Generation Gap: How to Successfully Manage Facilities Services Outsourcing

Generation Gap: How to Successfully Manage Facilities Services Outsourcing

When it comes to outsourcing facilities services, it can be as simple as hiring someone to clean your building or as complex as bringing on a full-service provider to manage virtually every aspect of your facility operations across an entire enterprise. Regardless of the scale, facility executives and building owners who are interested in outsourcing should understand that simply using outsourcing to save money should not be the goal; rather, it should be looked at as an opportunity to maximize the quality of services and make the most of precious resources without limiting the focus on the core business. What does success look like? Paint a future picture for the facilities, and then measure where they are and where you want them to be. For many facility managers, some level of outsourcing is already a way of life. According to a DTZ/Building Operating Management survey, 81 percent of facilities outsource at least one service. (See Figure 1.) Of those facilities that outsource, 96 percent have an outside service provider for more than one service. Figure 1 Which services do you outsource? R=622 Janitorial 75% Landscaping 73% Recycling/Waste Management 67% Fire/Life Safety 57% Security 56% New Construction/Renovation Management 46% Telecommunications 29% Energy Management Services 23% Parking 16% All Facilities Management 9% Office Services 8% Asset Management 4% Operational costs and managing human resources are often the impetus for outsourcing decisions, but savvy facilities executives are looking beyond these issues. The company may not have enough internal resources to accomplish these noncritical functions well. Or the company may want to take advantage of a vendor s specialization to gain access to better services and capabilities than it has in-house. Maybe a major construction and rehabilitation initiative will be underway for the next several years, requiring facilities executives to change their primary focus. Or more time needs to be devoted to space planning and revisions, so that fewer new facilities need to be constructed or leased. For these and many other reasons, commercial, educational, healthcare, and governmental organizations are looking into outsourcing some traditional facilities management functions. But to do so effectively, facility executives need to know what they want to achieve and use that as the basis for a plan. What does success look like? says Jim Cooke, president, The J Fisher Group. Paint a future picture for the facilities, and then measure where they are and where you want them to be. 2 Generation Gap: How to Successfully Manage Facilities Services Outsourcing

The Generations of Outsourcing There s no single definition of outsourcing in the facilities management field, because every facility has different needs and different goals. But there are some generally defined tiers of outsourcing that can help facility managers understand how to effectively manage relationships with services providers and transitions to more comprehensive outsourcing. According to experts, the tiers or generations of outsourcing can be defined as follows: Generation 0 Subcontracting. Subcontracting specific, specialized tasks such as janitorial services or security to outside services suppliers. This is often a precursor to wider outsourcing, but is not defined as outsourcing because contracts are awarded on an individual task basis instead of as part of a larger strategy. Generation 1 Beginning to Bundle. Outsourcing some bundled services, such as janitorial, landscaping, water management, and window washing to an outside services provider with a budget and scope of services. Generation 2 Increased Awareness. Re-evaluating the initial outsourcing, while considering other options. This is where universities and experienced outsourcers are moving as they evaluate the effectiveness of outsourcing particular aspects of facilities management. Generation 3 Teaming Up. Partnering with an outside provider of real estate and/ or facilities functions to free one or more key personnel for tasks such as space planning, property investment/new construction, corporate management, etc. Generation 4 Outsourcing s Apex. High-end strategic partnering with a services provider for advanced functions such as agency leasing; capital markets; consulting, energy and sustainability services; comprehensive facilities management; global corporate services; investment and asset management; project management; property management; research; tenant representation; and valuation. This level of outsourcing is rare; only 9 percent of respondents to a DTZ/Building Operating Management survey say they outsource full facility management services. www.dtz.com 3

