Outsourcing giant sets new strategy

 David Lawson -  2002


Marketing gurus spend millions dreaming up one pithy phrase that will forever lock their brand into customers’ minds. Then along comes a natural that springs out of thin air. ‘Doing an Abbey’ has already ingrained itself into business folklore.

  While household names like Lloyds, Boots and ICL grabbed the headlines with speculation that they were about to outsource billions of pounds worth of property, up popped another giant with a done deal.  Abbey National stole in with the first private sector outsourcing, transferring 6m sq ft of offices and high street branches to Mapeley in September 200. As if that was not enough, a year later the whole facilities management  structure was switched into a joint venture with Stiell.

 The task now is to alter the catchphrase to ‘doing a Covista’, a new label adopted at the official JV launch in March. The spin-off has a 10-year contract to service the bank but has no intention of remaining tied to its parent’s apron strings. In fact, the whole aim of forming a JV was to turn FM from a cost to a potential profit centre by winning other business.

  ‘We have already had several inquiries just by word of mouth without doing any official marketing,’ says  Grenville Barr, who joined Abbey National to build one large office but ended up running the bank’s massive property projects office before moving across to Covista’s management board.

    That involves a new approach to FM, moving away from the traditional choice of consultants who are ‘experts on everything but deliver nothing’  and an array of specialists at the other extreme.  ‘We aim to cover a wider range from boardroom strategy to delivery,’ says Barr. And at the top of the offer list is a promise to reduce management budgets by at least 10%.

  It is an ambitious aim but the team has not been shy to set big targets – and has managed to hit every one in a  past which stretches back long before Abbey sprang its  surprises.

  The business community has spent almost a decade prevaricating about outsourcing, driven by demands to enhance shareholder value and an underlying feeling of shame that public sector bodies like the DHSS and Inland Revenue had taken the lead. When Covista burst on the scene, whispers proliferated of a ‘rushed deal’ and a secret plan for boosting Abbey’s share price to fend off a threatened takeover by Lloyds Bank.

  Larry Hannam twitches with impatience about such backbiting jealousy. As the bank’s manager of property operations before moving across to MD of Covista, he knows this was no sudden move to man the barricades. The fact that Abbey’s shares rose 11% the morning the deal was satisfying, confirming that investors recognized the potential savings. But it was the culmination of a long planning process.

 The bank was investigating its whole approach to asset ownership and management well before it became the subject of a thousand conference speeches.  The first stage was treating property with the same ruthlessness as other costs. ‘A lot of businesses just don’t give enough thought to what they occupy,’ says Hannam.

   But this was more than just making better use of space: it meant switching from managing a cost to unlocking value, and involved a whole series of changes including outsourcing estate and project management and bringing areas like IT into closer collaboration.  That cut occupation costs to 20% below the industry average -  ‘The equivalent of a headquarters building,’ says Hannam. Vacancy rates also came down to 1.7% compared with the sector’s 5.7%.

  Only then came the blockbuster stage two, the Mapeley deal, still referred to by the codename  Project Columbus. ‘It was not something we planned from the start,’ says Hannam. ‘’It was a position we reached logically.’ The key was not so much cost saving as transfer of risk and increased flexibility for individual business units. This emphasis on being part of a business plan comes across in stage three, with the revolutionary franchising of branches. Managers effectively became individual clients, choosing from a menu of resources rather than a one-size-fits-all. ‘It effectively meant we no longer had a monopoly in providing property resources to them,’ says Barr.  If the board had not been closely involved, they would have noticed by now, as productivity jumped 25% and revenue by £30m.   

  So the fourth-stage jump to outsourcing FM was, in fact, a relatively small one. Hannam calls it the ‘completion of a journey’. So why did he not aim to arrive earlier, wrapping FM in Project Columbus?

  ‘At the time it was considered too great a risk to bundle everything in one project,’ he said. ‘But we also felt  that FM offered a different dimension. We had already done a lot to transform the supply chain. Now we thought we could transform a cost into an asset.’

  That meant not just passing on the process to others but creating a vehicle which would grow organically. Abbey would hold an equity stake not just to participate in the profits but because of VAT issues. That meant finding a partner. The former Group Property and Surveys [GPS] team would contribute to the strategic end of the service but a nuts and bolts operator was also needed.

   It was crucial that partner was on the same wavelength. ‘We had to get away from the silo mentality, where operators were experts in their own little fields,’ says Barr. But while Covista would lean towards the strategic end of the spectrum, it also had to deliver the goods.

  Abbey found the ideal candidate among one of its existing suppliers, Stiell. ‘More customer service than oily rag,’ is Barr’s shorthand for the FM supplier’s approach. ‘In this sector technical expertise should be taken as read. The added value should come from customer service. It should be like employing people in the hotel trade – a mindset that provides service rather than a narrow expertise.’

   This adoption of an existing partner helped truncate the transition process. From concept to launch took less than nine months. Covista is already in full operation under a five-strong management board including one Stiell member. Fifty of the  GPS team shifted over while others transferred into Stiell.

  The transition from internal department to separate body was underlined by moving to a new office leased from Abbey just down the road from the Milton Keynes HQ. ‘It was important both psychologically and culturally to make the break,’ says Hannam. The move went relatively smoothly because key staff had been drawn into the decision making process before it was officially announced.

  For some, the transition out of the parent company was a no-brainer. They have moved from a large firm where their skills were peripheral and into a tighter, focussed outfit where they are central to its future. Hannam, for instance, went from a property director to a managing director overnight.

  Now comes the hard bit: adopting a commercial culture and winning new business. For the moment, there is a 10-year contract with Abbey, although even that is performance-based, aimed at cutting costs by £3m in two years. If Covista bombs, it could be out on its ear. Nor is Stiell is an exclusive provider, only a ‘preferred’ supplier. Then there is the seeming complexity of working with a double-outsource.  Abbey is the client/occupier but Mapeley is the landlord. Surely that’s a guarantee for conflict?

 The relationship is based on regular tripartite meetings but is still so new that it is settling down under a constant review but Hannam appears to have few qualms. ‘It is vital to have the right partner in this sort of situation,’ he says. And he, after all, chose Mapeley as the right partner.

  The important thing now is to move out of the nest. Covista was launched with the promise it would pick up a couple of new clients every year, with a target turnover of around £40m a year. As Barr points out, inquiries are already coming in before the pixels on his Powerpoint presentation have had time to settle. It helps to have Stiell passing on the message to other clients, of course. But Covista has an advantage because it has ‘been there and done that’ as a client, says Hannam. It can see  FM from a customer’s point of view.

  The crucial factor will be whether the new firm can persuade others it can provide a new kind of FM. ‘People are looking for a third way, says Barr. That may involve ‘doing an Abbey’ – he does not rule out a Covista II or even III  as others look at the JV approach.

  But it doesn’t have to be the Abbey way. It could be a variation on the theme. After all, there is plenty of room for manoeuvre between the know-alls and the silo commanders.