Outsourcing May Not Equal Partnership for Facility Managers, Service Providers

By Michel Theriault  
OTHER PARTS OF THIS ARTICLEPt. 1: This PagePt. 2: Fair, Flexible Contract Can Foster Cooperative Relationship

Many outsourcing deals are referred to as “partnerships.” Both facility managers and service providers use the word, so it may be easy to be lulled into a sense that an outsourcing deal is automatically a partnership.

But “partnership” is an elusive quality. Just like a marriage, it includes compromise and the realization that your partner isn’t perfect and you aren’t either.

The key to a partnership — the aspect that most distinguishes it from a typical buyer-seller relationship — is flexibility. In facility management, the outsourced service is complex, and client’s corporate needs are constantly shifting. Rigid key performance indicators (KPI), strict contract terms and inflexible financial models — hallmarks of a typical buyer-seller relationship — make it difficult for an outsourcing service provider to change gears as the client’s needs change. In a partnership, by contrast, there is a spirit of cooperation and trust that enables the service provider to address the client’s issues and needs as they arise, without fear of being punished for having failed to meet a specific KPI.

For a partnership to work, a solid foundation must be laid from the very start. Four questions — covering everything from goals to ongoing management — can help facility managers determine if they’re on track to develop a true partnership.

Are Your Goals Aligned?

A partnership doesn’t mean that the service provider has free rein. For a partnership to work, there must be mutual cooperation towards achieving a goal. Service level agreements, KPIs and the like are still important. But they are not all-important. Rather, they are part of a bigger picture. The real question is, are the goals that are important to the client being met by the provider?

If those goals are not met, the arrangement will very quickly become a traditional buyer-service provider relationship. Trust and flexibility will be abandoned for a formal, inflexible contract-management approach to bring performance in line and to set the stage for penalties, the withholding of payments or even termination of the contract.

Thus, the first step to building a partnership is to ensure the goals are realistic, achievable and aligned.

There are three distinct types of goals in an outsourcing relationship, and misalignment of any of them could get in the way of a partnership, jeopardizing the results you need for your organization. However, often only two sets of goals are considered important: the client’s goals of service performance and budget objectives and the service provider’s goal of profitability.

It is essential that these two goals be realistic. A partnership cannot survive if the service provider over-promises savings and finds itself unable to deliver the savings while maintaining service levels. Increasing competition and the large scale of many outsourcing companies reduces costs, but it’s important to realize that the outsourcing company is in business to make a profit. The reality is simple: When your service provider is losing money, it can’t give you the service you need.

So, while the goal of many procurement exercises is to reduce costs, the scale of the reduction should be reasonable if a partnership is to succeed. There’s a direct relationship between service levels and resources, and resources cost money.

A third set of goals has a significant impact on the success of outsourcing, yet is often overlooked. These are the goals of the client’s staff, known as the stay-back team, who have remained with the client to manage the outsourced services and who are accountable for the results.

Managing the outsourcing relationship is usually left to the stay-back team. If this is the first time the client is outsourcing facility services, the stay-back team should be trained how to manage and told what is expected of them.

The stay-back team members need to support the outsourcing initiative and its goals, and not let their own internal or personal goals get in the way. For example, the stay-back team’s goal may be to demonstrate its own value, so it ends up over-managing the service provider or competing with the service provider’s team to get credit for initiatives or service delivery. The key performance indicators, service levels and the penalty/reward systems may be inadvertently designed to create this misalignment.

With that sort of internal competition, a partnership cannot survive. Instead, the stay-back team needs to support the outsourcing service provider to ensure that the provider is successful. After all, when the provider screws up, the stay-back team also screws up — and so does the facility manager responsible for the overall outsourcing arrangement. It’s not possible to simply blame the service provider; they’ve become an extension of you.

Of course if a service provider isn’t trustworthy, the efforts of the stay-back team will be wasted.

Is Your Procurement Process Designed For Partnership?

It is essential that you go into the procurement process with the recognition that cost, service levels and scope are part of a triangle. If you change one, you usually affect the others.

So the first thing to keep in mind in the procurement process is that the overall goal of the outsourcing effort needs to be clear and understood by both parties. For instance, if your procurement process is designed to save money and that’s it, then be honest and expect your provider to manage appropriately.

Being clear about your own corporate goal makes it easier to find the service provider that is the best fit. With that goal in mind, you can ask the right questions in your RFP and evaluate proposals based on what matters to you. During the selection process, include meetings with each service provider if your organization or governance allows it and build an interview stage into the process. The depth of these interviews depends on the scope and size of your initiative. Selecting the right company in the first place creates the foundation for your partnership and outsourcing success.

Establishing a realistic cost based on your organization’s financial goals and performance priorities is critical to the success of a partnership. Ask specifically how the service provider will achieve cost reductions and what the impact will be on service levels, including what modifications the service provider would make to specifications, service levels and KPI targets to meet both your financial and your performance goals. In most outsourcing contracts, the delivery methods, staffing and other factors are left up to the service provider as part of their bid and significantly affect costs. Yet most service providers are bidding based solely on what you tell them in an RFP document, so it’s very hard to be completely accurate. If your goal is a partnership, include a flexible process that enables you to discuss objectives and negotiate with the service provider to balance goals and costs cooperatively from the start.

For more on outsourcing, see: "Outsourcing: Serving Up Quality" by Michel Theriault

Continue Reading: Sparring Partners No More

Outsourcing May Not Equal Partnership for Facility Managers, Service Providers

Fair, Flexible Contract Can Foster Cooperative Relationship

Contact FacilitiesNet Editorial Staff »

  posted on 5/3/2010   Article Use Policy

Related Topics: