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Lost in the fog ….

Are buyers deluded about what is achievable from the outsourcing of Facility Management? The question arises because it is increasingly evident – as the market offers more international supply chain options and concomitantly global in the aspirations of buyers – that there exists a gulf between client desire and supplier promises, on the one hand, and the reality of actual delivery on the other. It is worth examining why this might be happening, and what might be done to resolve the situation.

To begin with buyers: the last few years has seen a strong trend of multi-national corporates seeking to improve service consistency and achieve cost savings through consolidation of FM operations under pan-national contracts. The attraction of this strategy, especially for senior executives, is fairly obvious. However, it can be  difficult to temper their expectations about what is deliverable from their specific starting position, and therefore equally difficult to match a sound tactical approach to the strategy. It is necessary to ask why that is, and what Facility Managers and advisers might do to address the situation.

There are a number of factors in play. Primarily, the issues are around client side readiness. But it is quite common to find that senior executives don’t understand the internal constraints on the desired strategy, and in some cases refuse to accept them as real. I believe this is caused by three common preconceptions:

  1. Other services have been outsourced internationally or globally, and executives often can’t see any reason why FM is any different.
  2. Executives understand and are in command of their core business. So, again, they don’t see why a support service like FM should be more complicated or need a different approach.
  3. Internal FM teams are often poor at communicating. In particular they can be  exceptionally bad at communicating the complexity of their work to Executives, who are perceived as being indifferent to FM. Faced with an instruction to outsource, the internal FM team are not in a position to suddenly voice a negative message about the issues which make it difficult to deliver the project. So they keep silent, are unable to adopt an effective plan, and thereby exacerbating the problems.

So it is that many organisations create a triple whammy negative cycle:  high corporate expectations; an impression that change can be commanded into being; and a breakdown in communication which hides unpalatable truths. It is hardly surprising, therefore, that global outsourcing projects often struggle to meet their objectives.

To make matters worse, those objectives are often not fully understood or accepted by the team charged with delivering them. So, for example, project teams are unsure whether to combine Real Estate and FM, or whether the critical issues and opportunities are in soft or hard services. Most fundamentally, they often don’t know how to construct a contract specifically designed to deliver the objectives – there are, after all, many model contracts and specifications, but each has particular merits and weaknesses.

Internal expectations also lead to failure to select the right contract duration. Organisations need a realistic view of the length of contract period needed to justify the procurement costs, because global FM contracts are not only expensive to bid for (see below), but expensive to procure. That, along with the transition time prior to obtaining full operational benefits, implies that savings may not be achieved in year one. This combination  (plus the cost and risks of the next round of the procurement process) is resulting in longer contracts of up to five years plus extension options), which is often of concern to internal contracting departments.

Another common issue relates to a lack of buyer organisation readiness. This is not unrelated to organisations’ previous lack of routine interest in FM as an activity – it only becomes a focus when the senior Executives want it to be. And thus FM operations are unready for outsourcing, especially on a global basis. That may not be directly the fault of the internal FM team: for example, an effective outsource requires a lot of data on expenditure to be available, and complete lists of existing contractors. It’s rare to find either the contracts or finance departments able to provide that data in a timely and organised manner. Even where the objective is cost savings, trying to identify baseline expenditure can be a nightmare. The data gathering problem is compounded in organisations with disparate operations and far-flung regions, because a great deal of operational FM in the regions is usually not under the supervision of specialists, so that there is almost no documentation: no service specifications, no building information or plans, and no budgets. It is this unreadiness that many Executives are unaware of, and you can understand why an FM team might feel that no benefit accrues from explaining it.

What about the other side of the equation: the supply chain?  The problems here are a mix of structural weaknesses and commercial pressures, which combine to create over-optimistic claims about outcomes, which then feed into the client side’s expectations.

What are the structural weaknesses? Broadly – because they vary in each sector and each business – they include:

  • Confusing an organisational presence in a territory with an FM delivery capability – so, whereas a company’s core business capability may be present globally, few providers have a matching FM capability, whether their background is in real estate, catering, engineering or construction.
  • Very different delivery models – some providers are essentially principal contractors, while other self-deliver key soft or hard service components. These models have such different cost bases, and such far-reaching implications for buyer management teams, that selecting the right one can be very difficult
  • Significantly different approaches to sub contracting of services – whether there are globally preferred sub-contactors, or a localised approach, or some combination, buyers are the ones who have to take a view on which offers the best cost option and the least risk for their organisation

Commercial pressure on vendors – the imperative to win the contract – adds to the confusion. Global deals are highly valuable to vendors, but incredibly expensive to bid for. This high cost of bidding restricts the number of credible competitors; there are probably only seven or eight companies realistically bidding in these markets. That means that they are fiercely competitive; not only do they know broadly how each of them positions their service offer, but they are experts at pitching at a competitive price. So the differentiator on which clients make their decision to appoint is usually the service promise, and the credibility of the benefit claims. Since the bidders have an incentive to hype the benefits, and a disincentive to explain the potential problems of mobilising and implementing a global contract, yet again this feeds heightened client expectations.

None of this is intended to suggest that global deals cannot succeed, but that the number of real successes is small at present. Since responsibility for success lies with the buyer (because it is their support service, impacting ultimately on their core business), then it surely must be they who must look at how best to improve the chances of success. Given that each buyer organisation is unique, there are some important common actions which we recommend before procuring a global FM contract:

  • Consider a gradualist approach, through a first tranche of regionalised contracts. This will enable the collection of reliable data, allow the testing of different contracting models, set realistic cost comparisons, eradicate the most critical barriers to outsourcing, and establish the viability of various potential supply partners ahead of a move to a single global contract
  • Make sure the corporate strategy is supported by the in-country core business managers, who have to live with it in delivering their business contribution
  • Be clear about what services are included (for example, is real estate management going to be part of the package?), and about which are business critical
  • Research the supply market thoroughly to understand the service capabilities, territorial strengths and weaknesses, pricing models and reputation of each possible bidder
  • Accept that such procurement projects are outside the experience of  internal FM teams, and indeed usually beyond their capacity. While the internal managers need to lead the project they will benefit from expert external advisory support. They also need input from the internal legal, HR, finance and contracting teams. Establishing a strong project team is mission critical.

As the market options develop, clients  – from the most senior Executive to the FM teams – need to adapt expectations and methods if they are to get the best from the supply chain. Understanding of, and realism about, the start point and the constraints are essential to long term success. Since a global strategy has to be a long term project, being prepared to accept and deal with current limitations will, ultimately, allow access to the positive benefits which global contracting can bring.


(First published in Facilities Management Journal, October 2010)

© Dave Wilson, 2010