Professional Documents
Culture Documents
Executive Summary 03
Introduction 04
Evolution of FM 05
Drivers for Growth 07
Five major factors that are driving growth in the industry 08
Best Practices for FM Outsourcing 15
Conclusion 16
References 17
Page 2
Executive summary
Worldwide, the facilities management (FM) take an active role in advancing the company’s
outsourcing market is expected to grow from strategic mission (Redlein, Redlein, Soborg,
$959.2 billion in 2012 to $1.314 trillion in 2018 & Poglitsch, 2014). To this end, FM suppliers
(ISS estimates based on third party data, (ISS A/S are having to evolve from service providers to
Prospectus, March 2014)). Growth is evident strategic partners.
across all markets, from North America and
Europe to Latin America and Asia Pacific. These changing demands require a new way of
thinking about the delivery of FM services, as the
The market is not just expanding - it is evolving, industry transitions from having a single-service,
with growing public- and private-sector demand local outsourcing model to providing integrated
for FM solutions that are both global and services delivered seamlessly to the customer on
integrated. Along with this evolving market, a national and even global scale.
customer expectations are broadening to include
more value-added FM services. As an example, This paper will describe the evolution of the FM
customers increasingly expect FM providers to service industry from the 1980s to the present,
assume responsibility (i.e., accept risk transfer) offer some predictions for the industry and
for regulatory and labour law compliance and to examine the industry-wide drivers for growth.
Page 3
Introduction
Companies are looking at their facility assets In conjunction with larger scopes and longer-
and services with an increasingly strategic point term contracts, companies will be interested in
of view. Senior leaders are exploring ways to working with strategic FM partners that deliver
leverage their facility assets and services to increased value through their facility assets and
support - and even enhance - their core business, services.
while minimising their costs. Additionally, they
are looking for ways to focus their resources on Another way companies will derive greater
their company’s core mission and values. value is by reducing their contracts through
centralised procurement on a national and even
To be good global citizens, companies are international level. This simplification requires
increasingly looking for ways to respond to service providers that can perform on a broader
increased social, economic and regulatory scope both geographically and across multiple
pressures. In many ways, great facility operations lines of service.
can help them excel in all of these areas.
This paper aims to discuss these developments in
As many companies see facility management the context of the evolution of the FM industry,
(FM) and services as non-core to their business, the underlying drivers for recent growth and the
they will strive to benefit from forming strategic solutions that outsource providers are providing
long-term relationships with companies that are for their clients.
facility experts.
Page 4
Evolution of FM
The 1980s saw a proliferation of single-source contract management and property FM service providers also became involved
outsourcing, beginning with soft FM services management, including space planning and in energy management. In the early 2000s,
(cleaning, catering, food services, mail room design, asset management, property acquisition companies started turning to FM firms for
security, etc.), and a move in the late 1980s and disposal, and relocation management. business process outsourcing (BPO) – payroll,
to hard FM services (mechanical, electrical, human resources, finance and other internal
heating, ventilation, plumbing, building control, Further integration happened when private functions outsourcing – as well as waste
management, fire and life safety systems, etc.). investors became involved in public-sector management. Throughout the 2000s, value-
These services were often achieved by bundling contracts through Public Finance Initiatives (PFIs) driven design entered the equation, and
individual service contracts. and Public-Private Partnerships (PPPs), which regional and global contracts started to become
more common.
1980 1990 2000 2010 2020
Page 5
The ISS model - adding value to FM or integrated facility management (IFM, and strategic evolution. As the services that FM
outsourcing also referred to as total FM), sustainability providers offer have evolved, so have the ways
Independent Integrated management, and finally to Workplace they are delivered.
service delivery service performance Management.
Outsourced/3rd party Outsourced/supplier
In the 1980s, about 90% of FM services
sub contracted self-delivery In both the public and private sectors, IFM is were performed internally, with the rest by
seen as a way to simplify by streamlining the individual service providers. In the 1990s, it was
number of contracts, lowering costs and driving evenly split between in-house and individual
Supply-chain A
A fundamental People & process increased value. No longer are FM functions service providers, with a small percentage
management difference management
performed and managed in silos, because FM performed by IFM organisations. In the 2000s,
is looked at holistically. Facilities are no longer Integrated Facility Services (IFS) captured a
Separation Integration simply the places where a company’s employees respectable amount of market share from all
(supplier) (team)
& Cost focus Value focus
work; they are recognised as assets that can three segments, mostly notably from individual
be configured and maintained flexibly to service providers.
