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Sounding Off On Outsourcing
With Outsourcing, Chemistry Counts, Say Facility Executives
It is easy for employees to take an organization’s culture for granted, or even forget it exists. However, facility and real estate executives responsible for overseeing outsourcing relationships need to understand and articulate their organization’s culture to outside service providers. Otherwise, the outsourcing partnerships are likely to fall short of expectations.
A logical place to begin the discussion was by examining key elements of culture as it applies to an organization. Some of those elements are shaped by current business conditions.
For instance, a company that’s been hit by the downshift in the economy probably is going to focus on slashing costs. When it comes to facility management, that could mean reducing scheduled maintenance calls or lengthening the time it takes to respond to service calls, said Vince Elliott, president of Elliott Affiliates. Outside providers need to know about the shift in focus so they can prioritize their work.
Another aspect of corporate culture involves the way managers and employees define quality, noted Stormy Friday, president of The Friday Group. “Unless the facilities department has a good handle on this, it can over- or under-shoot.” She provided an example: In some organizations, slippages in a work schedule are acceptable, as long as there’s a reasonable explanation. Other firms take more of a “one strike and you’re out” approach. Facility executives need to let outside service providers know what is considered reasonable within their organization.
The way in which an organization makes decisions is another element of the culture that needs to be conveyed to service providers, said Joe Colbath, director of real estate with Kaiser Permanente. He relayed an example of how this plays out within his organization. When the organization is deciding whether to acquire land and develop a new medical facility, a wide variety of internal groups are involved, including physicians and representatives from financial and legal departments. Given the expense — a major medical center can cost upwards of $1 billion — and the number of internal groups involved, decisions are not made quickly. Some deals fail to come to fruition. “Executives at outside real estate companies need to learn about the lengthy transaction cycle time and recognize that deals don’t always happen,” said Colbath.
Culture and Contracts
Some might argue that simply drawing up a comprehensive contract is all that’s needed to ensure an effective working relationship with an outsourcing firm. Understanding one’s corporate culture is nice, but not really helpful, according to this line of thinking.
Not so. Jim Eckert, director of corporate real estate and facility management for Owens Corning, provided an example of how a partnership can miss the mark when the cultures of all parties aren’t reflected in the contract. Several years ago, he inherited a contract between his employer and a document management firm. However, the compensation structure outlined in the contract didn’t reflect the culture that Owens Corning was trying to foster, as the outside firm earned a portion of its fees based on the volume of services it provided.
“We were trying to change from paper to a paperless environment,” noted Eckert. But the provider was paid based on the volume of paper it handled. Fortunately, Eckert was able to re-negotiate the contract to include incentives that rewarded the service provider for reducing costs and streamlining operations.
Facility executives need to examine the culture of potential service providers and see how the two might fit. For instance, facility executives will want to gauge the service provider’s responsiveness, noted George Lockhart, group manager of property and project management with Wells Fargo Corporate Properties. “Responses range from, ‘You can call me day or night,’ to, ‘The answering machine will page me in an emergency.’” Given that facility executives are in the business of solving problems, they need a partner with a sense of urgency, he noted.
Françoise Szigeti, vice president of the International Centre for Facilities Management, brought up another element of culture that facility executives will want to look for in their outsourcing partners: a rough match in terms of the level of bureaucracy. “If your organization is bureaucratic, you’ll want a company that can benchmark and produce reports,” she said. On the other hand, a company with a less formal approach might work more effectively with a service provider that has a similarly less-structured culture.
To make sure facility executives really understand the culture of potential service providers, they need to meet with the people who actually will be providing the service — not just the salespeople — and make sure everyone is in sync, said Colbath.
An organization’s culture can undermine its efforts to establish an effective outsourcing relationship. One significant stumbling block is a focus on price to the exclusion of all else. “It’s not about hiring the best price, but hiring the best people with the best processes, from the best company at the best price,” said Elliott.
Arlyne Diamond, who heads up Diamond Associates, brought up another potential obstacle. Some organizations question long-term outsourcing arrangements, concerned that they equate to favoritism. That has to change, argued Diamond. “We have to recognize that outsourcing arrangements are unique relationships that have to be established vs. holding the belief that we can interchange one company for another,” noted Diamond.
Another cultural pitfall, says Diamond, is linked to compensation. In many cases, an individual’s salary reflects the number of employees that report to him or her. So people resist outsourcing arrangements, concerned that they will hurt their pocketbooks. Compensation plans should recognize that the facility executive still is managing other people and is responsible for the outsourcing relationship, said Diamond.
In many ways, an effective outsourcing relationship is like a marriage, Colbath said. Chemistry matters, as does taking the time to nurture the relationship. “You don’t break up at the first sign of trouble,” Colbath said. “Instead, you communicate and don’t let things fester.”
Karen Kroll is a business writer who covers real estate and facilities issues.
Joe Colbath is director of real estate with Kaiser Permanente, which owns 35 million square feet of space in California.
Arlyne Diamond heads up Diamond Associates, a management consulting firm.
Jim Eckert is director of corporate real estate and facility management with Owens Corning. His department is responsible for 38 million square feet of office and R&D space.
George Lockhart is group manager of property and project management, Wells Fargo Corporate Properties. His department is responsible for about 17 million square feet of space in California and Texas.
Vince Elliott is president of Elliott Affiliates Ltd., a consulting firm focused on facility management and building support services.
Stormy Friday is president of The Friday Group and author of Tracing the DNA of Facilities Management Organizations, to be published in early 2003 by Amacom.
Françoise Szigeti is vice president of the International Centre for Facilities Management, a non-profit organization that aims to improve the quality and functionality of the places people work and live.