Current Status of Facilities Outsourcing From its beginnings in the IT arena, outsourcing has grown to be a recognized business strategy embraced by a growing number of companies large and small. Today, outsourcing extends into all aspects of property services, including facilities management, energy and sustainability services, asset management, new construction and rehabilitation services, and property management. The transitions between these functions can sometimes be challenging, so make sure that if you re looking to start or increase outsourcing, you first develop an understanding of what the facility needs and what your specific goals are. While there is a sequence to facilities outsourcing, that varies widely, because it needs to meet the strategic plan for each enterprise. Experts say most facilities executives are not yet truly outsourcing, though more are considering it. Instead, they are subcontracting/outtasking specific ancillary tasks to outside services suppliers, which would fall under Generation 0. (See The Generations of Outsourcing, page 3.) Generation 0: Subcontracting Typically, these tasks might use one provider for janitorial services, another for landscape maintenance, and still another provider for HVAC servicing and repairs. Control and management, however, as well as coordination between providers, remain under in-house facility management. As opposed to subcontracting, some savvy facility executives are moving into Generation 1 or 2 by bundling some non-core and sometimes even core facilities services into relationship agreements that allow them to better manage costs. Often, building owners and investors opt to have facilities operations and maintenance provided by an outside vendor. In distributed portfolios, owners and facility managers may find that hiring a services provider offers better operations and maintenance services than can be afforded by employing facilities staff in each location. Others may wish to maximize usage of managerial overhead. Often, the vendor will hire the facility s employees to execute the contract s daily services, as they are most familiar with the facilities being maintained. Occasionally, facilities managers and building engineers also transition to employment with the vendor. Before building owners can make this decision, however, they need to answer this question posed by Michel Theriault, principal, Strategic Advisor: How important are the facilities and real estate to our core business? As in other areas, outsourcing operations and maintenance must be based on strategic thinking and its impact on the business, rather than lowest cost, advises Theriault. Generation 1: Beginning to Bundle There are some functions that are commonly outsourced or subcontracted, such as custodial services, landscaping, window washing, and so on, and these services often have goals and processes that are pre-defined by the provider. But because facilities outsourcing must respond to the organization s specific needs, what and how many functions are covered in services provider agreements are unique to each enterprise. 4 Generation Gap: How to Successfully Manage Facilities Services Outsourcing

While there is a sequence to facilities outsourcing, that varies widely, because it needs to meet the strategic plan for each enterprise, explains Martin McElroy, principal, MartinCompany Management Consultants. Janitorial service often is the first out the door, says McElroy. It s labor intensive and if it s not performed perfectly, facilities executives may have to deal with some complaints, but it may not have an immediate negative outcome for the enterprise. What facilities functions are outsourced also depends on the specific asset the vendor is servicing. Research labs, for example, want the best and most skillful services, as well as protection of proprietary research data. They may hire a skilled janitorial services provider, but they also may decide they want janitorial services in the product development and other sensitive areas entrusted to in-house employees. For others, equipment maintenance or janitorial may be outsourced. It all depends on what McElroy calls the criticality of the proposed outsourcing and the business reasoning behind it. Outsourcing can be put in place for any number of reasons, but in the end, building performance is what matters. Relationship agreements (sometimes referred to as business partnerships ) vary, but commonly are for three-to-five-year periods, with the potential for renewing for another term. Because they are not designed to last indefinitely, the organization-services supplier relationship agreements generally contain exit clauses and transition plans to make sure switching from one facility services supplier to another proceeds as smoothly as possible. In most contracts today, the current provider also is required to assist in the transition to a new supplier or to taking the functions back in-house, says Cooke. The Importance of a Strategic Plan While saving money is important, it should not be a primary motivator for outsourcing facilities services or expanding current outsourcing. There may be some savings, as functions are handled by skilled specialists. Cost is certainly important, but focusing solely on the bottom line when choosing a provider is rarely a good idea; in fact, according to the survey, cost is only second on the list of reasons for outsourcing. (See Figure 2) Figure 2 Why do you outsource services? R=624 Lack of staff or time to complete task 58% Cost of doing it in-house 56% Lack of in-house expertise/knowledge 38% Lack of in-house certification/credentials 36% Desire to improve quality of facilities services 35% Task not part of core responsibilities 32% Scheduling/Timing issues 23% Other 7% Before issuing a request for proposal (RFP) or request for quote (RFQ), start with a needs assessment that reflects the organization s business strategy. www.dtz.com 5