The ISS model - adding value to FM outsourcing
FM service providers looking to deliver more accommodate a company’s core mission, culture
strategic value to their clients will take on even
more aspects of their FM services, including Development of outsourcing
sustainable workspace and environmental 80’s 90’s 2000+
performance, as sustainability becomes an even In-house
In house
higher corporate priority, as noted in the ISS 2020
• Real estate In house
Vision White Book series. Hand-in-hand with this
is the management of intelligent buildings. • FM FM
• Service provisons FM
The outsourcing of continually more FM
functions over the years has coincided with a Individual single IFS
Individual single
shift from service bundling to service integration service provisions service provisions
Outsourced
Development of outsourcing
Page 6
Drivers for Growth
Ever since the 1980s, the industry has seen an manager of a customer’s multiple contracts on the ground delivering the services. This
increased desire for outsourcing and vendor with individual subcontractors. arrangement fosters separation of duties
consolidation. With globalised contracts, among subcontracts. This usually leads to
both the service delivery and the contracts Typically the prime supplier will have a very unnecessary silos where services are separated
themselves are being consolidated. small internal staff who manage the client due to contracts, and subcontractor employees
relationship and the multiple subcontractors resist when asked to do something that is
In one scenario – contract bundling – an that actually deliver the service. This inserts outside of their scope or contract.
FM service provider acts as the supply chain a layer between the client and the boots
Global outsourced facility services market by region (B USD) Since the 2000s, that environment has become
Global outsourced facility services market by region (B USD) considerably more flexible, with self-delivery
and integration of services by the FM providers.
∼ 1,314B
1,400B In the integrated model, one provider delivers
Pacific
0
2006 2009 2012 2015F 2018F
ISS A/SISSProspectus,
Source: A/S Prospectus,March 2014,
March 2014, pg. 48
pg. 48
Eastern Eu.
Page 7
Five major factors are driving growth in the industry:
1.Economic and regulatory developments Customers are also facing increasing pressure
from health, safety, and environmental (HSE)
Economic pressures from regulatory regulatory bodies. In an effort to focus on
requirements and increased competition are their core mission, they are outsourcing their I would prefer moving to
pushing companies to look at how they conduct regulatory compliance to FM service providers an integrated set-up with
business. Greater levels of scrutiny and tighter with service level agreements (SLAs) that include a single provider. It seems
regulations, as a result of financial scandals, penalty clauses for violations. These regulatory so much more convenient
have led companies to look to strategic partners responsibilities are driving a new need for than our current solution.
that can deliver and manage facility services - greater expertise in FM services.
while taking on the associated risk. Purchasing manager,
2.Increased appetite for outsourcing Pharmaceutical Co, India
Organizations are looking for a partner that will
help them to protect the investment they have The FM market is expected to grow by 4-5%
made in facility assets, manage the delivery through 2018. Penetration of outsourced facility
of facility services to minimise interruptions to services has increased considerably in the 2000s,
their core business and look for ways to deliver most dramatically in the emerging Asia Pacific
added value both from the assets, and services markets. While the Asian markets overall remain
they already deliver and other additional valued- significantly smaller than those in North America
added services. Clients are looking for all this and Western Europe, where market penetration
while at the same time expecting improved cost there is increasing rapidly.
performance and mitigated risk that comes
through delivering cost certainty.
Page 8
Even though the rate of penetration is increasing to demand in North America and Europe. This
more rapidly in the Asian markets, this increased demand for outsourcing, combined
development is offset by the size of the markets with an increase in service integration, is driving
that are participating. More than 50% of the growth in the global IFM market.
market growth (revenue) within IFM is linked
Global outsourced
Global outsourcedfacility servicesservices
facility market bymarket
line (B USD)
by service line (B USD)
∼ 1,314B
1,400B
FM
∼ 1,134B Support
1,050B
∼ 972B Catering
∼ 846B
∼ 792B Security
700B
Cleaning
350B
Property
0
2006 2009 2012 2015F 2018F
ISS A/SISSProspectus,
Source: A/S Prospectus,March 2014,
March 2014, pg. pg.
49 49
Page 9
3.Increased service integration is attributed to demand from North America and However, by the late 2020s, it is predicted that
Europe, which accounts for two-thirds of the China’s outsourcing culture will progress to
The revenue generated by the global IFM market global market (The Hackett Group, 2013). the point of accepting modern FM solutions,
is predicted to expand at a compound annual opening the door for massive growth in IFM
growth rate of 6–8%, reaching $1.314 trillion The rate of outsourcing and the demand for in that emerging market (The Hackett Group,
in 2018. North America is positioned to remain integrated solutions follow similar trend lines: 2013).
the largest IFM market, with greater demand in mature markets with higher outsourcing
from large industrial, retail and public-sector penetration, the demand for Integrated Facility Service integration necessitates specific contract
organisations. More than 50% of the predicted Solutions is typically higher and growing, while standards and language that differentiate it
growth in global IFM revenue from 2011 to 2018 the reverse is true in emerging markets. from a single-service contract. These contracts
are more performance based: rather than
Examples
Examples ofofsourcing
sourcing penetration
penetration and
andservice
serviceintegration
integration specifying with a checklist how often a space
High
is to be cleaned, for example, it sets a standard
for “clean” and requires that the IFM service
e.g.
UK higher outsourcing
provider maintain that standard without
In markets with higher
e.g. US
penetration the demand for
the prescribing how.
France Nordics
Italy Brazil integrated solutions is typically
Outsourcing penetration
Low
Single contracts Integrated contracts
Contracts
Page 10
This plan specifies the governing structure certainty. This results in a reduction in cost-plus
between the client and vendor, performance situations, as suppliers are held more and more
metrics that provide measurement of accountable for their spend. At the same time,
performance, and a defined process to manage the customer benefits from simplification in the It’s not part of our core
the performance and the relationship. form of reduced contracts, more transparency business to take care of
From the customer’s perspective, service and control, fewer invoices to manage, and a services such as cleaning
integration provides the convenience of one common SLA. and security. That is why
point of contact, greater efficiency and financial we choose to outsource
IFS share of total FS market (%) them. It’s also more
IFS share of total FS market (%) flexible to do so than to
20% have these services
in-house.
5
2006
0
Pacific Western Americas Japan Eastern Asia
(AUS & NZ) Europe Europe excl. Japan
Market growth
5% 3% 6% 2% 10% 9%
(12-18)
IFS growth
10% 9% 10% 6% 14% 12%
(12-18)
Source: ISS
Source: ISS estimates
estimatesbased
basedon
onthird
thirdparty
partydata,
data,(ISS A/SA/S
(ISS analyst presentation
analyst (March
presentation 2014))
(March 2014)
Page 11
4. Nationalisation and internationalisation most notable being IBM, with an average • War for talent – attracting the best
of contract procurement revenue of $300 million a year. By 2010, the employees
industry boasted 30 to 50 contracts – including • Pressure on corporate real estate to deliver a
The international market is fertile ground for Motorola, Caterpillar, Shell, Pfizer, CSC, P&G, great place to work, with an increased focus
FM services. In 2000, there were just a couple Kraft, and HP – with an average revenue of on lifestyle of work, collaboration, cost of
of international contracts industry-wide, the $100–$500 million. By 2020 the number is operations, flexibility, telecommuting and
most likely to increase again. movement of people.
Centralized purchasing
IFS share of total FS market is becoming more popular…
(%)
According to studies by The Hackett Group The move to nationalisation and regionalisation
Share procurement for companies with multiple locations
(2013) and Frost & Sullivan (2012), drivers for leads to a greater share of the FM market being
100
International internationalisation include: provisioned through IFS contracts.
