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Part 1: Performance-based Outsourcing of Facility Services Can Improve Results
By Vince Elliott
October 2012 -
Businesses are facing unprecedented cost competition from domestic consolidation, acquisitions and mergers, as well as pressure from international companies. In response, companies are outsourcing billions of dollars worth of a variety of services. The fact is, however, that many facility managers aren't happy with their outsourcing arrangements. That dissatisfaction is one reason for the increased interest in performance-based outsourcing.
Performance-based outsourcing is a buying strategy that specifies the results needed by the facility manager to create competitive value, not the processes to achieve those results. It supports the mission of the facility manager's organization to serve a specific customer or market.
Performance-based outsourcing is more about results and relationships than it is about the price of services or financial resources of a contractor. A fundamental goal of a performance-based contract is to clearly and accurately document the scope of work (mission-critical outcomes that are important to the facility manager and service provider). From the facility manager's point of view, a performance-based contract should create a competitive advantage. The idea is to link contractor services to the company's mission to serve both the external customer or market and the internal stakeholders.
In an outsourcing arrangement, each party has clear, though different, goals that each considers fundamental to its success. A key to successful performance-based contract management is the creation of that linkage in a relationship that allows each side to achieve its goals.
A cornerstone of the performance-based approach is a scope of work that defines the results expected — that is, service outcomes that have value to the company. These results help the company fulfill its mission to serve its customers at a competitive advantage. Achieving this goal is the ultimate value of the performance-based contract.
It's obvious that attracting and retaining customers is the ultimate goal of any business enterprise. The term "customers" includes both external customers or markets and internal stakeholders. External customers, of course, are the reason the facility manager's company is in business. But internal stakeholders should not be forgotten. When internal customers are dissatisfied, productivity decreases, process errors increase and the ability of the company to serve its external customer is compromised. Contractor services and outcomes should empower internal stakeholders to do their jobs better and increase productivity.
1. FM specifies the work process, not the results.
2. It's a "what's in it for me" relationship.
3. Contractor selection is price driven.
4. No consequences for poor performance.
5. Contractors often don't actually bid the spec.
6. Measurement of performance is unreliable.
7. Everyone is focused on short-term goals.
For a closer look at problems with traditional outsourcing, go to: http://bit.ly/UuhBgJ
Part 2: Outcomes Are Most Important Metric For Performance-based Outsourcing Contracts
Part 3: Performance Accountability Required For Successful Outsourcing