4 FM quick reads on outsourcing
1. 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.
2. 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.
3. 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.
4. Outsourcing Benefits Require Targeted Application
Outsourcing was once a source of significant anxiety for internal facilities management teams, but the pendulum has swung in the other direction in the current climate of tightly constrained budgets and lower in-house staffing levels. Still, outsourcing is a tactic to be applied with precision to yield the highest benefit.
In a roundtable discussion with Facility Maintenance Decisions, three facility managers discuss some of their experience with outsourcing. The primary benefits of outsourcing some of their services for them are savings and flexibility. Funds can be applied in a targeted as-needed manner, which also shields them from getting appropriated by other needs, so certain tasks like mowing lawns get done in a timely fashion.
The procurement and specification of outsourced services is sometimes the hardest part, the managers say. This is due to a combination of reduced workforce elsewhere in the company, which makes the facilities department responsible for writing the contract. Following internal protocols for legal reviews and the like can also slow things down. However, more and more organizations are posting their bid and proposal documents online, which can be a benefit to other FM organizations in shaping their own documents.
Other challenges have to do with the outsourced service providers. With many companies clamoring to provide janitorial service, HVAC service, etc., it falls on the facility manager to properly vet the candidates to make sure they can actually deliver on their claims. Making sure scope of work is clear is part of making sure all parties can meet expectations.
Another challenge managers point to is that, unlike full-time staff, outsourced service providers are there to do a specific and delineated task. There is not the flexibility to pull them onto other projects, at least not without new contract negotiations. The silver lining there is that, because they are hired to do a specific set of tasks, if the outsourced service provider is not performing to expectations, it is much easier to simply replace them.
Read the full roundtable here.
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