While metrics are crucial, they also need to be realistic. These attributes need to be elements you can reliably judge. For example, dust can be connected to a cleaning process or task. Then look for continuous process improvement. Lawyers like to use master services agreements but often have no concept of how work is done. Once facilities executives complete the assessment, they will know what core services they need to keep in-house and what noncore services can be outsourced, says Stormy Friday, president of The Friday Group. The assessment will set the scope of work to be outsourced and the business reasons for doing so, according to Friday. It also will examine the in-house work force to determine the scope of work to outsource that makes most sense. Outsourcing Considerations Organizations often outsource facility services to help ensure they can stay focused on their strategic business plans. As those plans change, facilities outsourcing goals may also change. The flexibility to meet those goals is an important consideration for facility executives looking to begin or expand outsourcing. The company or organization may want to put their energies into core business activities, says McElroy. Or they may be outsourcing certain facilities functions to hire experts or specialists not available in-house. Business reasons for facilities outsourcing vary widely, but Friday says some common ones include outsourcing for better talent, expedited service, lower-priced personnel, and to achieve industry best practices. Vince Elliott, CEO, president, and founder of Elliott Affiliates, suggests another motivator is pressure to improve the quality of the function. A specialized services provider can bring innovation and best practices to the organization. In order to have a successful outsourcing program, the organization may develop one or more RFPs or RFQs. Though each program is tailored to the enterprise being serviced, experts identify nine common elements: 1. A strategic plan or vision that reflects the organization s current and projected future goals and objectives. 2. Services providers chosen based on their ability to share the organization s focus. 3. Because facilities outsourcing is a relationship, on-going management of that relationship on both sides of the contract. 4. Good communications between the services provider and the organization. 5. Building owners and senior management are involved and supportive. 6. Personnel issues are addressed directly. 7. The service agreement is workable, understood, and all staff involved have access to it. 8. The outsourcing contract s exit and transitions strategies are well defined, because facilities management is a dynamic process. 9. The contract is designed so that the facilities services vendor and the organization or enterprise both benefit financially from it. 6 Generation Gap: How to Successfully Manage Facilities Services Outsourcing

How could your outsourcing experience be improved? Stronger KPIs in the beginning of the outsourcing would have allowed for more structure and would have allowed for more weight around innovation in our daily business. Tailoring the outsource model to the programs being provided. The current outsource model does not fit well with our current business model and we are working to change that. There isn t enough competition in the market. Having more vendors who compete with one another would make prices and scope more competitive. Vendors who provide their employees continued education; best practices training Source: DTZ/BOM survey Metrics for Evaluating Success When facilities outsourcing is used simply to reduce headcounts and costs, it can lead to numerous problems that end up hurting operations. Today, savvy facilities executives approach outsourcing as a corporate or organizational strategy, with an eye on not only cost, but also performance. Major facilities operations functions and their management may be assigned to specialized services providers. Together, the services provider and facilities executive form a flexible and dynamic relationship. Generation 2: Increased Awareness The facilities services provider may work within a predetermined budget. However, the relationship allows for renegotiating the allocated funds should this be necessary because of new developments. The facilities services provider should bring recommendations on how to address these developments to the organization or enterprise being served. The core values and goals of the facilities services supplier need to match those of the organization they are serving. Both parties must agree on several key performance indicators (KPIs) that the facilities services provider will meet. KPIs help to determine how well the facilities services provider is meeting the organization s needs. Keep the number of metrics used to a small, manageable number, says Theriault. At most, you probably should have only five to 10 KPIs, he suggests. Friday recommends facility executives take advantage of industry guidelines from reputable organizations such as ASHRAE and IFMA and build those guidelines into both the RFP and the final contract. Performance measurements also are used to ward off problems before they compromise KPIs. Good services providers often will offer some performance measurements to those developed by facilities executives. Take advantage of the negotiation period after the bidder is selected to make sure both parties understand the performance criteria, says Friday. Many times performance measurements can act as an early warning system that something is wrong, explains Cooke. You both need to correct the problem before it causes a failure, because when the facilities services supplier fails, you also have failed. To determine metrics and their achievements, Elliott suggests randomized surveys of building occupants and auditing outsourced provider performance against specific attributes. While metrics are crucial, they also need to be realistic, stresses Elliott. These attributes need to be elements you can reliably judge. For example, dust can be connected to a cleaning process or task. Then look for continuous process improvement. When it comes to developing an RFP or a contract, make sure the facilities department is taking the lead role. Above all, Friday stresses, The facilities organization needs to write the actual RFP and its scope of work. Don t let the procurement people do it for you. www.dtz.com 7