Local
20
0
2010 2013 2016 intention
National % 26% 31% 34%
International % 7% 8% 9%
Source: ISS estimates based on third party data, (ISS A/S analyst
presentation (March 2014))
Page 12
Key areas
Key areasfor
of Value
ValueGeneration
Generation • Over 75% of customers consider self-
delivery important or very important (over
90% of those considering IFS)
• Approximately 80% of IFS contracts exceed The market leaders are
2 years in duration, while the corresponding able to provide the client
number for other contracts is about 30% efficiency gains above
Economical Environmental
mere outsourcing…
5. Market demand for value-added services innovation is becoming
key, and that requires
The decision to outsource is moving beyond the scale.
Social traditional core vs. non-core and cost-reduction
parameters. Customers increasingly demand Director General, Facilities
that FM service providers have an intimate Management Association
knowledge of the corporate mission, and the
competency to address the company’s specific
Centralisation and IFS trends are confirmed needs.
through external data showing the growing
importance of self-delivery and longer The companies expect their FM provider to They must have the ability to comply with
contracts: deliver solutions that help drive the following internal and external regulations – particularly
corporate initiatives: HSE standards – and have the financial stability
• Approximately 15% of customers are to assume the responsibility and cover the risk
considering further centralising their • Social: Concern for their staff, their of non-compliance.
facilities services purchasing over the coming customers and their communities
3 years • Environmental: Being a good corporate The provider must have the ability to deliver a
• Approximately 5% of customers are citizen that focuses on the impact of its uniform set of facility services internationally,
considering moving to IFS over the coming environmental footprint and to integrate these services, as well.
3 years • Economical: Ensure shareholder value
currently and in the future
Page 13
In addition, services must be significantly more How important
How importantare thethe
are following criteria
following in purchasing
criteria IFS for IFS
in purchasing Multinational companies?
for Multinational (1-5)
companies? (1-5)
efficient. An efficient base organisation must
4.6
be designed to handle both the daily as well 5 4.4 4.3 4.3 4.2 4.1
4
as the peak workload. This is most effectively 3
IFS buyers rate self-delivery
done through service integration and self- 2 criteria high
performance of the tasks. 1
Matching
Matching HSE/CSR Price Ability to Quality
geographic reputation selfdeliver range of
scope services
By integrating, the silos of bundled services are
reduced or eliminated. The base organisation Source:
Source: ISS
ISS estimates basedon
estimates based onthird
third party
party data,
data, (ISS(ISS
A/S A/S analyst
analyst presentation
presentation (March(March
2014) 2014))
How
How important
important isis each
each of
ofthe
thefollowing
followingcriteria
criteria when
when purchasing
purchasing facility
facility service?
services? (1-5)
(1-5)
5
4
3
Large customers care as
2
much about reputation as
1
they do about price.
Quality Reputation Price Range of National International
Reputation is a more important
services coverage coverage
parameter for large customers
Companies with > 354.1M USD in revenue Companies with < 354.1M USD in revenue than it is for small customers.
Source:ISS
Source: ISSestimates
estimates based
based on
on third
third party
party data,
data, (ISS
(ISS A/S
A/S analyst
analystpresentation
presentation(March
(March2014)
2014))
Page 14
Best practices for FM outsourcing
Page 15
Conclusion
The FM direction and decisions are increasingly The FM marketplace is growing, and FM service
being seen as strategic enablers and therefore providers must evolve to keep up with shifting
are being set at a higher and higher level in and expanding customer demands. They must
companies, leading to regional and global IFS/ offer value-added services, such as credible The customers’ explicit
IFM contracts. These contracts are integrated and effective risk management, including HSE demands are tangible:
into corporate capital planning horizons that and local labour law management. They must “clean”, “100%
are for 3–5 years or more. These contracts have the capability to provide excellence across uptime” and “allow
require: a broad menu of services and consistent self- me to focus on my core
delivery on a global scale, as well as the flexibility business”. Implicitly,
• Transparency of actual spend to grow and change along with the customer. the requirements are
• Benchmarking to support and validate reliability, responsiveness,
service and spend levels On a broader scale, the customer is concerned convenience and cost-
• Improved forecasting about the integrity of its brand, and the FM effectiveness.
