In this article, I want to illustrate the three fundamental building blocks of the Facilities Management ‘Sweet Spot’, what this represents as a value proposition and the associated services which offer different value in different ways. By extension, I also want to demonstrate different commercial models and different incentivisation mechanisms that can be applied.
The Facilities Management (FM) value proposition is often misunderstood and more often than not miscommunicated even by the most experienced FM professionals. The FM industry’s inability to simply communicate the value it adds to a Customer’s organisation, has directly contributed to the commoditisation of FM.
The vast array of assets and services, the uniqueness of each workplace and the people that occupy it, together with a plethora of differing company strategies and objectives mean that Facilities Management and its impact on the workplace is a complicated issue.
Venn diagrams are particularly useful for illustrating the relationship between a group of different things in a visual and straightforward way. In a Venn diagram, large circles represent a group of things with a particular attribute. Areas where these circles overlap indicate areas of shared interest, letting the viewer see the relationship between the groups at a glance.
Earlier this year I had the privilege of appearing at the EuroFM European Facilities Management Conference in Madrid to give a talk on FM in Africa. I was fortunate to share the stage with FM luminaires such as Tim Oldman the CEO of the Leesman Index and Stan Mitchell of Key Facilities Management the dominant force behind the new FM standard ISO- 41,000.
The talk that struck me the most was Tim’s presentation that day on The Building Blocks of Productivity. In that presentation, Tim begins with the story of a conversation he had with a Facilities Manager in which he had tried to illustrate what the FM should be focusing on. He did this by explaining the intersection of two circles on a Venn diagram. The two rings being those things that he can control and those things that matter most.
Over the months since Tim’s talk, I have contemplated the simplicity of this model and have used it and adapted it as a basis for reinforcing my own understanding of the different value propositions of Facilities Management and the various elements that make up a typically integrated FM bundle.
This model highlights that if there are different value propositions within the FM offering, then shouldn’t there be a corresponding difference in the commercial models and incentivisation mechanisms?
It appears to me that the FM industry has fixated on single commercial models for what is a vast array of diverse services that provide differing degrees and types of value. I believe this is a mistake and in my view largely responsible for the race to the bottom regarding the commoditisation of FM.
In the absence of a coherent value proposition is it any wonder that customers and in particular their procurement departments resort solely to a cost reduction mind-set irrespective of what is often a woefully inadequate current level of spending.
Using the simplicity of a Venn diagram I want to illustrate the different value propositions and subsequent matching commercial models that could be applied.Our inability to communicate the value of FM, has contributed to its commoditisation Click To Tweet
What is an Organisation?
In this day and age of entrepreneurial start-ups, the basis of any organisation is an amalgamation of human resources with a mission and vision to create a product or service often for profit but almost always for growth.
In the beginning, there are often no tangible fixed assets that the organisation needs to concern itself with. If this group is successful, it will grow and as it grows the need for physical assets to contain and operate from, become a reality.
As organisations grow the human assets and physical assets often compete for the lions share of the balance sheet. But as with any asset, the company must leverage these to achieve the corporate objectives.
A lot of focus is given to the human side of the equation and their productivity, but this is often at the expense of the physical assets.
The purpose of a Venn diagram is to simplify a complex issue and to attempt to isolate and understand what happens when the circles overlap. We will highlight how FM plays in all three scenarios, provides value in different ways and how different commercial models and incentives can be utilised to maximise performance.
The People Circle
The People Circe represents the human assets an organisation has access to. It is often said that a company’s greatest assets are its people. The reality that many employees experience on a day-to-day basis is however very different.
Organisations often refer to their people as assets however staff and employees are not assets in the traditional sense of the word such as equipment plant and infrastructure.
People cannot be owned. People do not depreciate, so if they are assets, they are intangible assets. Yet in today’s service economy estimates are that only 10% of GDP growth is related to tangible assets. Intangible assets drive 90% of GDP growth. Despite this, only tangible assets appear on a company’s balance sheet.
The Performance Circle
This circle represents the strategic or performance objectives of the organisation. This is different for all organisations and provides the specific context in which FM can provide value to the enterprise.
This may be measured in a myriad of ways, e.g., revenue, market share, EBITA, share value, etc.
The Fixed Assets Circle
The fixed assets circle represents all the facilities that are occupied by people to conduct the business of the organisation in question. These facilities at a sub-level include the plant, equipment, and other physical infrastructure that all play a direct or indirect part in production and in providing an environment in which the staff members and other stakeholders work, in order to achieve the objectives of the organisation represented by the Performance Circle.
The 3 Building Blocks
1. People/Performance Overlap
This overlap represents how the people come together to achieve the company’s objectives.
The organisation’s human workforce are enabled and empowered by leadership and management. The direction is provided by a clearly stated mission, vision and values and executed through the company’s strategies, processes, projects and interventions, which are all hopefully aligned.
The impact of a company and its employees on their strategic objectives can be measured through instruments such as strategy maps, balanced scorecard or simply through the income statement and balance sheet.
This is the essence of what an organisation is and it’s completely unique to each individual company as the combination of processes and leadership and staff cannot be replicated even if they work in the same sector and serve the same customers
Whilst there may be no direct FM involvement in this overlap it is important to understand the context in which FM will be operating. This is essential information for the FM and your client will be expecting you to not only understand their context but their strategy to deliver on their vision for the future.
This will all come together in the FM “Sweet Spot.”
2. People/Assets Overlap
Where do a company’s two most expensive assets come together? In the workplace!
This is where the enterprise brings to bear its physical assets or facilities as an enabler of its product or service. It is FM’s responsibility to ensure that the physical assets are serving the people in the business.
