Outsourcing: Serving Up Quality

Three steps can help facility executives ensure that they get the right level of service from outsourcing providers

By Michel Theriault  

Ask facility executives to name the most difficult thing about implementing outsourcing, and most will say it’s getting the correct level of service. In fact, when the International Facility Management Association (IFMA) put that question to its members, 78 percent agreed that getting the right service was the No. 1 issue when it came to implementing an outsourcing initiative, according to “An Inside Look at Outsourcing,” an IFMA research report published last year.

This statistic suggests significant gaps between the goals of an outsourcing initiative and its implementation. The most likely reasons for the problem include poorly defined service levels in the outsourcing contract, a performance issue with the service provider or ineffective management of the outsourced relationship.

Regardless of the root cause, tackling the service-level challenge involves three key steps: defining service levels, implementing performance management and establishing effective contract management.

Ideally, these three elements will be in place before the outsourcing relationship begins, but they can be implemented with a current service provider or incorporated into the next renewal or re-tender. In fact, these techniques can even be applied to subcontracted or in-house services.

Defining Service Levels

Most facility organizations do not define the level of service they provide. They simply deliver it, whether good or bad. When an in-house facility department manages the services and is accountable for the costs, it can balance and adapt the service levels on the fly.

But implementing an outsourcing contract without defining service levels is risky. The facility executive may get less than expected or more than necessary — along with a higher cost. It’s also harder to determine whether the organization is getting what it paid for. Nor does the service provider have clear service targets and objectives.

It’s important to recognize the link between service and price. In an outsourcing agreement, service level, cost and scope are balanced. Changes to service levels will often affect the costs if scope doesn’t change.

Outsourcing without defining service levels will leave the service provider guessing and may well leave the facility executive without the level of service the business needs to be successful.

Identify all services the provider will be responsible for and develop specifications that indicate the actual level of service using well-developed description and measurements where possible. Some services lend themselves to objective measurable levels, while others will require a more subjective approach.

The goal should be objective, measurable service levels. Some services will be prescriptive in nature — specific work activities, for instance — but the majority should be performance-based, allowing the service provider to use its experience and resources to meet performance requirements.

To define the services, use information from existing service contracts, assess current delivery levels or use industry standards. Make them easy to read, consistent, short and descriptive. Combine them with business objectives and measurements to focus performance.

Performance Management

Effective performance management is closely related to the service levels.

Where possible, service levels should be defined with objective performance measurements. Service levels should be tied to performance management. When developing a service level, establish how that service supports the core business and how important it is. This focuses the service provider’s behavior, practices and processes on achieving the business objectives established as part of the service-level definitions.

Performance measurements are often associated with penalties; however, the real objective is to ensure that the desired results are achieved. If a service provider must be penalized, it means services that are important to the company’s core business didn’t meet objectives. It’s better to implement a process that manages performance and helps the provider meet objectives. This often means a combination of incentives and penalties as well as performance measures that offer information the provider can use to proactively adjust performance and avoid missing performance targets.

If the facility organization is already measured internally — for example, by in-house clients — mirroring those measurements with the provider will help the firm optimize its performance and deliver the right level of service.

A good approach to performance measurement uses three levels: key performance indicators (KPIs), performance indicators (PIs) and trends. (See box below.)

To develop measurements, start with KPIs. Identify the key deliverables that affect the company’s success. Once these are narrowed down, look closely at the deliverables and determine how they can be measured. The measure may be quality, timeliness, customer satisfaction, uptime or other attributes. If these measures affect the service provider financially, make sure they are as objective as possible.

With KPIs developed, look at sub-measures that support the KPIs. These become the PIs and trends used as management tools. Where possible, include measures related to the services defined.

As management tools, PIs and trends can be tied into management action plans. If a PI fails to meet the target, for example, the service provider should develop an action plan describing how it will correct the situation.

Once the measures are selected, establish the mechanism to measure and report performance results. Where possible, build these mechanisms into the processes and automation used to deliver the service. Set the format and frequency of the reporting so that the information is timely and useful.

When developing measurements, consider what behavior the measurement will encourage. Sometimes a well-intentioned measurement will not drive the results one might expect.

One example is the use of monthly maintenance backlog as a KPI. A high backlog is not necessarily failure. It could mean that resources were focused on something more important for a time.