• Enhanced risk mitigation service provider must fulfil its role in protecting
that brand. A major food company cannot
tolerate being cited for a breach of hygiene
levels in the production area, for example,
and a software company cannot afford the Facilities should be seen as an integral part
“Old Way” “New Way”
fallout from a customer’s IT failure because a of the strategic and cultural journey of an
• Tactical Decisions • Strategic Planning
• Reactive to Business unit • Proactive corporate executive server room or data centre was not properly organisation. The FM provider must be focused
Demands led initiatives
• Reduce discretionary • Leverage the best business maintained. on finding new and innovative ways to make
aligned functions
spending
• Focus on core business • Support business dispositions
facility assets and services not only relevant but
• Improve capital and balance Companies are increasingly concerned about critical to enhancing the customer’s employees
sheet management • Manage risk-adjusted capital
• Supplier divided service spending their image, in part to attract the best and experience and enabling their core business.
provisions • Integrated service delivery
• Focus on input specifications • Focus on output/outcome brightest employees. To accomplish this, they
are looking for ways to leverage all of their The solutions offered must be adaptive to
Increase efficiency
assets, particularly their facilities. They are not meet the demands of the changing workforce
Manage to Cost
and scalability looking for a supplier but a strategic partner and world. To accomplish this, companies are
that is going to deliver best-in-class FM to help looking for FM visionaries.
them leverage the value of their facility assets.
Page 16
References
Andersen, M. K. & Ankerstjerne, P. (2012): ISS World Services A/S. (2013). ISS 2020 Vision: *
The prospectus contains statistics, data and
How “New Ways of Working” affect our use of New Ways of Working - the workplace of the other information relating to markets, market
facilities future. sizes, market shares, market positions and
Deloitte. (2013). Chartering the course: Why Jacob Kashiwagi, Kenneth Sullivan, Dean other industry data pertaining to our business
procurement must transform itself by 2020. T. Kashiwagi, (2009),”Risk management and markets. Unless otherwise indicated,
system implemented at the US Army Medical such information is based on our analysis of
Ernst & Young. (2012). Best in class
Command”, Journal of Facilities Management, multiple sources, including a market study
organizational design for CRE.
Vol. 7 Iss: 3 pp. 224 - 245 we commissioned from Bain & Company (the
Frost & Sullivan. (2012). Global FM Market “Company Market Study”) and information
High Growth in Emerging Markets but Highest Prodgers, L., International Trends
otherwise obtained from Frost & Sullivan and
Revenues Remain in the West. and Developments in FM, FMJ July/
the International Association of Outsourcing
August 2014 (http://fmj.ifma.org/
IAOP (International Association of Outsourcing Professionals. Such information has been
publication/?i=216346&p=66)
Professionals) Global Outsourcing Summit accurately reproduced, an d, as far as we
February 2012, Florida US Redlein, A., & Poglitsch, R. P. (2010). Trends and are aware from such information, no facts
Developments within Facility Management. have been omitted which would render the
ISS A/S analyst presentation, March 2014.*
Redlein, A., Redlein, B., Soborg, A., & Poglitsch, information provided inaccurate or misleading.
ISS A/S Prospectus, March 2014.*
R. P. (2014). Managing and Mitigating risk
ISS World Services A/S. (2011). ISS 2020 Vision: within Strategic Facility Management.
Scenarios for the future of the Global Facility
The Hackett Group. (2013). Category Insight
Management Industry.
Report: Facilities Management v5.2.
Page 17
ISS World Services A/S
ISS was founded in Copenhagen in 1901 and has grown to become one of the world’s leading
facility services companies with revenues in 2015 amounting to DKK 79.5 billion. The secret to
our success lies in how we tailor our solutions to client needs, how we manage risk, and how
our engaged team of more than 500,000 staff members add the power of the human touch in
everything we do.
Every day, ISS employees create value by working as integrated members of our clients’
organisations. A key part of the ISS HR strategy is therefore to develop capable employees in
all functions. Team spirit and self-governance are encouraged, as is voluntary participation in
additional training and multidisciplinary workflows. Besides developing employees, ISS ensures
compliance with health, safety and environment (HSE) regulations. We demonstrate our social
and ethical commitment through the ISS Code of Conduct, through our membership of the
UN Global Compact and by honouring the principles stated in the Union Network International
(UNI) agreement.