The Cost of Mistakes

It’s a while since I’ve posted on here (I’m nothing if not a master of understatement), not through any deliberate intent on my part but more as the consequence of being particularly busy over the last few months. Generally, I’ve been content to keep abreast of what’s going on within the industry and to discuss developments through the more “traditional” networking channels; occasionally, though, something hits my desk – or the screen of my Mac – which makes me sit up and take slightly more notice; or, indeed, put the figurative pen to paper. One such occasion arose when I read the i-FM report by Elliot Chase published on 23rd September and entitled “Recession drives procurement change”.

The subject was addressed at the latest BIFM Fellows’ Forum, hosted at Deloitte’s City of London HQ, and the main thrust as reported was that the recession has necessitated a shift in the approach to procurement . Attendees heard procurement specialists Martin Laws and Guy Palmer explain the results of both recent research and client experience, which confirmed (unsurprisingly) that cost control was a top priority, and that it would remain so in the foreseeable future. Then came the interesting bit (because, let’s face it, the issue around cost control is not exactly news), and I quote from the article itself…

Deloitte… is seeing a clear move towards increased interaction between buyers and suppliers in order to get the best results from a contract appointment. Increasingly tender decisions… are being made on the basis of cost, plus assessment of capability and fit… a maturing of the decision-making process in that it offers a better balance of previous approaches, specifically the technical-led and the procurement-led.

The pressures of recession… have resulted in more questions being asked, both internally and externally, as the procurement process develops. In many cases, this has had the benefit of working against short-termism, in which cost is the only real decision criterion – though there are still plenty of examples of that approach around, too.

Now, I posted an article on this blog about a year ago in which I expressed astonishment at the gulf that apparently existed between the property and FM sectors, and at the audacity of the former to tell the latter how to suck eggs. Once again, I’ve been left feeling similarly bewildered and bemused at how little understanding there seems to be in the wider world of the most basic of concepts that are the cornerstone of FM. This time, concepts relating to the procurement of FM services.

When I re-launched Edifice at the beginning of 2006, I reckoned that I had a reasonable pipeline based upon clear target clients and some quite decent market knowledge. However, the first company I went to see was one that had invited my previous employer to tender (for a hard services outsource); I’d led the bid but – although we’d been unsuccessful as a consequence of cost – I knew that the fit with the successful tenderer just wasn’t right, and that what had ultimately been procured was impossible to deliver within the accepted cost constraints. Sure enough, the new contract had proven to be a complete disaster and I proceeded to work with that client for over a year to provide a solution that met not just the budget constraints but also the organisation’s requirements in terms of culture, philosophy and customer focus.

To demonstrate this even further, the processes and systems that have been developed within Edifice to steer clients through the critical path of an outsourcing project effectively isolate cost as just one of a number of factors that should influence any sensible decision-making process. In other words, the question is “Right – given that cost comparison is going to be addressed as a discrete part of the evaluation process, what do you really feel about these suppliers? Can you work with the people you’ve seen, and have you actually seen the right people? Do their policies on sustainability, CSR and ethical procurement mirror yours? When they say they recognise the importance of training and development, do they put their money where their mouths are? Do they actually harness technology to demonstrably drive efficiency, or just spend money on systems that then has to be recovered from you, the client? And – critically – what do the clients say after working with them for x number of years? (The list could easily have gone on, but presumably the point has been made.)

Some of these questions are client-specific, but there are always a host of key areas that need to be addressed, and once done, the result is a framework within which “fit” can be accurately gauged. If the cost evaluation then suggests a similar solution, all well and good; if it doesn’t, then at least the client organisation will have the basis for rational and informed debate. In other words, if a decision is going to be made on cost, than understand the consequences of that decision before making it.

The procurement of facilities services can have a massive impact on an organisation’s performance, not just for the term of any contract let but for the additional time it takes to correct a mistake. And getting it wrong can also change the perception of a facilities team, or a procurement department, in the eyes of the end user (or, perhaps, the board). The danger, as I’ve been known to mention before, is in the “commoditising” of FM and it’s a danger that we must all be ever watchful against.

Bullish Noises For Bullish Noises’ Sake

I’ve written before about the “credit-crunch come recession” (have a read of Recession and the P-Word if you haven’t already done so). Whilst I know I’m not alone in doing so, I do sometimes wonder if I am alone in publicly acknowledging the effect that this economic downturn is having (or is likely to have) on our industry. The reason I say that as that (at least until this week) pretty much all I’ve seen in the media is a series of press releases from service providers talking up the market. Advising us that, actually, a global recession is uniquely good for the FM industry.