Focusing on Results

Use clear and concise reports for performance management that provide forward-looking management information. Dashboards are useful to represent performance management information; however, they are often used to provide static information that isn’t much use for managing the services. A facility executive’s dashboard should include useful management information that is represented using easy-to-read formats with both trend and snapshot information that enables effective decision making.

Managing results is as important as measuring them. Establish regular meetings to review performance and discuss action plans to improve results if targets are not being met or if trends are pointing in the wrong direction.

Contract Management

When developing an outsourcing solution, effective contract management is the cornerstone of success.

Outsourcing is a major change for existing staff. They are often accustomed to managing or even doing the work themselves and may have a difficult time turning the responsibility for day-to-day activity over to a service provider. The change requires staff to manage a complex outsourcing contract and a new high-level relationship with a service provider. It’s important to manage the change and equip the new contract management team with tools and skills they need to be successful.

The tools include a solid contract management process with an effective and flexible contract that has service levels, a performance management framework, defined reporting and interfaces, and change management and conflict resolution processes built in.

The change management process is needed because it is impossible to consider every situation that could arise. What’s more, the simple reality of the situation is that, over the course of a long-term outsourcing contract, business needs will change. A change management process enables the facility executive to manage changes in scope or service levels using a pre-defined mechanism to set a fair and reasonable price.

Putting a contract-management team in place is more challenging. Since the contract-management role often means a significant shift for the facility staff, it requires a careful matching of skill sets and sometimes a change in the culture of the facility management organization. The contract manager must shift from managing resources to managing results and focus on the strategic issues that add value to the company.

New job descriptions should outline the change in roles and responsibilities. At the same time, provide staff with guidance on the intent of the outsourcing relationship and the workings of the contract, service levels and performance management framework and give them training or coaching on contract management principles.

With a combination of well-defined service levels, structured performance measurements and effective contract management, the outsourcing initiative will deliver the benefits expected, including getting the correct level of service and successfully supporting the company’s core business.

Measuring Performance

Effective performance measurements include many elements. When properly structured, however, less critical performance measurements don’t dilute the ones that are key to the core business. A three-level structure is a good way to distinguish among different measurements. It includes:

Key Performance Indicators (KPI) — These may trigger penalties or incentives and are linked to the needs of the core business. They should be based on outcomes, and in some cases even on events (e.g., a facility failure that brings down a data center). There shouldn’t be more than a handful of KPIs. With such high-level measurements in place, the service provider will clearly recognize priorities. By setting targets, the facility executive will make clear the results the organization is looking for.

Performance Indicators (PI) — Performance indicators are primarily management tools designed to provide information in advance of a failure to meet a KPI target. Some PIs aggregate into KPIs as cumulative or regional results. The nature of the core business will influence this. Measuring at this level provides an early warning to identify performance issues that affect KPIs and enable corrective action.

Trends — Trends are low-level process measures that serve as management tools. They usually compare results over time, providing trend information and enabling continuous improvement and corrective action long before any problem occurs with a KPI.

— Michel Theriault

Inside Outsourcing

For anyone interested in current outsourcing issues and tactics in other organizations, a good resource is “An Inside Look at FM Outsourcing,” published last year by the International Facility Management Association (IFMA).

The report highlights key challenges, practices and trends:

  • 92 percent of companies use some form of contract services. Seventy-seven percent use out-tasking (for one or more specific services); 15 percent use outsourcing (hiring a full-service vendor to provide an array of services), up from only 3 percent when IFMA did its first outsourcing survey in 1993.
  • Half of the respondents have consolidated their service vendor base over the past two years.
  • Biggest barriers to outsourcing are concerns about the service provider’s loyalty, cited by 73 percent of respondents, and ability to understand the company’s culture or priorities, cited by 69 percent of respondents.
  • Roughly four in 10 facility executives have brought services back in-house after having outsourced them. The biggest reasons are to improve quality, cost performance or response time.
    The 52-page report is available from IFMA at www.ifma.org. The price is $120.

— Edward Sullivan, editor

Bottom Line

An outsourcing arrangement balances three elements:

  • • Service level
  • • Cost
  • • Scope

If the client makes changes in one element, the service provider will often look for changes in another element to maintain the balance.

Michel Theriault is an independent consultant providing strategic solutions for facility management and outsourcing issues. His company, Strategic Advisor, has been involved in all areas of facility management and outsourcing, including operations, performance management, change management, customer service, service-level definitions and RFPs.

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  posted on 5/1/2007   Article Use Policy

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