Not so long ago, the term “outsourcing” struck fear into the hearts of facility professionals. Today it is a way of doing business and part of corporate life. Outsourcing has come a long way. Errors and successes paved the way for this concept to mature as a form of asset and facilities management (FM).
Cisco Systems defines the purpose of outsourcing as enabling “businesses of all sizes, from enterprise level to small operations, to alter their resource allocations. This can bring significant revenue benefits, while providing an immediate increase in the flexibility and agility needed to remain competitive.”
Major external drivers are changing the way business is conducted. Facility managers (fms) should be able to recognize these signs and their impact on operations. These elements are shaping the FM industry, and professionals involved in this field should know how to prepare themselves.
One tool is technology. Clearly, technology is helping the world get flatter. As a result, companies are becoming global and so is the corporate real estate and FM business. Frank J. Casale, founder and CEO of The Outsourcing Institute, reiterates, “the marketplace is now global, and there are more FM contracts than ever before.”
The Early Days Of Outsourcing
Back in 2006, the Executive Development Program of CoreNet Global conducted a seminar that illustrated the different ways service providers could satisfy buyers. Clearly, there was no such thing as a “one size fits all” approach.
However, this was a common mistake in the early days of outsourcing. Service providers were not knowledgeable and did not understand the process. Many jumped onto the outsourcing bandwagon, and eventually they lost out.
Today, service providers are different. They have learned from their mistakes and have acquired (and invested in) sophisticated technologies to monitor and manage every aspect of the business.
Better Equipped To Serve
The next wave of outsourcers continues to grow in size and capabilities through mergers and acquisitions. In this case, size does matter. It represents the span of a client base which, in turn, translates into a distinct pool of knowledge and best practices. This knowledge bank is very valuable to customers, because it means they can benefit from the experiences of others.
Service providers of the 21st century also invest in their own research and development of delivery solutions. Sophisticated providers not only train their own staff and their networked suppliers, they also provide education for their clients, thus enabling them to understand the process better.
Fms are also getting increasingly sophisticated. They are seeking out the best solutions to meet their demanding business needs in the changing world. Consequently, they are building strong, long-term relationships with the service providers they value most.
From an administrative standpoint, Requests for Proposals (RFPs) consume a lot of time and energy from the fm department. In many cases, this can be disruptive to operations. Contracts are very expensive to change and re-execute, so fms want to make the best possible decisions when selecting vendors.
In the best cases, service providers become true partners, sharing the same vision and mission as their clients-their fm counterparts. The ideal vendor is not just an extension of the fm’s management arm, but it is truly an integrated business operation.
Sure Fire Failure
One outsourcing taboo is to prevent the service providers from talking to employees (also known as internal customers). Control (or loss of control) is the big challenge in any outsourcing exercise.
Today, many fms say they have outsourced, but in fact they are only partially outsourcing. Most managers continue to want full control of the link between service providers and customers.
In order to reach true integration and reap the benefits of the dynamics of outsourcing, some organizations have ventured into an arrangement to allow full operations management by the outsourcer. A case in point is the real estate division of Nortel. This company allows internal customers to have direct access to their service provider for their needs in the facility.
David Dunn, group lead of workplace planning, innovation, and construction for Nortel Real Estate, actually developed a comprehensive set of guidelines to establish roles and determine boundaries of operation and service processes. The company is now reaping the full benefits of outsourcing.
The Outsourcing Process
The six phases towards outsourcing (established by The Outsourcing Institute several years ago) are still valid today. The success of an outsourcing exercise depends on whether the entire process is being followed.
Within the six phases, there are three major steps that should be emphasized. Many outsourcing failures are due to either party falling short in terms of doing its homework.
The first step for fms on the path to outsourcing is to understand their organizations and the businesses behind them. It is amazing how many people think they have a handle on this when they really don’t.
