There is an overdue and chronic need to develop a preferred partner approach that demonstrates the value of Facilities Management to our Customers …not merely point at it. However, there is a deeply entrenched view amongst procurement professionals that procuring Facilities Management is no different to buying widgets. How do you change the thinking about how FM is procured?
FM is part of a complex social behavioural and cultural business system, which is dramatically changing to meet the needs of both the organisation but more importantly the highly valuable talent that works inside it. However, the procurement of Facilities Management is usually modelled and measured as if it were a stand-alone service operating in a static business setting.
The dis-enamor with procuring FM is brought on in part by the rush to apply cost based sourcing without thinking through its implications and limitations. Worse still is the clamour to focus on the cost side of the equation regarding fixed costs, cost /m² or other such ‘bottom line’ metrics without understanding the context in which FM exists.The dis-enamour with procuring FM is brought on in part by the rush to apply cost based sourcing Click To Tweet
I understand that procurement professionals have a tough job to do. Business at its most basic level is an input > a process > output. If we think of the output as sales and subscribe to the cliché that everyone in any business is in sales irrespective of their job description, then the same holds true for the input side of the equation. Everyone should also consider themselves to be in procurement.
Notwithstanding the importance of my procurement colleagues role in business, I must, unfortunately, criticise their myopic tendency towards cost-based procurement as the ‘go-to’ solution, this is not the answer. To make matters worse reverse auctioning practices which leads to FM and support services being seen as commodities to be procured at the lowest possible cost level and where objective cost gets substituted for subjective value.
Irrespective of the mandate provided by the business to procurement, the role continues to commoditise Facilities Management irrespective of the value proposition offered. The Facilities Management industry cannot pretend that we are the innocent and injured party in this fiasco. A continued lack of a powerful value proposition will mean that commoditisation of our services will only increase. In the absence of a value proposition that ties in FM outputs to our Clients Business Outcomes, we cannot blame Customers who continue to buy cheap.
This is fine but Customers should understand the ramifications. Because of the connection between the workplace, productivity and competitive advantage, those Customers who compete in their own markets on a basis other than lowest cost, will compromise their ability to be effective and their value proposition to their Customers, if they continue to deploy a cost minimisation FM strategy.
Few in management seem to understand that savings in costs are not the primary ‘value add’ of FM. Gains in productivity and its subsequent impact on competitive advantage in the rest of the organisation through innovative service strategies are far more significant.
Who is the FM Expert?
This rabid pre-occupation to cost as opposed to value, leads to a contractorised approach where there is no incentive for innovation on input driven contracts which in turn inhibits investment in systems, quality headroom and innovation in FM.
If our procurement brothers and sisters are to take a commoditised approach to procuring FM then there needs to be an understanding that there is an onerous responsibility that the Client takes on that may result in an unsatisfactory and potentially unsustainable contract award.
A cost-based approach presupposes that the ‘Client’ has more expertise in the provision of non-core services than the ‘expert’ supplier. The problem is that Client’s rarely have either the essential specification for services nor a detailed asset list specifying all the facilities, plant or equipment available to embark on a formal tender process on the basis of price alone. In addition, operating decisions on issues relating to maintenance strategy and frequency of events need to be provided.A cost-based approach presupposes that the ‘Client’ has more expertise Click To Tweet
Price competitive tendering therefore requires that the Customer must have a high degree of knowledge of FM to be able to define the assets, the maintenance philosophy, specification and service methodology. If this is the case then the need to outsource should be questioned.
FM Partner v FM Contractor
Firstly we need to look at what drives outsourcing? Whilst no one wants to outsource the Facilities Management for it to cost more, there are numerous other reasons to suggest that outsourcing is also a strategy to achieve;
- Access to specialist skills
- Movement of fixed cost to variable cost
- Simplification and reduction of the management agenda
- Liberation of resources
- Risk Transfer
- Desire for Innovation,
- Process improvement
- Focus on core business
- Service differentiation
- Greater flexibility
- Reduced time to market
- Top line growth
- Transformation of their businesses, and
- Facilitation of sustainable competitive advantage.