Strangely, this week seems to be one for telling it like it is. Firstly, i-FM reports that the cleaning sector is feeling the pinch; recent growth figures have hit 14% per annum but this is expected to slow to 2% for the current year and just 7% over the next 5 years. This tells us nothing of the effect on margin, of course, but we all know that higher turnover doesn’t necessarily mean that profits aren’t eroded.

Then there’s FM World, which also seems to be reflecting the true state of the market now. On the subject of projects and capital spend, we find that “Interior Services Group has reported that many of its corporate clients have delayed or cancelled projects due to start in quarter four of 2008 or next year.” No surprise there, and I doubt that it isn’t a picture reflected in many, if not all, of that sector’s order books. More worryingly perhaps, a report earlier in the week shed some light on what’s really happening so far as a response to the present economic climate is concerned: “Businesses across the service sector have reduced investment and spend in their buildings and predict that this will decline even further over the coming months resulting in a spate of job losses across the FM sector. That was the gloomy message from the CBI’s quarterly Service Sector Survey…”

“In the three months to November, firms reported steep falls in business volumes and profitability, as well as plans to scale back employment and investment. Firms selling services to businesses saw the volume and value of their business, profitability and numbers employed fall at record rates – the steepest declines since the survey began in 1998. Companies are also cutting investment plans sharply as worries about future demand intensified.”

Now there’s nothing wrong with being seen to adopt a positive stance in the face of adversity, but that’s not the same as making bullish noises for bullish noises’ sake. The FM sector, like all other sectors, is being hit hard and the position is unlikely to change as we head into a New Year that might well see a number of established players do well to last the course.

To my mind, I do believe that opportunity exists out there, but I would add a large dose of realism to what I’ve seen written by others. For client organisations, it’s time to go back to basics with a review of FM strategy, a reconsideration of business need both in terms of services and service levels, and – out of that – an appraisal of supply options. From my own experience, this process usually becomes part of a “contract life-cycle” but there’s no reason why special circumstances shouldn’t result in a different approach and a different timetable. For service providers, it’s absolutely imperative not only to be proactive, but also to be innovative. Doing nothing will simply result in margins being eroded or – worse still – contracts being lost as clients align themselves with those organisations demonstrating a commitment to delivering better value. That’s “better value”, not “lower cost”, and the two things are not necessarily the same (although I accept, of course, that they often go hand in hand).

One thing I don’t see for 2009, however, is a year of business as usual. Those who pretend that it will be are likely to be the first casualties of the media hype I referred to earlier.

Recession and the P-Word

The comments on my “Welcome” post made consideration of what we now seem to be terming a recession as somewhat inevitable. One or two articles of late have addressed the question of whether or not FM is “recession-proof”, so I thought I’d offer a very summarised view of my own starting with what I see happening around me on a daily basis which – to my mind – answers the question unambiguously.

Firstly, clients tell me that they’re being asked to accept budget reductions, projects put on hold, pared-down maintenance regimes and continuous scrutinisation of headcount. When tender activity is considered, it’s more with a view to reducing expenditure than it is to aligning service delivery with business need, and this is reflected by internal targets that relate largely to savings and little to service enhancement or customer satisfaction. And the softer services – those that aren’t “critical” to the core business – are feeling the pinch most of all… never mind the effect on staff morale & retention, eh?

Secondly, suppliers tell me that they’re seeing their margins squeezed on existing business, and that client tender strategy is focussing purely on bottom line savings, regardless of service and quality issues that arise as a consequence (e-bidding/e-auctions are probably cases in point, and worthy of a post in their own right!). “Best value” at the bid stage is seemingly no more than a sound-byte as clients opt for the cheapest solution; consequently, innovation is the first casualty as the safe option is to stick with the tried and tested formula.

So… does this scenario suggest an industry that’s recession-proof?

Quoting from one of the comments I referred to earlier, how about this as a stake in the ground… “The resilience of the FM industry in times of recession is surely linked to the resilience of the clients that the FM industry serves”? That’s undoubtedly got to be relevant, but is it enough to simply acknowledge the issue without trying to be proactive and (dare I suggest) creative in overcoming it?

When purse strings are tightened it’s all the more important for the relationship between client and supplier to work effectively; that way, collaboration follows as a matter of course and both parties start to progress towards the achievement of common goals & objectives. Sensible sharing of risk, incentivisation as well as penalisation, and openness & honestly are all part of the equation.

Hang on, though… isn’t that what partnership is about?