercising greater control over delivery and how it supports the underlying strategy.
3. Rethink the SLA Model
Instead of focussing primarily on KPIs and SLAs, Facilities Managers must move toward an outcome driven model that supports the Client’s strategic goals. KPIs and service level agreements are inherently task and output driven. As a result, they often reduce delivery to a commodity focussed on compliance and cost reduction. To significantly increase their value to client organisations, Facilities Managers must rethink such potentially restrictive agreements with their client organisations and FM support service providers.
Instead, relationships with client organisations and suppliers should be underpinned by mutual trust and the confidence that all activity serves to support agreed strategic outcomes. What this demands from all parties is a more collaborative arrangement from the outset and an emphasis on transparency. The best service providers will move to a more collaborative structure fundamentally rooted in equal responsibility, with a high degree of openness and information sharing.
Although the industry is becoming more outcome driven, there is a dichotomy in the relationships Facilities Managers have with client organisations and specialist service providers. Specifically, while the industry continues to shift its focus to long-term strategic partnerships driven by outcomes, contracts are becoming increasingly consumption based, focussing on the resources used by providers.
Despite the growth of consumption based contracts, FMs need to follow the former trend, encouraging their client organisations to focus on the quality of the delivery as it relates to strategic goals, as opposed to strictly paying only for ‘what is used’.
The same principle needs to apply in Facilities Managers’ relationships with their specialist service providers. Facilities Management companies are becoming increasingly aware of the benefits of bringing in specialist suppliers. To truly move beyond commodity service delivery, FMs need to empower these specialist providers with the autonomy and trust necessary to effectively innovate and utilise their niche expertise.
Increasingly companies are finding that the ability to bring in specialist suppliers, particularly where complex technologies or services are concerned, does pay dividends.
By focussing too heavily on consumption and cost reduction, Facilities Managers are at danger of trading opportunities for significant added value for a greater control of expenditure. While this might save money in the short-term, it might also be reflected in the quality of the provider’s delivery and ultimately, how well the client organisation values the FM company altogether.
Question: How have you been able to improve the Value you bring to your Clients? Please leave your comments below;