ASSIGNMENT AND FOR REPORTING OF GROUP 1 Facility Management Outsourcing Definition What to outsource When to outsource?
Benefits of outsourcing Factors affecting outsourcing (business change, process change) What is Service Level Agreement SLA
Suggested reference: Functions of contract FACILITY MANAGEMENT: Human Outsourcing Solutions to Clients By DHEERAJ MANN
Outsourcing today is an increasingly common way of doing business. There are sound financial reasons for not employing permanent staff – who must be fully paid regardless of work flows – when you can buy in outside expertise which may be able to do the job better, cheaper and more quickly. Facilities managers’ time is, therefore, increasingly dominated by managing contracts with external suppliers. This has required facilities managers to develop new skills. Whereas before, facilities professionals had to be multi-skilled, multifunctional and good managers of people from a variety of backgrounds, now – on top of all that – comes the responsibility for continuing to motivate those over whom they have no immediate line management authority, while managing outcomes through a third-party employer with their hands tied by legal contracts. Successfully working with contractors on a strategic level is another challenge facing the facilities manager. Today’s outsourced contractors are ‘partners’ who ‘add value’ to a company’s operations. Command and control, as a management style, would be as self-defeating here as anywhere else. Partners are looking for long-term relationships, where trust means more than mere on-time delivery. It
means sharing cost bases, profit ratios and business objectives. To a degree, it also means sharing information you might prefer to keep in-house.
What to Outsource? When outsourcing first entered the management arena in the 1980s, it was all about saving money on essentially manual task; premises’ cleaning was a typical an early example. The focus is now on access to skills, with outsourcing expanding to include areas closer and closer to the centre of business; companies are now looking to buy in outside expertise so that they can concentrate on their own core activities, and contract with external suppliers to provide many or most of the tactical elements. The shift from those early tasks has seen us move through other administrative and infrastructure areas, towards innovation: how can the company move further ahead faster than the competition? Outsourcing today, and the expertise that comes with the specialist contractors, has now embraced R&D, design, product management, marketing, communications, even personnel supply and management. That development has not finished. Already into strategic functions, it is not unlikely that outsourcing of core business areas – even the strategic direction of the company – could follow. Outsourcing should not be seen as just a money-saving management device or tactic, but considered in terms of the potential value it can bring to a business. It may cost more to outsource, but the job may be better performed, the company image may be enhanced and it may release expensive management time for core activities. However, the year 2005 saw the possible critical turn of opinion regarding outsourcing with some high-profile industrial activities. Some companies are reviewing how they define ‘core’ activities, which begs the question ‘are we seeing a start of the move to bring stuff back in-house?’ Notwithstanding that development, what, in your specific business, should you consider outsourcing and what should you retain in-house? Core and non-core activities A first assessment in considering whether or not to outsource is defining what you consider to be your core business activities. Current practice dictates that companies retain control of these areas. The thinking behind this is that organization should be left to concentrate on their core business activities without the distraction of providing and managing non-core activities.
