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What are Best Outsourcing Practices
In any competitive industry, there are two common questions: Who is the best and how can I benefit from what they do?
Savvy facility executives are on the watch for information that allows them to compare the performance of their facilities to that of their peers. Unfortunately, that information doesn’t exist for all areas of facility management. In those areas, facility executives can be left wondering how they can keep up with the best companies when they are not even sure what those companies are doing.
A recent large-scale study conducted by Elliott Affiliates sheds light on how top-performing facilities select cleaning contractors. To one degree or another, the study showed, best-in-class properties utilize specific processes and activities to achieve exceptional results in many areas. These processes, or traits, result in selecting contracts that simultaneously improve occupant comfort, produce cleaner facilities and reduce costs.
Results of the study are the culmination of a large-scale, data-driven, on-site evaluation of a diverse portfolio of facilities. The goal: Create a step-by-step road map toward a best procurement practice model for cleaning.
The first phase of the study culled data from 145 facilities comprising 39 million square feet in major metropolitan areas. More than 500 interviews were conducted and nearly 34,000 inspections were performed as part of phase one.
An important goal of the first phase was identifying metrics to judge whether a facility had a successful cleaning contract in place. The three metrics identified were cleaning quality, customer satisfaction and financial performance. Cleaning quality was defined using 10 attributes that nearly all study participants identified as contributing to building occupants’ perception of clean. Customer satisfaction was rated using a five-point scale. Financial metrics included total cost, dollars per square foot and dollars per hour.
In the second phase of the study, the original 145 facilities were rated on the three metrics. Six facilities exhibited the best performance in all three areas. The six facilities — dubbed the best-in-class performers — scored better than 80 percent on both cleanliness quality and customer satisfaction. To top it off, they also had contracts that cost less than 90 cents per square foot.
The second phase of the study identified four distinct areas to which top-performing facilities devote attention when it comes to the procurement and management of cleaning contracts. The four areas are preparation, contractor selection, transition and ongoing management.
Although all four are important, preparation is perhaps the most important as it lays the foundation for what follows. The goal of the preparation phase is to provide all of the information, materials, access and documents needed to receive complete and accurate proposals and pricing from bidders. Here are the 15 characteristics best-in-class performers exhibited while procuring a cleaning contractor.
1. Identify an internal champion. Every best-in-class property has an internal champion — someone who understands the “pain chain” and drives the solution. In national portfolios, the internal champion often resides at the national level with an organization’s procurement function. At the regional level, the champion is often the local vice president of operations. The project champion is the opinion leader and is personally involved and passionate about achieving success.
2. Structure change-management activities. About 85 percent of the best-in-class properties institute change management seminars, workshops or other activities. They recognize that gaining support and preventing failure involves everyone’s commitment.
3. Establish a baseline of pre-project performance. Best-in-class properties understand, in advance, what they can gain from a re-bid or outsourcing effort. A year later, they will know if things have really improved. The baseline effort should document performance metrics that outline the expected benefits from a re-bid and serve as a reference measure for future success. The elements documented vary according to company goals. The most common metrics included: cleanliness quality, customer satisfaction, operational productivity and pricing. Every best-in-class property established a benchmark measure.
4. Customer-driven specifications. Best-in-class properties use a “voice of the customer” process to define the attributes of cleanliness quality and set the performance specification standards. They assemble a team of key tenants, managers and occupants, or use an online survey, to facilitate discussion about what is important and how customers describe good and poor quality. The data from the process identify what conditions are acceptable and unacceptable to occupants and managers. The conditions identified in this study suggest that litter, dust, neglect and out-of-paper restroom supplies are the most important indicators of cleanliness quality. More than 70 percent of best-in-class properties implemented a voice of the customer process for defining performance specifications.
5. Collect and validate property profile data. Best-in-class properties understand that the more accurate the property profile, the more accurate the bid. That generally results in a more realistic and lower price. They know that when contractors have a clear understanding of what they are responsible for and of the conditions that influence the cleanable environment, they build in “contingency” less cost. While the quality of information varies, all of the best-in-class properties create a detailed profile description of their buildings.
6. Conduct local market capability analysis. Best-in-class properties use market capability analysis to review both local market metrics for similar types of properties and the qualification of the potential bidder pool as part of its due diligence effort. About 86 percent of the best-in-class properties conduct a local market analysis. Market metrics include:
- Services provided in customer region
- Cost of services provided in similar facilities
Qualification criteria include:
- References: current and lost
- Annual revenues
- Number of current clients in customer region
- Regional offices and services. This information is crucial in the due diligence process.
7. Out-tasking support. Best-in-class properties out-task some elements of the buying process to ensure that the best consulting expertise, experience and manpower resources are available to support a successful cleaning procurement event. The out-tasked activity augments in-house capability and adds new capability to create a best-in-class procurement process.
