How To Improve The Business Model Of An Outsourced Manufacturing Business

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1 FM leaders forum Building successful outsourcing relationships F M L E A D E R S F O R U M : D I S C U S S I O N P A P E R Supported by

2 Contents Introduction... 2 Executive summary... 3 The panel... 4 Discussion... 5 About the panel Glossary This Forum was kindly supported by GSH Publisher Published by the British Institute of Facilities Management BIFM February 2014 If you have any questions, please [email protected] Disclaimer The discussion contained within this document reflects the views of those in attendance at the FM leaders forum event and do not necessarily reflect the views of the British Institute of Facilities Management. Building Successful Outsourcing Relationships 1

3 Building Successful Outsourcing Relationships FM LEADERS DISCUSSION FORUM Introduction Gareth Tancred, CEO, BIFM The practice of outsourcing has for a long time been a sensitive issue. Whilst there are many business benefits in being able to access a skilled resource when it s needed without the need for internal investment, this is often an area that sees tension within client organisations for those managing procurement and internal customers as well as the suppliers or service providers. This is the case across all sectors. This BIFM forum brought together key industry professionals from both sides of outsourcing (clients and suppliers) from leading FM organisations to unpick the procurement and outsourcing process, to debate issues and behaviours, understand where common themes lie and what the next steps are for the profession. Within the FM sector, outsourcing is second nature for many organisations and with a thriving network of service providers, there is a need to ensure both parties work as effectively as they can together in order to deliver the best service for the organisation, the local community and wider society. BIFM recognises the increase in organisations outsourcing FM operations, tasks and functional areas within the built environment - increasingly on a pan-european or global basis. The volume and value of Total Facilities Management (TFM) contracts have risen dramatically over recent years and has become a key discussion area in the FM sector. It is vital therefore those relationships between client organisations and suppliers in the FM sector are as effective as possible in order to achieve the best results for both parties. What can FM do to make sure that as an industry it is creating successful outsourcing relationships? Are there any general themes, trends or behaviours that can be shared to help with those involved in outsourcing? Can BIFM promote a new way of working that will overcome some of the problems encountered and promote a positive outsourcing practice? The BIFM Leaders Forum acts as a catalyst for BIFM and industry specialists to take a lead in guiding the sector on how to run effective contracts and supplier relationships. BIFM will be using the feedback from the Forum to develop best practice guidance and other resources to help those involved in outsourcing in the sector have successful contracts and relationships. FM Leaders Forums were originally created to bring together leading minds and practitioners on different subjects and topics to debate and inform the membership, the FM sector and the BIFM. This latest discussion raised the need for a clear voice from BIFM to make a case for FMs and put into place guidance for successful outsourcing relationships. Building Successful Outsourcing Relationships 2

4 Executive Summary Raising the profile of FM is a key area of need. FM needs to be at the top table when a workplace is being designed not when it is being told where the cleaning cupboard is. To do this the FM role must be better defined and emphasis placed on the expertise the facilities manager brings. Facilities management needs to show its link to risk management in terms of compliance, brand and recognition in the marketplace, and costings, and how it can influence those things. It needs to show how it is enhancing and protecting reputational brand arrangements after all brand and transactional risk are what the board understand and demonstrating it can have a measurable impact on the workplace and the bottom line. Alignment is also crucial, both in terms of the language used and the ability to interact in a way that aligns FM and its image with the people that are on the receiving end. But FM also has to earn its seat at the board table and recruit people that can articulate FM properly and build respect for the industry. Currently, there are engineers and surveyors who don't want to be under the FM umbrella; because engineering or surveying are perceived as more respected disciplines. How does FM create the right workplace for productivity, for attracting the right talent and retaining the right talent at the right level? FM can be the life support of an organisation but because this is such an all-encompassing term, it becomes difficult to articulate what FM is about. Ask 15 different FMs and you get 15 different views. KEY FINDINGS > The procurement process has to be driven by the client who has clear vision and strategy > It s not simply a procurement process that s all about price it shouldn t just be a bidding war > The client/stakeholders should be fully engaged in the process and know where they want to go > The FM should get the right outcome for the whole organisation, not just the procurement department > Finding out what matters to the individual stakeholders will allow FM to become more closely culturally aligned > One of the biggest capability shortfalls in the FM industry is change management this capability is wholly necessary, be it inside the client or supplier business > The profession should look at producing a code of practice written in a language that everyone can understand and targeted at the right audience > The industry needs to enable a quantum shift in perception at the strategic driving level of organisations in order to be taken seriously As an industry, FM is having the same discussions as it did 10 years ago. What is needed is a clear voice within the BIFM that can make the case for FM: a code of conduct and a code of practice. The industry needs to enable a quantum shift in perception at the strategic driving level of organisations in order to be taken seriously. Building Successful Outsourcing Relationships 3