Elliott agrees that facility executives should not let the procurement or legal department develop the RFP s scope of work. Lawyers like to use master services agreements but often have no concept of how work is done, he points out. Facilities outsourcing contracts using a procurement management formula often focus on getting the best value for the least capital outlay. When problems occur, building operations is left to pick up the pieces, says Elliott. So wise facilities executives make sure they develop the RFP, not the procurement manager. Does the services provider have the range and depth to manage the various trades involved? Do they self perform any of the work with their own people? As an example, when purchasing paper for the photocopier, procurement personnel can choose by price, notes Theriault. But what works well for products purchasing can be catastrophic for building operations. Simply reducing costs has the potential to impact longterm costs and may have a negative impact on productivity, he says. Expanding Outsourcing Some facilities executives are concerned about what expanding facilities outsourcing will mean for their career. But, Friday says, You still need oversight to make sure the services supplier is doing what he or she is contracted to do. So you always need facility management personnel to determine what outsourcing providers should do and also to verify that they are meeting specific performance criteria. Before expanding the outsourcing relationship, Friday recommends making sure all the assessment steps built earlier are reviewed and revised. You also should be able to see the value added by your decision to outsource, she points out. In addition to costs, survey respondents mentioned improved efficiency and quality as reasons to expand outsourcing. (See Figure 3.) What are your reasons for outsourcing more services? R=251 Figure 3 Cost effectiveness 78% Increased efficiency 60% Quality of service 45% Best practices 41% Positive experience with current vendor (s) 26% Necessary staff reductions 22% Other 4% The new assessment may find the current provider is not providing what the organization now needs. Or it may not be bringing best practices to the functions outsourced, says Friday. If you are just transitioning facility functions to outsource providers that are not bringing new technologies or innovations with them, what s the point? Keeping an eye on financial elements is important, of course, but the price tag shouldn t be the primary motivator. Sometimes cheaper is more expensive in the long run, notes Theriault. Productivity and even the facility s reliability can be negatively impacted when outsourcing is monetized. 8 Generation Gap: How to Successfully Manage Facilities Services Outsourcing

One Vendor or Several? When does it make sense to hire one vendor for facilities outsourcing as opposed to hiring several different vendors? The answer is once again found in the specific goals of an outsourcing program. Write in a requirement for one or more outgoing transition meetings with the incoming services provider. And, when you check references, ask for companies the services provider no longer works Does the provider have the capability to add more bundled services? asks Friday. An operations and maintenance services provider may not do food service and janitorial work, she says. The survey results back her up, as 93 percent of respondents say they use multiple vendors, for reasons ranging from a lack of knowledge to risk mitigation. (See Figures 4 and 5.) Generation 3: Teaming Up But, if the provider does have the ability to offer more, then bundling can offer a number of advantages. The first, of course, is cost; hiring one provider to do both landscaping and janitorial will likely be cheaper than hiring two companies. But beyond that, having multiple services with the same provider can help ensure that the provider is more closely integrated with the organization s concerns, because if one provider is managing three or four or more different building functions, that provider will have a strong incentive to make sure it is doing everything the exact way that the in-house facilities management team wants it done. Cooke suggests that experienced facilities executives considering bundling services pay particular attention to the services organization s core goals and values. Make sure they match your corporate culture. Cooke recommends monitoring and measuring the relationship, making sure there is good communication on both sides. Once facilities executives are satisfied that the corporate DNAs are compatible, Cooke says additional legwork is required. Does the services provider have the range and depth to manage the various trades involved? Do they self perform any of the work with their own people? for so you can ask how smoothly the transition went. Figure 4 Are your outsourced services with different vendors or the same vendors? R=620 Same vendor 7% Different vendors 93% Why do you have services with multiple vendors? R=578 Figure 5 Lack of knowledge in specific areas 57% Cost 54% Risk of having all services with one vendor 51% Other 18% www.dtz.com 9

