Copyright: David Lawson - July 1996
A new era of cost-constraint has brought home to many companies how these incidental services consume management time and resources. Why run your own canteen, postroom or transport operation when this can be bought in, releasing managers to deal with the core activity of a business? That realisation is accelerating growth of a new industrial sector which has already reached gigantic proportions. Market Audit, a recent study by the Cambridge-based research group Blakes Marketing Practice, estimates the potential UK market at £47bn - and that excludes the substantial area of IT services. About £20bn has already been contracted out, showing cost savings of up to 20 per cent in the private sector.
That implies the amount of business could more than double, but this is too simplistic, illustrating the confusion between FM and outsourcing. Not all FM is - or will be - contracted-out, says the report. Many companies will retain management of services themselves. Some areas are much more likely to be farmed out, such as property. Anything associated with buildings, such as maintenance, air-conditioning, etc, is considered one of the 'least core' of services and is already farmed out by more than a third of organisations. Another quarter or more will outsource this in the next five years.
But how does a business decide what it wants to hand over and who does it choose as new operators are merging from every direction? Property agents and construction companies see FM an alternative to their moribund core markets. Traditional suppliers see the best promise of growth by expanding into a wider range of services. The industry is in flux, leading to takeovers like BET/Rentokil and a host of smaller mergers.
Most contracts still involve provision of a single service such as catering or building management, according to the annual industry review sponsored by Mowlem and published by the Centre For Facilities Management at Strathclyde Business School. But there is a widespread move to more comprehensive services as companies seek to offload much wider packages of non-core services.This brings in the true 'management' side of the equation, where a contractor does not merely provide a few of these services but takes on the organisation of a whole range of support functions and allocates them to other specialists.
This has led to a restructuring of the FM industry as service providers seek to buy in management expertise. US-based Johnson Controls, one of the world leaders, has acquired Procord, itself a recent management buyout of IBM's facilities managers in the UK. Honeywell took over FM2 , Chesterton absorbed the British Gas FM department and Compagnie General des Eaux acquired the UK consultant Symonds.
But Don Kenny, managing director of Mowlem FM, still believes FM suppliers will polarise into managers and providers. The two areas require different skills, he says. Facilities managers need to focus on strategy, while service suppliers concentrate on efficient people management. All this may seem hair-splitting to businesses buying these services, but it can help decide how to choose specialists. Lionel Prodgers, joint managing director of Chesterton Property and Facilities Management believes a consultant should be appointed to take responsibility for the most efficient tendering of FM services. Or as Don Kenny of Mowlem FM puts it, putting together a package of contactors makes it much easier to solve problems with one or more of these if they are not part of that manager's organisation.
Another advantage is the economies of scale involved. A large FM consultant will be buying in services for many customers and can negotiate bulk rates. It can also set comparative standards. Johnson Controls has developed a technique for comparing buildings right across Europe. Comparing service cost and quality between similar contracts can show where improvements can be made - and provide a template for new customers considering outsourcing.
Management tools are also being developed. The key is not cutting costs. 'Any fool can do that,' says Prodgers. The real measure is increasing value and efficiency. Sometimes this may mean spending more rather than less on support services and even deciding to keep them in-house rather than farming out . He is spending much of his time developing software powerful enough to handle these complex decisions.
The British Institute of Facilities Managers is also trying to set up industry standards to act as benchmarks but there are still problems over defining costs. Most data is historic or expensive, making it difficult for consumers to assess value for money. Elizabeth Collie of King Sturge also points out that FM has traditionally serviced owner-occupiers, and has not been geared to providing data on investments, with their extra need for dealing with service charges. This is already proving a problem on some government estates.
One certainty is that the FM business will continue to expand. Who will benefit, however, is open to debate. David Miller, managing director of FM2,says property agents, have problems not only coping with their own core area, but also difficulty adjusting from serving landlords to working for service consumers. They will have to buy expertise, he says. Construction companies expanding out of maintenance into wider services are also walking a knife-edge in their main markets and are likely to boil down to a couple of leaders such as Tarmac and Mowlem.
Businesses are benefiting from all the cut-throat tendering, but this could be a short-term advantage, says Miller, who predicts a hefty fallout of operators. He says companies should look for the best long-term partnerships rather than the cheapest current prices, as good FM depends on providers understanding the businesses of their clients.
Expansion in all its guises may not be as explosive in future but is likely to be driven upwards as businesses become more aware of what FM means and what consultants can offer. At the end of the day, it boils down not just to cutting costs but getting better value from staff. Companies employ managers for their skills in running the core business. Everything else is a distraction