5 The panel Leaders from across the facilities management sector and beyond are invited to take part in the FM Leaders Forums. This forum s participants included: PARTICIPANT JOB TITLE ORGANISATION Lucy Jeynes (Facilitator Representing BIFM) Managing Director Larch Consulting Ltd Neil Longley Director Opale Management Service Ltd Edward Carter Director of Consulting Mace Macro Ltd Martin Read Editor FM World Paul Thompson Director ISS UK Richard Yearley Group International Facilities Director GSH Karen Waring Strategic Partnership Director Compass Group UK Ian Thomas Craig Shepheard Global Head of Facilities Management Managing Director HSBC FM Expert Stuart Cranna Corporate Services Director BlackRock Steve Cox Head of FM and Property for Old Mutual Wealth Skandia For further information about the participants, their experience and expertise please refer to pages Building Successful Outsourcing Relationships 4

6 Building Successful Outsourcing Relationships Discussion The participants took part in a roundtable discussion. A summary of some of the main points from this discussion are as follows. Background The Forum participants were asked to consider the following perceptions presented to BIFM by Opale Management Services Limited*. These findings were the catalyst for this FM Leaders Forum and the thought provoking debate that followed: > Those working on client-side do not consider FM suppliers to be trusted advisors. only a small proportion of suppliers have board-mandated retention contracts > Clients are not always fully comfortable with the delivery models they were operating, but didn't necessarily see the marketplace offering viable alternatives > Clients viewed outsourcing relationships as highly variable e.g. while one client thought a supplier was fantastic, five miles away a different client thought the same supplier was very poor > Suppliers feel that clients procure services in an inappropriate and irresponsible way and often fail to have sufficient contract management skills > Clients feel suppliers often enter into cavalier bidding i.e. where the service supplier is knowingly bidding at a cost level below that which is necessary to provide the services for which it is bidding. Clients feel there are also rogue traders where the supplier is knowingly not doing what it is being paid to do, yet is reporting to the client that it is > Those in the FM sector do not have a good understanding about the difference between outsourcing and out-tasking and why this is important. There needs to be better understanding of contractor obligations and sub-contractors appointed to deliver against a contract of work. The Forum was also asked to consider the following: > The FM sector needs to understand how the industry progresses from a tactical perspective and that business drivers are not just applicable to FM. They also apply to IT, HR and many other functional services of the business. For example, one of the strategic drivers might be to achieve a reduction in operational and capital expenditure or perhaps reduce the internal headcount in order to reduce costs. Three tactics to address these drivers are commonly 1. The rationalisation of the vendor base, 2. The consolidation of the internal management structure and its capabilities, and 3. Standardisation of the delivery platform. > The overall intent for outsourcing is where all of the tactical and operational management and assurance transfers to the service supply, so the internal client unit retains only a strategic influence and direction (the utopia for outsourcing). While it might be assumed much of the Building Successful Outsourcing Relationships 5

7 procurement processes have outsourced, in reality it is an out-tasking environment. The procurement process is an enabling vehicle, which means clients need to understand the business drivers. The size and complexities of what is being outsourced are not always clearly understood or the type of relationship that is required between the client and the supplier > A key factor in successful outsourcing is the capability of the supply chain. It must have the ability to be competent: to deliver what it is required by the client and have the governance and controls to ensure the process is working in the client's best interests > Organisations that have a transactional process of development are stepping back to outsourcing tasks rather than functions > There are few techniques in the FM sector, contractual platforms, or sensible procurement techniques that enable organisations to advance successful transformations in procurement practice > Those in the FM sector need to increase their capabilities in this area whether born through knowledge, skills or experience and understand the broader supply chain. Until it does, it will continue to tread the line between out-tasking and outsourcing, but not be able to achieve the full benefits of the process transformation between out-tasking and outsourcing. There is often a disconnect between the business strategy and how that relates to the property strategy and what s needed from a service point of view. Organisations need to join these up and dictate what can be done with a property, putting together a proper Request for Proposal so that the supplier side can respond to it in an intelligent way. It s up to the client to create the environment within which the supplier is successful. Strip it back to basics and it s about buying clients or, with a client hat on, buying people and buying the service through people. The process has to be driven by the client and its vision and strategy, and not simply be a procurement process that s all about price. It's easy to fall into a bidding price war instead of looking at where value is added through having the right people at the right levels. Whether it's out-tasking or outsourcing, a change of supplier inevitably causes disruption to the normal ebb and flow within an organisation, but it's up to the client to create the environment within which the supplier is successful, and it's up to the supplier to be successful. If the client doesn't have the right capabilities positioned in the right way, or the supplier marketplace delivers inappropriate capabilities into an environment where there is a set expectation, then it won't work. It s all about capability in the right place and at the right time and recognising that each client is different. That's the core of understanding the Client driven outsourcing Each client has a different reason for outsourcing, which can get lost in the process. A small business, for example, might have very different objectives i.e. to outsource to add value growth to the business, while a bigger company might outsource to transfer risk and liability. Building Successful Outsourcing Relationships 6