These are better provided by an outsourced commercial organization whose personnel can be better motivated and rewarded in an environment that recognizes their special training and skills. Of course, what is defined as ‘core’ activities will vary significantly from organization to organization? A good example here would be the law firm that outsources its conveyancing work on the basis that its core skill is commercial litigation and it is from the latter that it earns the majority of its income. Consider next the degree to which any selected function is routine and well defined. If it can be easily defined, then it can be more measured, and managed at arm’s length - and remember, you are not devolving responsibility, just functionality. So, is non-core function can be defined and measured, it may be worth considering for outsourcing. Anticipating Pitfalls Before embarking on any outsourcing initiative, there are a number of potential problems which should be anticipated and evaluated. Many of these are concerned with the people affected by change in operation; others are to do with changes in the business itself and the manner in which the business is undertaken. People Issues It is unfortunate that outsourcing is rarely welcomed by a workforce, especially that section responsible for the function being outsourced. Often it is perceived as downsizing by other means, and strenuous efforts are made to oppose it – diverting business time and energy from development to fire-fighting. Most of the problems that can arise can be pre-empted through intensive discussions and planning. Talk continuously with staff; be certain they understand what is happening, why, how and when – and understand that simply telling them is not the same as being certain they understand. Do note that when you transfer staff to another company, you send them a very strong message. You are telling them their work is a commodity, which they are welcome to continue performing under new management. You are informing them your business needs to concentrate on what is really key, and that does not include them or their work. Also, you are telling them you expect to obtain more for less under a new regime. From that point, the messages they receive will devolve from the vendor’s management team – and it is unlikely these people will be pushing for healthy IT section (say). In place of the professional environment based on common goals the team once shared, or the partnership with an experienced and knowledgeable organization you were seeking, you will find you have a commodity-based service
with goals contradictory to your own. That – darker – side of outsourcing was experienced at a major global US company which outsourced its IT function. Before proceeding, ask the following questions: • Is there a convincing case for outsourcing? People and unions – will generally accept an argument in which the logic is unassailable, in which all the numbers, from every source, have been reviewed and checked, and where every aspect has been openly examined. Secrecy is not a good strategy here. • What are the legal requirements? Does TUPE apply? How much will it cost to be generous, rather than just to stick to the letter of the law? Is the cost worth it? • How have the levels of knowledge and skill which exist within the organization been established, especially within the arena to be outsourced? Is the loss of some of these skills acceptable – most probably as a gift to the contractor – or should some or all of these be kept in-house as a supervisory or management resource? • Is everything possible being done to involve and inform all staff – not just in the affected areas – of the progress towards outsourcing? Be aware, however, that different circumstances apply when an internal bid is on the table alongside external competitive bids; managing information in these circumstances is especially challenging. The function must continue, but one bidder has an effective stranglehold; tell them too much, and external bidders will claim favoritism; too little, and the existing team claim secrecy. The only option here is honesty and openness, supported by the policy, clearly stated, of what is acceptable and what is not, and what information is to be shared and what is not. Business Change All business change. Before entering into an outsourcing contract, you need to consider the following questions so that you are not hampered by a restricted contract as you pursue your development goals: • What happens if you are bought out or buy out another company? They may have a state-of-the-art in-house provision for what you have outsourced – or they may have none, and you need to look at rapid expansion of the service. What happens if you have a fundamental shift in business focus – if you decide, for example, to close plant, move headquarters of strategically
important offices, or pursue new but promising business direction which affects the need for the outsourced service? • What happens in case of force majeure – in the case, for example, of a significant market downturn which leaves expensive equipment and facilities underused? What provision has been made to allow for ratcheting down of the service and the associated costs?
Process Change The way business is done changes continuously. Think how long you have been using email as a key of communications channel. How many stand-alone fax machines are still used regular in your business? Do your younger staffs even know what telex machines look like? Such technological changes can significantly alter the manner in which an outsourcing contract will work over time. For example, if outsourcing had been significantly factor a generation ago, the typing pool would almost certainly have been prime candidate for it – now typing pools simply do not exist. It is not just the technology – working and management styles can alter considerably over the duration of a contract. Consider the following: • What structural changes could affect the outsourcing agreement? Consider, for example, the effect of introducing flexible working on the catering services; or how devolving autonomy from head office to regional offices could impact on suppliers strategies, from transport to telephony or utilities. Bearing in mind the growth in power of computing: (remember the old axiom which still holds good: every 2 years double the power/ speed and halve the price), what could you be doing for free which used to requires specialist input? Think of display media, and how that function has been usurped with presentation software packaged into most laptops, or of the production of newsletters, posters or other promotional material.
Choosing Contractors The Tender Document Time spent preparing the tender document is a requirement, not an option. Although you may feel there is only one logical choice for contractor, it is essential that you approach the tender process is competitive. Do not rule out the possibility of bids from angles you may not have considered, not least the existing function team, and do not assume you know all the potential bidders.