Transitions Between Services Providers Because company strategies change over time and relationships do end, RFPs need to spell out what happens when the partnership ends. This process is referred to as the transition plan, and a plurality of survey respondents mentioned it as their biggest risk when a decision is made to change vendors. (See Figure 6). The transition plan helps ensure that when the contract ends, the leaving supplier does not just hand over several hard disks of data from its proprietary work order system and say, Good luck. Theriault suggests the relationship agreement specifically address transitioning from one vendor to another. Also, the contract needs appropriate language that states the data belongs to the company. At contract ending, all information needs to be returned in a nonproprietary format. Figure 6 What is the biggest risk/impact to you when deciding to change vendors? R=617 Managing a transition 41% Cost 26% Time investment 20% Communication 8% Other 5% Write in a requirement for one or more outgoing transition meetings with the incoming services provider, suggests Theriault. And, when you check references, ask for companies the services provider no longer works for so you can ask how smoothly the transition went. Cooke agrees with Theriault about talking to the potential services provider s past clients. You also may want to add that the outgoing services provider be available for the first six months, so you can get answers to questions that arise, without paying extra, Cooke says. Generation 4: Outsourcing s Apex Lessons Learned As facilities outsourcing evolves within an organization, the corporate strategy also may change. Or, an organization may decide to move up from Generation 3 to Generation 4, then reverse course a couple years later because they feel full outsourcing of facilities management isn t quite what they were looking for. You don t solve an issue by moving it, says McElroy. That s not the answer. McElroy knows of one organization that reduced its real estate and facilities staff to a skeletal workforce. After 15 years of what upper management thought was a good outsourcing strategy, they discovered the services they were receiving were not better and not cheaper. The problem, according to McElroy, is they bought standard packages. Also, they had not bought outcomes; they bought tasks. 10 Generation Gap: How to Successfully Manage Facilities Services Outsourcing

You cannot buy partnerships, McElroy says. You can only be a partner. He notes in some cases, building owners make unreasonable demands on facilities services providers. It takes each party in an outsourcing agreement to make the partnership work. Facilities outsourcing is a journey, not a one-time event, maintains Friday. It s very different than subcontracting because it lasts longer. Make sure you have the means and methods for communication, feedback and management reports set up. Also define how you will look at progress against the scope of work in the RFP and how you will deal with issues, Friday says. The facilities outsourcing relationship is much like a marriage. Upfront work is essential to a successful outsourcing experience. You must make sure that the facilities services provider is a good fit with your corporate or institutional culture. www.dtz.com 11

To learn more, visit www.dtz.com, or contact: Bill Romine Vice President +1 571 237 0162 bill.romine@dtz.com About DTZ DTZ is a global leader in commercial real estate services providing occupiers, tenants and investors around the world with a full spectrum of property solutions. The company s core capabilities include agency leasing, tenant representation, corporate and global occupier services, property management, facilities management, facilities services, capital markets, investment and asset management, valuation, research, consulting, and project and development management. DTZ provides property management for 1.9 billion square feet, or 171 million square meters, and facilities management for 1.3 billion square feet, or 124 million square meters. The company completed $63 billion in transaction volume globally in 2014 on behalf of institutional, corporate, government and private clients. Headquartered in Chicago, DTZ has more than 28,000 employees who operate across more than 260 offices in 50 countries and represent the company s culture of excellence, client advocacy, integrity and collaboration. For further information, visit us at www.dtz.com Follow us on Twitter @DTZ