From the outset it is important to understand the difference between Facilities Management and Facilities Contracting. Facilities Management companies are professional organisations that ensure that a Clients facilities are optimised to ensure they align with the Customers strategic agenda and then they manage and deliver fully integrated property maintenance and Facilities Management solutions.
FM embraces a wide spectrum of services which are very difficult to define or specify with the accuracy that would enable most Clients to draft a comprehensive tender that could be compared on price alone, on a like-for-like basis by a FM Contractor. If this were the approach adopted then a specification and a detailed Bill of Quantities akin to those produced in the construction industry specifying all the facilities, plant equipment would be required for pricing purposes. Not only is this a vast amount of work, it also requires that the Customer has a minutely detailed inventory of all equipment and facilities as well as having to take decisions on such issues as maintenance strategy, frequency of events etc., optimising service delivery etc. (i.e. the inputs to a service).
Pricing is a Lottery
Unless a detailed BoQ is produced the comparison by pricing thus becomes a lottery. If pricing is a lottery, then such tenderers who choose to follow the process will mitigate their risks/cost by not committing the maximum effort to the development of a proposal and prices. The quality of the proposals received will be a reflection of the limited effort that goes into it (recognising that the longer the tender list the less the effort by individual tenderers) and the prices submitted will include a significant risk management factor.
Furthermore, if the Customer controls the inputs to a service then they cannot pass on accountability to the supplier for overall performance, value for money and cost savings. The Client retains such responsibility as that responsibility goes with the (input) decisions that determine the end result. This would necessitate that the Customer would have to maintain a large team in-house in order to provide the management and control of the inputs, which would defeat the objective of outsourcing as well as having to retain the ultimate accountability for FM performance in-house.
The focus of outsourcing has to be on the outputs or deliverables agreed to between the parties which are governed by KPI/SLA’s, in addition, staff members are being outsourced and so it is important to realise that price competitive tendering should not be the focus, but one of sustainability and value improvement.
Price competitive tendering also requires that the Customer has the strategic knowledge of FM and has the ability to define the need, specification and methodology. If the Customer really has that expertise and wishes to retain in-house the accountability for FM performance, then perhaps a price-competitive tender is the way to go to select an FM contractor. Those companies who want to be an FM Partner and who see their value to their Customer and competitive edge in this role are likely to refrain from tendering.
Radical New Agenda
If Clients desire an improvement to the services they deliver to their employees and their Customers as well as achieve the necessary optimisation of costs then there is a need to drive an authentic and collaborative relationship with a partner who has an extensive and successful track record in the FM arena. This will mean change and this cannot be achieved without a radical new agenda.If Clients desire an improvement to the Facilities services they deliver to their employees then there is a need to drive an authentic and collaborative relationship with a partner who has an extensive and successful track record in… Click To Tweet
Without this change, the Client stands little chance of achieving the results they’re after. There needs to be a ‘breakout’ mentality which shakes off the shackles and strategic ruts of the past and taps into new sources of value. These Key Value Drivers all add up to a new ‘strategic equation’ which must be designed to implement an holistic strategy at an accelerated pace. Vested Outsourcing is one such process which i discuss in a previous post ‘Vested’ Thinking – 5 Ways to Extract Value from your Workplace. In order to achieve this, Management needs to develop a compelling set of strategic imperatives and then use the outsourcing to implement it rapidly.
A preferred partner should be selected on a wide range of criteria that enables an assessment and selection to be made on the likely overall value they will contribute based on competence, capability, track record and cultural fit, not simply the prices they will work for. It is unrealistic to expect that a company selected as an FM contractor can subsequently be turned into an FM partner with the depth and breadth of knowledge and IP required. The best result for a Customer
It is unrealistic to expect that a company selected as an FM contractor can subsequently be turned into an FM partner with the depth and breadth of knowledge and IP required. The best result for a Customer is therefore to get the maximum effort from a good service provider who has put in the work to be able to submit commercial terms that exclude any risk premium and who has provided the Customer with the full benefit of their know-how in developing their proposal.