Outsourcing fails when the RFP lacks clarity. This happens when customers (fms) do not have a good understanding of what they have, what they don’t have, and what they want in the first place
Good outsourcers will patch along the way as they stumble through the mess. Bad providers will fail and take the fm down with them.
Jeffrey Budimulia, facility manager for the International School of Beijing, suggests, “For preparing a location for FM outsourcing, we need to ask who can do the job professionally and more effectively. It takes months of planning, including studying both internally (what can be outsourced) and externally (who is available).”
Work In Progress
The second key step is the transition process. This is when the confusion starts.
It is paramount for the entire facilities staff to understand the importance of the migration to the new service provider. To develop a comprehensive transition plan takes a dedicated team that knows the staff and the customers.
The fm must commit time and resources to define and stabilize the new partnership. This is not the place for a part-time job, since it will be very important for the fm to take good care of the existing staff.
There must also be secure buy-in from all employees. That means the fm must communicate from the beginning to the end of the transition (and everywhere in between). The service provider must be sensitive to differences and respect both workplace diversity and the corporate culture.
Again, Budimulia emphasizes, “Communication is paramount in conveying ideas, values, and expectations, both to the provider as well as to internal customers. Fms tend to be the middlemen when it comes time to conduct all this business, and as a result, they are the recipients of criticism and blame. For FM outsourcing to be successful, there must be attention to detail regarding what is expected. This is relayed to the service provider along with the need for close cooperation, good communication, and trust. Sometimes this can be likened to a marriage of equals!”
Relationship Management Tricks
The third step to a successful outsourcing relationship is good management of the operation. This comes from thinking about the establishment of a long-term relationship. According to a spokesperson from Vantage Partners, a spin-off of the Harvard Negotiation Project, the organization discovered that the view on relationship management was very different from the perspective of fm versus that of the provider.
Many fms formulate their relationship based on an exit strategy using a “low price/less integration” approach, just in case the deal does not work out. The provider, on the other hand, would like to see more integration to enhance the services (and, of course, increase the margin for business). Immediately, this becomes a major disconnect; there are two parties with two different value systems and strategies.
Vantage Partners claims poor relationship management can lose up to 75% of the value of the outsourcing contract. It suggests the following four approaches for success:
- Focused Relationship. Simple and specific, this option has very clear boundaries to achieve straightforward cost savings and improvement of processes.
- Multifaceted Relationship. This approach involves multi geography and more complicated multi processes. But again, the solution provides average cost savings and improvement of processes over larger global reaches.
- Transformational Relationship. A strategy of this nature requires a significant transformational process involving applications of best practices to a complex organization. The value proposition is a faster transformation process than the buyer can achieve independently.
- Strategic Relationship. This approach involves serious innovation and differentiation to achieve a competitive advantage. The end result can create new values for both the buyer and the provider. Both parties share in the risks as well as the rewards.
The U.S. Government: A Beta Test
With over 500,000 facilities, the U.S. government is the largest landlord in the country. A new study entitled, “Core Competencies for Federal Facilities Asset Management through 2020: Transformational Strategies” (published by The National Academies in 2008) identifies “aligning” as one of the three core competencies for future fms in federal facilities.
Participants in the study indicated the following reasons for outsourcing (thus reinforcing the need to align their operations to the enterprise): o Lack of in-house expertise (54%); o Savings on project delivery time (15%); and o Other factors including statutory requirements (15%).
Aligning will be even more important in the future, since the vision of the company and its value system will empower the workforce. Consequently, homework in this area will still be required in the future.
The natural evolution leading to integrated outsourcing is a virtual cycle of reciprocal improvement between the organization and its suppliers. As fms have to deal with new issues, outsourcing may become an important enabler. It will not only relieve them of day-to-day operational concerns but will also free up time for them to focus on these-and many other-more strategic new challenges.
Lam is vice president of Global Learning Asia for CoreNet Global and a senior advisor to The Outsourcing Institute.