8 The client and stakeholders should be fully engaged in the process and have a clear articulation of where they want to go, otherwise how can the service provider ever live up to expectations? Relationships within outsourcing There can be disengagement and disinterest by the client in the day-to-day relationship, which can be a real frustration for the supplier. Suppliers often expect clients to be experts and yet, much of the time, the very reason the client is outsourcing is to gain expertise it might not have. Managing expectations is a fundamental. To really support the client and come up with an offering that is going to add value strategically is a tremendously powerful thing, but as an industry, FM is still quite a long way off being able to provide this. The challenge is to get the right engagement at the right level within an organisation. There is a need to look at the relationship matrix and the drivers from different aspects of the business rather than from one particular stakeholder viewpoint. To do this, FM needs to raise understanding of what it is capable of doing, both as an advisor and service provider, without trying to segregate the industry, and it needs to ensure this engagement happens early on. All too often, the engagement comes too late and it s not a relationship anymore; it is a transaction. Once a supplier has proved it can deliver then it can start to build trust, and it s about finding a way to get the tactical deliverer perceived as a strategic advisor. Ultimately, it comes back to language and the way in which FM presents what it does. There are a lot of people in the FM profession that don t realise they re even in it because they think they re doing something else i.e. admin or ops. They don t identify themselves as facilities managers and don t understand how what they do enables and supports business strategies. The challenge is to get the right engagement at the right level within an organisation. The procurement process It s important for the heads of each department to talk to their teams about the journey the business is going to take, what they want the outcome to be and how they are going to get there. If you go down the traditional procurement route how will you get that end result? Some of the key questions from the client's point of view are: how does it get its procurement areas under control? Should the process be owned within FM, and should it aim to get the right commercial outcome or drive the whole outcome? How does FM get the right outcome for the client, and not just for the procurement department? The competitive dialogue process is the most appropriate route to procuring FM services but many businesses are nervous about it or don t understand it. It can be quite a challenge to persuade clients they need more structured processes. The only way to change the industry is by opening up that process and advising that if a fixed specification is taken to market, that's what will come back. Procurement teams are great at procuring products e.g. X number of chairs, but they don t often understand they re also procuring a service. Procurement can be a useful tool in getting the right commercial outcome but it can be a real barrier to getting the right operational Building Successful Outsourcing Relationships 7

9 outcome. The essence that underpins procurement categorisation is: don't spend it unless you have to, and if you do spend it, spend it well. As an industry, FM has difficulty embracing this. to the board table immediately unless there are already individuals who are capable of representing FM? Skills and capabilities If you go down the traditional procurement route how will you get that end result? Outsourcing strategy Outsourcing is intrinsically linked with FM, however, there needs to be a business strategy before an estates strategy, and an FM strategy before a procurement strategy for example. The starting point is understanding the fundamental issues that are challenging and driving that business and finding out who is the right person to direct these questions to. Finding out what matters to the individual stakeholders can allow FM to become more closely culturally aligned. This isn t about a model; it's about a dynamic. It's about the point at which the business and it doesn't matter what size it is chooses to transfer assurance from one side of the fence to the other. One of the challenges is the lack of recognition of the skills and the capability of the FM industry. Until that's recognised there's less appetite to recruit. Moreover, does it matter whether it s outtasking or outsourcing? In both cases, businesses are asking someone else to provide a service for them, and, whether it's tactical or strategic or operational, it's a journey over time. Can the FM industry expect to be invited Capability isn t just about the individual, it s about a function an expertise the business needs in order for it to operate in the way it was intended. Within FM organisations, there are a number of different capabilities necessary to deliver, dependent upon the strategy and the environment. When it comes to identifying or managing capability it's no different to any of the existing HR outsourcing platforms. One of the biggest capability shortfalls in the FM industry is change management. This capability is wholly necessary be it inside the client or inside the supplier. So is it worth focusing on people horsepower within the industry? The differential in salaries between an account director-type position on the supply side and an individual on the client side is upwards of 20 to 40 per cent. Is this an indication of how the supply side values people in its core business more than a customer organisation? Is it because the business is farming capabilities from other organisations, which increases the cost of moving them? Is there a disconnect in salary because people on the client side buy into that brand and are wedded to it? Their driver isn't financial because they ve moved around and churned through different organisations. Capability isn t just about the individual; it s about a function an expertise. Building Successful Outsourcing Relationships 8

