4 FM quick reads on Outsourcing
1. Signs of Outsourcing Failure
Outsourcing can fail for a number of reasons. The most common ones involve:
- hiring the wrong contractor
- setting unrealistic goals
- inadequate contract details
- inflexible contracts
- having limited or poor understanding of expectations
- failing to use a statement of work or scope of work
- failing to have a method for price adjustments or incentivized pay
- inadequate management review
- poor project and contract management by the manager and contractor
- failing to understand scope or statement of work before bidding or contract negotiations.
Any of these problems can ruin the relationship between the contractor and the manager and lead to outsourcing failure. Good outsourcing contractors perform an autopsy after the death of an outsourcing contract to determine the reasons it failed and steps the parties involved can take to prevent future problems.
But here is the single most common cause of outsourcing failure: Building owners and managers fail to understand the existing scope of work and do not offer a vision for measurable maintenance performance.
It might seem difficult to believe that most managers or owners are clueless about the details of the scope or statement of work for the existing job or workers, but it's true. Then they hire a contractor to do the work and expect that company to understand the organization's needs or wants, based only on a one-hour bid meeting and a 10-page document.
2. Outsourcing In Government Has Broad Ramifications
Outsourcing functions in the facility management department is often pursued by organizations as a cost-cutting strategy. However, this expected result might not always materialize, at least when it comes to government employees, according to a recent study by the Colorado Center for Policy Studies.
The study argues that governments have a responsibility to their constituency to consider economic development and how the jobs comprising the government foster that economy. However, the officials making the decision on keeping a function in-house or not do not often consider the larger ramifications of outsourcing government positions to third-party firms.
The study found the decision to outsource government jobs had a cascading negative effect, ranging from creating distance and opacity between taxpayers and their government, to negatively impacting the local economy through lower salaries — which in itself is cited with a separate cascade of negative effects.
In addition, poor quality of services negatively impacts end users — citizens, in their area of focus — and the study cites poor service quality as the cause behind 61 percent of outsourced contract terminations. Governments also cited insufficient savings 52 percent of the time as the reason outsourced contracts were terminated.
The study findings are not wholly opposed to outsourcing, but stress that the outsourcing relationship must bring innovation that leads to higher efficiency or quality of service than what can be achieved in-house.
The study, "The Decision to Contract Out: Understanding the Full Economic and Social Impacts," is available at the Colorado Center for Policy Studies at http://www.uccs.edu/~ccps/.
The study also includes a step-by-step guide on how to estimate the effects of outsourcing on the local economy in Appendix A, and also at this link.
3. Vested Outsourcing Creates a Win Win Situation
When Procter & Gamble decided to outsource its facilities management to Jones Lang LaSalle in 2003, at the time it was a ground breaking deal spanning over 60 countries and multiple functions, including facility management, project management and certain occupancy services, says an article in Area Development. The partnership has been highly successful and in-step with the larger enterprise's focus on innovation.
Among the keys to the successful relationship are that, instead of an adversarial relationship, the outsourcing relationship is a true partnership. According to the article, 600 P&G employees became JLL employees as part of the outsourcing effort, so the merged mindset was there from the get go. As well, a well-crafted contract with clear and simple expectations is credited with fostering the right behaviors.
The PG&E and JLL outsourcing relationship follows the rules of "Vested Outsourcing", says the article, which focuses on collaboration, alignment and performance-based goals. This term was coined by researchers at the University of Tennessee's Center for Executive Education and the International Association of Contract and Commercial Management.
According to the authors, there are five rules of Vested Outsourcing. The first is to focus on outcomes and tied to this is the second rule that what's important is the what, not the how. Thirdly: Outcomes must be measurable and clearly defined. The fourth rule requires moving away from the mentality that the bargain basement price wins, and instead requires a pricing model that recognizes that good service requires appropriate recompense. And the last rule changes the oversight structure from oversight to insight that respects the professional capabilities of the outsourcing service provider and creates a responsive mechanism for governing the relationship.
Read the article here.
And find out more about the Procter & Gamble outsourcing relationship with JLL here.
4. Outsourcing Provides Focused Expertise for Hire
Outsourcing can be more than just a way to cut costs on in-house functions. In can be a way to import expertise in a targeted manner without having to create an in-house position. In addition, facility managers employing outsourcing are also hiring a fresh set of eyes that might be able to spot a new solution to an old problem.
An article in the April 2013 issue of Building Operating Management details some of the ways three organizations used energy services outsourcing in a strategic manner, rather than simply looking for a quick fix and a low bid.
For example, an energy services provider can help manage the adoption of energy efficiency measures that might be unfamiliar or utterly unknown to the in-house facilities management staff. Over the years, the Los Angeles Convention Center's long-term relationship with its outsourced energy services provider has yielded a facility that uses 64 percent less energy than a comparable facility, according to the center's 2010 Building Performance Report from the U. S. Green Building Council.
Expertise within the outsourced service provider's team could also help facility managers be more strategic in allocating available resources. At KeyBank, partnering with their outsourced energy services provider helped them make planned energy efficiency spend go as far as possible. The relationship between the two firms is so close, the outsourced employees blend seamlessly into KeyBank's facilities team.
An advantage an outsourced provider can bring to the facilities team is the luxury of focus. They are hired specifically for a task, while the facilities team has a variety of fires to contend with on any day, coupled with all the other long-range duties of the job.
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