At its most basic level, the facilities protect its inhabitants from the elements to provide a safe and comfortable space in which to work. But as the name implies, facilities do more than just provide shelter, they should facilitate, aid, expedite and accelerate the achievement of the organisation’s goals.
This overlap is where the fixed assets and facility-related services are leveraged to support the staff in the day-to-day activities without necessarily contributing directly to the productivity of the organisation. This realm of facilities management can be considered as the ‘hygiene’ or essential element of our service universe.Where do a company’s two most expensive assets come together? In the workplace! Click To Tweet
Whilst the reach of FM has moved beyond what sometimes referred to as janitorial services these represent our foundation. The services that fall into this category are more commonly regarded as ‘soft services’ typically these would comprise;
- Security guarding
- Internal environment
- Health and safety
- Internal plants
- Car park management
- Some business support services
Suggested Commercial Model
Due to the nature of these services and the marginal value add to the organisation these services are typically highly commoditised. The focus of any commercial model is likely to be on cost savings and cost reduction.
Value is delivered through an increase in the visible service quality and so incentivisation within the commercial model should be focused on any increase in service quality, customer satisfaction and potentially any share of savings achieved.
3. Assets/Performance Overlap
In its fledgling years, Facilities Management was predominantly a technical activity focused on maintaining the infrastructure and associated plant and equipment.
Improvement in planned maintenance activities as meant that we have moved from reactive maintenance to predictive maintenance, assisted by modern technology machine learning and increasing degrees of automation.
The predominant focus of maintenance is to ensure that assets and infrastructure are maintained in good order in order to achieve the recommended useful life and where possible to increase this. Lifespan, up-time, efficiency, longevity and cost-effectiveness are the main objectives of planned maintenance activities
The physical assets represent a significant initial financial investment and an on-going liability on the balance sheet. Ensuring that these physical assets are maintained and their likely replacement both planned and delayed as long as possible ensures that the assets are providing a greater return on the initial investment.
Delaying the replacement of the asset enables the funds set aside for its replacement to be diverted to core business, thereby representing a significant investment in the overall Company objectives. In addition the accurate forward planning of the asset renewal enables a high degree of cost certainty and the ability to plan and budget for its replacement with a greater degree of accuracy.
Typical Facilities Management activities in this area are what we typically refer to as ‘hard services’
- Maintenance planning
- Maintenance management
- Asset management
- Life-cycle Analysis
- Capital replacement planning
Suggested Commercial model
The maintenance of the physical assets of the organisation contribute greatly to the slow down in depreciation and the ability to divert funding to other core initiatives.
These hard services are subject to degrees of commoditisation but can provide a substantial value add to the balance sheet of the business. This value and any subsequent incentivisation should be measured in terms of cost avoidance or Return on Capital Employed (ROCE).
Differentiation in the service will not come from the quality of the service, which is largely invisible to the customer but more tangible elements such as service response times and functional ‘up-time’ which are often measured by Service Level Agreements (SLA’s).
4. The FM ‘Sweet Spot’-Assets/People/Performance
This FM ‘Sweet Spot’ is where all of the circles overlap.
The other areas can be seen as transactional, whereas hitting The FM ‘Sweet Spot’ can be truly transformational to an organisation. This is where the facilities, assets and the services that FM provides in the workplace can have a direct impact on both the employee experience and performance of the company.Hitting The FM 'Sweet Spot' can be truly transformational to an organisation. Click To Tweet
Facilities and the workplace, in particular, are often ignored as the engine room of an organisation. The significance of properties and its use as a means to connect corporations to their markets, customers, and resources is often underplayed or even ignored. Position or Place is one of the P’s in the 4 Ps Marketing Mix as outlined in E Jerome McCarthy’s 1960 book Basic Marketing: A Managerial Approach.
The Workplace is, therefore, a key component in an enterprise’s marketing mix. FM’s ability to enhance the workplace performance and the productivity of the organisation’s human and physical assets ultimately boost the organisation’s competitive advantage.
This is the strategic value-add of FM.
The services in this realm are not necessarily separate or specific but rather a combination of the output of the previously mentioned hard and soft services. What we are looking at here is the impact that these services have on the people and their ability to improve productivity in the workplace.
Taking all three aspects into consideration this will be unique to the organisation and its people. It is this uniqueness that is often hard to communicate to potential customers or for customers to appreciate without significant investment in interpreting the context in which facilities and human assets come together to further the organisation’s goals.
While the services are not separate and distinct they are often brought together in specific initiatives such as
- Workplace Optimisation projects
- Moves and Churns
- Activity Based Working
- HR and performance improvement initiatives
- Business continuity
- Disaster recovery
Suggested Commercial model
This is a highly value adding area and should be capable of being differentiated from the other services mentioned.
The value should be measured in terms of the achievement of clearly pre-defined and measurable strategic outcomes or goals. These may be anything from employee satisfaction, productivity improvements, reduction in sick leave to cost savings, brand awareness or any other metric that is value adding to the organisation.
While these objectives tend to be more subjective and difficult to measure it is essential that these are agreed on before the initiative is embarked upon and that clear incentives are agreed that contribute to the optimisation and improvement on these objectives.
Incentivisation should be a truly collaborative approach to the achievement of the specific and agreed objectives of the initiative.
This is a complicated subject dealing with a vast array of services and its impact on what are very complex organisations. I hope that I have done some justice in illustrating the different value propositions of the various services and how they impact on an enterprise. My hope is that this will lead to a better understanding of what it is that we do in FM, the value that we bring and that this value is not adequately served by a commoditised cost reduction mindset.
This weeks question; How do you go about illustrating the value proposition of facilities management to your clients? Please leave your comments below.