10 The intelligent client It s important to ensure each contract has a good specification attached to it that explains the brand but isn t too prescriptive. It s about being the intelligent client i.e. giving advice on the procurement side, which doesn t confuse outcomes with outputs or inputs. It s easy to bid for something that has flaws, but it s important to challenge this straightaway. There remain some key business drivers that influence, shape and design what is needed. The challenge is that the supplier has its own operational stance on how to procure and deploy resources and these are often not aligned with the client. In particular, there is often a disconnect between the sales and marketing function of suppliers and the operational delivery aspect. It s important to ensure each contract has a good specification attached to it that explains the Everyone knows it s a beach ball but if they only look at it from the supplier side or the client side, they won t get the full picture. What is needed is a person with an over-arching view who can explain the problem from both perspectives. How do you maintain and ensure consistency in a management relationship while mobilising in many different countries, using many different services? The key is to match the management style and capability. A code of practice in this area might be sensible, one that is written in a language that everyone can understand and targeted at the right audience. Could it also include governance around behaviours such as rogue trading? This would also provide an opportunity to reiterate the importance of FM in the process. Many businesses don t give FM a thought until the toilets break down or the lights go off, and a code of practice would further articulate the importance and value of FM to the client side i.e. what is the workplace for? How does FM make it better? How does FM contribute to an organisation? *BIFM is not able to comment on any research that the consultancy carried out to support the perceptions held. The research was not commissioned by the BIFM but was used as a starting point for discussion. How to develop, support and shape future policy Consider the issues as a beach ball and it s easy to see why one person might see red, white and blue, but another blue or red or white. Building Successful Outsourcing Relationships 9

11 About the panel Lucy Jeynes, Managing Director, Larch Consulting (BIFM Facilitator) Lucy is a director of Larch Consulting, an independent practice specialising in FM and infrastructure services. She has over 20 years experience in advising on all aspects of service strategy and delivery, and her company has led FM improvement programmes for organisations including Sainsburys, John Lewis Partnership, Bullring, Tate, De Beers Diamond Trading Company, as well as a large number of public sector bodies including universities, government departments, local authorities and hospitals. Lucy s particular areas of expertise are service improvement and sourcing strategy. She has been voted by her peers as a Pioneer of FM and one of the 20 Most Influential Women in FM. She is a founding committee member of Women in FM and has held positions on BIFM Board, Executive and Members Council as well as previously serving as Deputy Chair. Edward Carter, Consultancy Director, Mace Macro Ltd Edward is highly experienced in both facilities management consultancy and service delivery to public and private sector organisations across the UK. During his 28-year career he has held director level positions for a number of prominent FM service providers, before progressing into consultancy in He has been instrumental in delivering FM solutions for a diverse range of clients including Guardian Properties national portfolio, Eli Lilley, Glaxo Wellcome, Novartis, BASF, Barclays Capital, Nomura, Abbey National, Mars and the Post Office. Prior to joining Mace Macro, Edward was a director in Drivers Jonas Deloitte s Real Estate Strategy and Finance Group, leading the technical FM team in providing solutions to a diverse range of high profile occupiers. Recent projects for central government clients have included FM price benchmarking for the Home Office s London HQ PFI and for the Department for Work and Pensions UK estate of 1,100 properties. He has also led the provision of technical support to the Total FM procurement project for prisons and courts across the UK for the Ministry of Justice. Steve Cox, Head of FM and Property for Old Mutual Wealth, Skandia Originally trained in mechanical engineering, Steve has worked in facilities and property management since He has worked on both the client side of the industry with large organisations such as Nestlé and Norwich Union (now Aviva), and on the supplier side with Coflex, where he held a number of senior roles including operations director. He has worked for Skandia/OM since 2005 and heads up FM and property for the wealth management business. Steve holds an MSc in FM and a PG FM diploma from the College of Estate Management. Stuart Cranna, Head of Corporate Services EMEA, BlackRock A Hospitality Business Studies graduate, Stuart spent several years working in hotels before moving into venue management and commercial contract catering. He transferred from being a supplier contract manager into client side Facilities Management at the London Stock Exchange as part of its headquarters relocation team, and now leads the EMEA Corporate Services team for BlackRock responsible for all elements of the regional Real Estate portfolio plus other additional services. Neil Longley, Director, Opale Management Services Ltd As the founding Director of Opale Management Services Ltd an independent and boutique FM consultancy, Neil has some 18 years experience in FM matters including FM procurement, organisational design, technology and information, relationship management and process. Neil has Building Successful Outsourcing Relationships 10