The reasons for out-tasking include limited staff availability, lack of in-house expertise and a short timeline. The activities that are out-tasked include due diligence, financial and risk analyses, and market capability research. Every best-in-class property out-tasked some part of its buying process. Some might also consider a full business process outsourcing as a way of gaining the advantages for all tasks.
8. Define performance measurement system. All best-in-class properties establish and communicate their performance measurement strategy as part of the effort to prepare for successful outsourcing. In every case the measurement system is based on attribute measurement rather than ordinal measurements. The use of quality management and Six Sigma-type concepts are the foundation of the measurement system.
9. Build in governance structures. All best-in-class properties establish a buyer-contractor governance structure in their contracts. The governance structure defines how the parties work together on an ongoing basis. Some call them “joint review boards” or “senior management committees.” This is generally an overarching group, focused on ultimate project success, notwithstanding the participation of senior operations staff.
10. Define the real goals for the project. Best-in-class properties understand that the real value provided by the contractor is determined by the benefits gained by the company. These gains can be linked to the STOP goals of the company.
The four STOP goals are:
- Strategic — examples include the ability to change business focus, enter new markets and protect current market share.
- Tactical — examples include reducing costs, gaining control over an operation and seeking partnership opportunities.
- Operational — examples include reducing services, reducing occupant complaints or implementing layoffs.
- Process — examples include using best-practice processes or acquir- ing effective and efficient systems, tools and software.
Value is achieved by outcomes that are concrete for each STOP goal and are linked to key business objectives. Outcomes are what the organization gets as a result, not what the contractor does in the service delivery process. Processes should vary, but outcomes are the core of the facility executive’s ability to translate results into value. Achieving these outcomes is the purpose of the contract, and that should not vary. A successful definition of goals creates and sustains results through a results-oriented relationship. Every best-in-class property has clearly documented goals at one or more STOP levels.
11. Prepare RFP documents. While quality varies, every best-in-class property produces thorough documents. These properties present more information earlier than other properties. After prequalification, contractors are often required to submit a non-disclosure agreement as a condition of entering the bidding process. These documents describe the overall goals and framework for the project at hand. The scope of work, type of contract and related specification are included. Sufficient information is provided to allow the prospective bidder to decide if this project is suited to its capability. Best-in-class property RFPs generally include metrics and standards that apply to the performance specification. The method of measurement and inspection is defined by the RFP as well. Performance is both ordinal- and attribute-based.
12. Use a performance-driven contract. Sixty-two percent of the 145 facilities studied use a traditional task-driven contract. The remaining 38 percent use a performance-driven approach. All of the best-in-class properties had implemented a performance-driven procurement strategy.
A performance-driven approach offers incentives for achieving goals and gives contractors flexibility to get a job done. For example, in a traditional task-driven approach the buyer (facility executive) would specify the task and frequency of the work. In a performance-driven approach, the contractor specifies the process. In a traditional approach, the focus is on reducing costs. In a performance approach, the goal is on value and gaining competitive advantages.
13. Conduct pre-bid conference.Best-in-class properties always conduct a pre-bid conference. These are used to communicate requirements, describe a facility environment in greater detail, review facility goals and problem areas, and answer contractor questions. The conference is often a Web-based event to facilitate competition. Once facility executives are comfortable that attendees have an accurate understanding of needs, best-in-class properties provide property statistics, drawings, profile information, structured bid forms and a schedule. Interestingly, many best-in-class properties begin their contractor evaluation and rating system during the pre-bid conference.
14. Conduct site tours. All best-in-class properties ensure that contractors get a first-hand look at all of the condition standards. They use the site tour to clear up any confusion about what is expected and what will not be tolerated. A complete tour includes all representative types of space, challenges and conditions that might affect contractor success. A tour also provides the opportunity to rate the types of questions asked, as well as the professionalism and insights of the contractors.
15. Manage pre-bid questions and communications. Even with smaller buildings, all best-in-class properties establish a single point of contact for managing contractor questions and property answers. Also, any addenda and clarifications are appended to the contract and issued to all bidders. Bidders are also evaluated and rated during this period. The goal of the preparation phase is to provide all of the information, materials, access and documents needed to receive complete and accurate proposals and pricing from bidders.
What distinguishes the best bidders is that they move the process of procuring a cleaning contract to a higher level of detail. Specifically, best-in-class bidders have well-defined systems for hiring, training and managing the workforce. They also have the best equipment, supplies and materials, and they recognize and reward exceptional performance at all levels.
In addition, they understand what is important to the external and internal customer and organize their resources around those customer-driven results. They view their jobs as preventing problems, not simply fixing them.
Vincent F. Elliott is the president of Elliott Affiliates, Ltd. He has represented buyers across the country in writing, modifying or updating more than 500 performance-based building service contracts with an estimated market value of over a quarter of a billion dollars.