Moral Obligation to Employees
There is a dark side to price competitive tendering in an outsourcing context. With the advent of labour protectionist legislation such as TUPE and Section 197 of Labour Relations Act in South Africa, transferring staff to the lowest cost supplier is akin to auctioning off your employees to the lowest cost provider. This course of action is fraught with dangers, both in terms of securing the ongoing rights of the labour force as well as the reputation of the Customer for the insensitive behaviour in which it treats its staff. this in part has lead to the rise of the #outsourcingmustfall movement in South Africa’s tertiary educational institutions.Transferring staff to the lowest cost supplier is akin to auctioning off your employees Click To Tweet
Regardless of the terms under which they may have been transferred an employer of choice has a moral obligation to their staff to ensure their ongoing needs are met by and that their potential future careers are advanced with a reputable organisation this is not only essential for the outsourcing under discussion but in the event that the Client may get involved in further outsourcing ventures.
Know What you Don’t Know
In order to follow the partnering route there needs to be a situation and recognition by the Client that partners exist outside of their organisation who have more expertise and know-how in their own core business (i.e. FM) than resides with them and their non-core departments. If it is recognised by the Customer that partners exist who have more expertise than the Customer, then it follows that the partner must be engaged in such a way by the Customer as to be motivated to share that expertise and to use this to the Customer’s best advantage.
For maximum benefit, the partner must be able to assess situations without restraint, use their experience and expertise to analyse challenges and be free to take and enact strategic decisions that will result in successful operational plans. If they do all of this, then they can be held fully and unequivocally accountable for the resultant performance.
It is reasonable to expect a partner, once selected, to invest significantly at their own risk, and bring their expertise and track record of similar contracts to bear into whatever pre-contract effort is required, to achieve a sound contractual and commercial arrangement that is underpinned by an agreed strategic intent which has the full commitment of both parties.
It is to be expected that a good partner will have sound experience of how to achieve this and, possibly, have more experience than the Customer in this regard. The Customer, therefore, should be open and receptive to the partner’s proposals and enter into a constructive dialogue to achieve the best outcome and not expect to simply impose its own terms.FM partners exist who have more expertise than the Customer Click To Tweet
People buy People
One of the unique advantages of outsourcing staff to a preferred partner is that the partner gets to collaborate in a pre-contract situation with the outsourced management and employees in creating the new outsourced entity. By working shoulder to shoulder with these people, who are aware of the current conditions and issues in delivering a service to the Customer, the partner is better able create an enhanced performance based solution against which there is a substantial reduction in the risk of service interruptions and there can be no excuses for non-performance.
If one acknowledges that ‘people buy people’ this approval from the staff facilitates collaboration, ownership and commitment and reducing concern, which will help to secure the transfer smoothly and efficiently. This in turn enables the partner to better warrant no disruption in service to the Client. This enhanced ‘buy in’ cannot be achieved in the adversarial scenario of tendering and resultant lack of acceptance from the staff which may in the end, cause the outsourcing to fail due to a lack of commitment from the people. Furthermore this scenario provides the partner with a ‘probable’ escape clause, which would diminish the contractual obligations of the partner and the ability for the Customer to hold them accountable for non-performance.
It is suggested therefore that the Customer must, in the context of the above, delegate full responsibility to the partner and give them the necessary freedom they need to perform. Wherever a Customer is unable or unwilling to do this and it endeavours to overly control or manage the partner, or influence key input decisions pertaining to the partner’s services, then the Customer cannot hold the partner accountable for the results.