12 worked with HSBC, Barclays, O2, Aviva, Agustawestland, Alstom, Severn Trent Water amongst others and has a wide ranging knowledge and experience in the UK and European FM markets across many industry sectors. The Opale team is well known as influential innovators across the private sector. Martin Read, Managing Editor, FM World Martin Read is the managing editor of FM World magazine. He has experience as an editor, writer and publishing project manager in the B2B, client publishing and membership organisation sectors. His previous titles have been in the logistics, public transport and group travel sectors. Craig Shepheard, Managing Director, FM Expert Ltd Craig is Managing Director of FM Expert Ltd, an independent facility management consultancy, set up in 2010, which advises both clients and contractors on all aspects of facility management. Previously working for blue chip manufacturing organisations throughout the UK, most of which operated on a 24-hour basis, and head of facilities management at hurleypalmerflatt, Craig has worked on many multi-site deals and one off contracts both for the private and public sector. He has specific expertise in operational risk management of mission critical facilities such as data centres and trading floors. Ian Thomas, Global Head of Facilities Management, HSBC Ian has worked for HSBC for nearly 30 years, undertaking a wide range of roles across different parts of the business. He is currently leading a global programme to transform the management and delivery of FM services across the HSBC estate. As part of this, in January this year HSBC signed a global agreement with Jones Lang LaSalle to provide facilities management services. Covering 58 million square feet and over 8,500 properties, this is the largest global facility management outsourcing contract by a financial services firm. Paul Thompson, Business Development Director, UK and Ireland, ISS Paul has more than 20 years experience of the FM sector as both client and service provider across a broad range of public and private sector organisations. He is currently Business Development Director for integrated facility services company ISS, having previously worked in a variety of operational and business development roles for FM service providers Carillion and Citex. Prior to that he worked as an in-house FM and was Head of Facilities for BT Cellnet (now O2 Telefonica). Karen Waring, Strategic Partnership Director, Compass Group UK Karen has worked for Compass for 25 years in a variety of operational, business development and marketing roles. She has FM experience across a number of sectors, including leisure, healthcare, education and business and industry. Her current role involves collaboration with key clients, reviewing service delivery to ensure it meets organisational needs and client relationship management across FM in B+I. She has been closely involved with Compass s launch of its new FM brand: 14forty. Richard Yearley, International Facilities Director, GSH A proficient and creative leader with extensive experience in real estate and operations, and expertise in setting up and implementing business strategy, overseeing large-scale ventures and running complex project programmes. Richard has been involved in every aspect of corporate real estate and the management of operational facilities for 20 years. This extends to and incorporates complex lease acquisitions/disposals, M&As, Building Successful Outsourcing Relationships 11

13 reorganisations and driving strategic change and alternative design, and the procurement of suppliers to drive efficiency and deliver business solutions. Building Successful Outsourcing Relationships 12

14 Glossary BIFM British Institute of Facilities Management. TFM Total Facilities Management FM Facilities Management HR Human Resources IT Information Technology Outsourcing Outsourcing defined, is hiring out an entire work process individual tasks and all Out-tasking Out tasking defined as hiring out small tasks of an entire work process. People who hire out individual parts of a job out-task Building Successful Outsourcing Relationships 13

15 About FM Leaders Forums The FM Leaders Forum is a medium through which BIFM gathers together leading minds and practitioners from the facilities management sector and beyond to debate different subjects and topics to inform the membership, the FM sector and the BIFM. Those involved in each forum depends on the subject area being addressed, leaders from across the sector and where appropriate from outside the sector will be invited to take part in the discussion forum. About BIFM The British Institute of Facilities Management (BIFM) is the professional body for facilities management (FM). Founded in 1993, we promote excellence in facilities management for the benefit of practitioners, the economy and society. Supporting and representing over 14,000 members around the world, both individual FM professionals and organisations, and thousands more through qualifications and training. We promote and embed professional standards in facilities management. British Institute of Facilities Management Number One Building The Causeway Bishop s Stortford Hertfordshire CM23 2ER T: +44(0) E: [email protected]