4 FM quick reads on outsourcing
1. Three Reasons Outsourcing Runs Into Problems
Today's tip on outsourcing comes from Vince Elliot, president of Elliott Affiliates, Ltd. Here are three reasons that relationships with outsourced service providers run into problems.
1. Buyer specifies the work process. In many outsourcing contracts, the facility manager specifies how the work is to be done versus what result the work is to produce. These are "process" specifications that list the variety of tasks to be performed, at a required frequency. This means that the facility manager selects the contractor based on its performance and achievements, then tells them "don't do any of your best practices; I've written it all down for you, so do it my way." And, if following the facility manager's tasks/frequencies delivers a dirty facility and customer complaints, which party is at fault, the contractor or the facility manager? After all, it's the facility manager's process that the contractor is legally required to follow. Buying time, tasks, processes, labor hours, systems, etc., has little value if they do not produce an advantage for the buyer. An expensive trap can be created when facility managers are specifying the work process around what people do, versus what resulting benefit the company gets. What's more, the more the facility manager requires and manages its own process for doing the work, the more likely a co-employment relationship will exist.
2. It's a WIIFM-L (What's In It For Me-Lately) relationship. Many facility service outsourcing problems can be traced a situation where the two parties really don't have common interest. Where everyone is looking out for their own best interest, the more one party is successful, the less the other party is successful. This negotiation is a classic win-lose dilemma. There is no contractual focus on the buyer's mission and their competitive goals. And there is no mutuality of consequences linking buyer success to contractor success or failure. Remember to pay attention to WIIFM-L (What's In It For Me-Lately)? What does each party want to achieve? The buyer wants a "quality" product or service, no customer complaints, responsiveness and below-market pricing as a strategy for maintaining or increasing their market share. The contractor wants healthier profit margins, increased revenues and long term relationships as a strategy for maintaining or increasing their market share. Despite all the talk about partnering, the traditional buying strategy is an everyone-for-themselves-relationship, where success is measured by how much compromise is accepted by each party.
3. Contractor selection is price-driven. In this sort of every-person-for-themselves environment, the facility manager often says that price is not the main criteria for awarding a service contract. Facility managers talk about partnering, they talk about performance, they talk about alliances, etc. Yet in the end, the three things that drive buyer selection of contractors are price, price and price. Sometimes the facility manager (or the facility manager's agent) is too motivated by the goal of dramatic cost reduction. When the facility manager participates in a "savings bonus" program, short-term greed can cloud long term outsourcing success. This is most likely to occur when the company is unclear about the balance of value it expects at any savings level. Contractors understand when price is the driver; and they low-bid (usually under-bid) the job in response. Downstream prices increases are a natural consequence of this strategy.
Define Performance Expectations in Outsourced Services
Today's tip from Building Operating Management is to focus on performance outcomes when establishing outsourced service provider relationships. This will shift the focus of decisions away from shallow measurements, like cost, to what really matters to facility managers who are satisfied with their outsourced service providers: results and relationships.
Clearly defining the expected results is key for this approach to outsourcing to work. This does not involve micromanaging the contractor and prescribing a series of processes. After all, outsourced service providers have been selected as experts in their field. Instead, facility managers should focus on defining what results the outsourced service provider needs to provide in order to bring value to the organization and make the outsourcing relationship worthwhile.
Value to the organization usually falls into two categories. The first is when the outsourced service allows the organization to better serve its own customers. The second is when the outsourced service reduces costs for the organization. When establishing an outsourced service relationship, facility managers should be clear whether it's more important to cut costs or increase capacity.
Expected outcomes need to be defined because value is not created just from the fact of the outsourced service contract. "Buying a contractor's time, tasks, processes, labor hours, systems, etc., has little value if they do not produce an internal or external advantage for the facility manager's company," writes Vince Elliott, president of Elliott Affiliates, Ltd.
But facility managers also must remember that contractors are not just simple commodities to use up and discard. Healthy outsourcing relationships acknowledge that the contractor needs clear paths between services rendered and benefit to their company. Benefits can obviously be tied to money, but can also encompass marketing opportunities or doors opened to more business. How performance outcomes tie to consequences, both bad and good, need to be clearly defined.
Evaluate contractors’ green services to meet green goals
Today's tip is to look to your service providers to help meet green goals. Many outsourcing providers have realized the growing demand for green and have tailored their services to help green-focused facility executives. But carefully evaluate the providers and their services to ensure you are getting what you want.
"There are more than two dozen credentialing, certifying, or inspecting authorities, and I think to some extent they're all credible if you clearly understand the mission of each," says Vince Elliott, founder and chief executive officer of Elliott Affiliates, Ltd.
Facility executives need to make sure that a provider's certified products work not just in a lab but in actual working buildings, Elliott says. And requiring certification could significantly reduce the pool of otherwise-qualified providers and possibly raise prices.
Facility executives should also know what they are willing to commit to. "Some measures will require time and energy and possibly capital," says Michel Theriault, a principal with Strategic Advisor. "You may prioritize and start with those that are low cost, low effort and work your way up the ladder."
Joe Havey, president of Havey Real Estate Consultants, recommends talking with other facility executives about which providers they've used and whether they've been happy with the work.
Havey also suggests that facility executives design a matrix and assign a weighting to each of the criteria. For example, on a scale of 1 to 10, having a LEED Accredited Professional credential may be worth three or four points, while being a certified energy manager may be worth 10 points.
How the expertise is applied is also important and should be spelled out in the contract with the provider, Theriault says. "That expertise costs money, and if you're not specific in your request for proposal, you may not get it," he says.
It's also vital to get proof of exactly what a provider has done. "Get the data that shows it's worth replacing the lighting system and which shows the payback," Theriault says. "You're evaluating their performance rather than just evaluating what they say they'll do."