The Customer must rightly expect to monitor the partner and the partner must enable this to happen. Monitoring requires a minimum of resources. For the Customer to gain maximum benefit, while holding the partner accountable, it should reduce its internal resources to a minimum and ensure they only have a monitoring role and not a managing one. This has the added advantage of maximising the Customer’s internal cost savings.
Once a partnering route is selected, there must be a strong commitment from both sides to crystallise the core principles by which the partnership shall be managed and to proactively ensure adherence to those principles throughout the duration of the relationship. A partnering arrangement that slips into a Customer-supplier framework will not only fail as a relationship, it will also fail to deliver the benefits.
I have had experience of several outsourcing initiatives where there is an acceptance of these principles but there has been a tendency by procurement to try and jump the chasm in two leaps. This strategy is doomed to failure and often manifests itself in one of two ways
- A reduction in scope i.e. only committing to partially outsource.
- The selection of multiple FM providers
The issue of partial outsourcing of FM services or appointment of multiple providers is associated with number of problems which experience tells us can be avoided if the entire realm of FM services are outsourced to one FM partner.
The prime aim of any outsourcing has to be to deliver savings, with one FM supplier there is an increased ability to integrate services optimally and ensure not only cost savings but also improvements in levels of service, which have proved difficult in the past. Without single point of accountability, there is a duplication of costs in management overheads, system costs, etc. This reduces the ability to deliver savings and may in fact actually increase total costs.
Without a single point of responsibility there is confusion around accountability with respect to poor performance, call outs, service delivery, whereby each supplier blames the other for problems on any particular site, and it became impossible to separate responsibility despite very stringent KPI’s and SLA’s being in place.
With one total FM supplier this situation is avoided and there is clear accountability for performance, through KPI’s and SLA’s, which are backed up by penalties for poor performance. This has the effect of improving Customers control over performance, which is often not available when managing internal resources.
With clear reporting lines, accountability and transparency the outsourced entity is responsible to provide information to the Client in all areas of service delivery. Clear trend forecasting will allow the Customer to spot any areas of non-performance and to penalise according to the contract and ultimately where there is sustained poor performance they have the ability to re-insource the staff and services.
Risk, Control and Relationship
Outsourcing is fundamentally a change management process, which includes a transfer of risk to the outsourced partner as well as significant benefits to the Client’s balance sheet. If change is required then how will this be achieved? By retaining the majority of the service delivery capability in-house there is no incentive to change current poor service levels or to optimise costs. The opportunity to maximise the benefits should be taken by partnering with a company that can demonstrate specialist FM experience and a track record of having done it before.
The key to any outsourcing has to be the avoidance of disruption to the Customer’s core business. Outsourcing the entire package of services means that the same people are delivering the service and there is less chance of disruption to the Client’s production. By splitting the services there is an increased risk of disruption, without the ability to ensure accountability and to penalise where necessary.The key to FM outsourcing is the avoidance of disruption to the Customer’s core business Click To Tweet
A quality FM management company will set out a continuum in which risk, control and the relationship will align with one another for both the Client and the provider. The goal is to achieve a ‘degree of intimacy’ which replaces the traditional ‘arms-length’ Client-supplier relationship with an effective connection in which both partners work toward common objectives.
Despite the political and popularist view around outsourcing, if undertaken with a view to maximising value as opposed to minimising cost outsourcing continues to be a powerful strategic tool for improving business performance. Whether the issue is control, measurement or governance, a recurring motive is the strategic and long-term character of an outsourcing initiative. Far from being a single business decision made at one point in time, effective outsourcing requires engagement, in the partnering process between the Customer and the FM service provider.
Outsourcing is at its most effective when it is a relationship more than a transaction, a continuing collaboration rather than a one-time transfer. Achieving the greatest return from outsourcing begins with the vision to look beyond mere cost savings alone and seize opportunities for fundamental gains in business performance.
How do you feel about the procurement of FM? Please leave a comment below, I would especially love to hear from any procurement professionals.