The ins and outs of outsourcing

Potential advantages over out-tasking
Monday, September 3, 2012
By Pamela Young

The subject of outsourcing has moved from the periphery to the centre of facility management in less than 20 years.

While there are still quite a few organizations that prefer out-tasking (subcontracting out a particular project or operation to one service provider specializing in that field) to outsourcing (hiring a company that takes on the management of an array of projects and/or services), the number of organizations that now outsource has skyrocketed and the provision of these services has become intensely competitive.

What are the potential advantages of outsourcing?

“I think there are many talents, resources and innovations that outsource service providers offer,” says Jane Rowbotham, general manager of general commercial at Brookfield LePage Johnson Controls (BLJC) and the current president of the International Facility Management Association (IFMA), Toronto chapter. “The first thing is related to integration of services. With it, you’re not operating the different elements of facility management in isolation from one another. On top of this, the best outsource service providers layer business intelligence tools that provide very user-friendly reporting that helps a client pinpoint really critical conclusions related to cost effectiveness, customer satisfaction, operational efficiencies and areas for improvement.”

Other reasons for outsourcing are the skill set a company can leverage and the efficiency of that resource. In other words, instead of having to hire full-time in-house specialists in fields outside an organization’s core business, outsourcing clients have access to that expertise via their service provider – and they can tap into that expertise only as they need it.

And then there’s sheer buying power. Whether the commodity happens to be workstations or custodial services, for example, an outsource service provider that is managing space on behalf of multiple clients is in a better position to cut a cost-effective deal than a lone facility manager with a relatively small portfolio.

That said, many organizations rely on selective out-tasking rather than full-on outsourcing.

For Dennis Dowling, director of corporate real estate for Calgary-based West-Jet, out-tasking is a means of bringing in specialized expertise only when needed. When his team requires office space fit-out according to WestJet’s in-house standards or a new airport is opening and the airline’s space within it has to be developed, this work goes out on preferred contracts to design firms and construction project management groups with expertise in these areas.

“Having them in-house is just not a viable option because it costs too much to hold them and we don’t have enough of this sort of work to keep them busy all the time,” he says.

Janine Reaburn, director, real estate, workplace services at LoyaltyOne, also turns to outside service providers when a particular expertise is needed for a short period of time.

“For example, if we’re having research done, we can reach out to someone who has expertise in that area to bring us the knowledge at a high-level and very quickly,” says Reaburn, adding her organization also outsources non-core areas of operation such as the management of their gyms, mailrooms and cafeterias.

The rise of outsource service providers and other types of project managers has changed the role of companies that once worked directly with facility managers. Today, there is (in many cases) some form of intermediary between them and the end user. Many suppliers aren’t thrilled with these ‘arm’s length’ arrangements.

“Facility managers now have so many options when they’re looking for someone to help them with projects. It’s hard for them to know the pros and cons of the various approaches they could take,” says Lynn McGregor, founding principal of McGregor Design Group in Toronto. “Typically, professional architects and interior designers must include strong project management and consultant coordination in their scope of services. Facility managers should be wary of project management firms that insist they are required on projects that will have qualified consultants on board. Clients in these situations often pay far more than they need to – for no added value.”

In McGregor’s opinion, project management firms are most valuable on large, complex projects or on low budget projects that do not have a scope for extensive consulting expertise.

What isn’t likely to change anytime soon is an industry-wide trend toward consolidation. According to McGregor, mid-size design firms in Canada have all but disappeared. They have been bought up by and subsumed within ever larger firms that provide a host of services under one roof, including interior design, architecture, engineering and project management. What is left, apart from these multi-service mega-firms, are small, ‘boutique’ design firms.

Although big box retail stores offer convenience and value, they’re not the best place to buy everything – and there are parallels here to outsourcing.

“One-stop shopping can make management easier but it’s not necessarily going to get you the right product,” says Michel Theriault, principal of facility and property management consulting and advisory firm, Strategic Advisor. “If you hire (a company) to do your project management, find out whether it will be using its in-house people or whether it has a partner or supplier that it always uses.”

In either of these cases, a facility manager’s options will be limited, he says.

A better case scenario is the outsource service provider will “go out on the market to seek out the best supplier on your behalf, as you would do if you were doing it yourself,” Theriault adds.

The major outsourcing service providers are already very big and they’re under market pressure to get bigger. Meanwhile, facility managers are tasked with doing more with less – less space, smaller budgets and fewer in-house employees. Because of this, outsourcing at least some services is beginning to look more attractive.

How does a facility manager choose an outsourcing agreement that will work well for their organization?

“(It’s important to) keep in mind that the lowest initial price is not necessarily going to be your lowest total cost,” says Theriault.

When evaluating request for proposal (RFP) responses for an outsourcing service provider, Theriault says price should be weighted so that it accounts for between 30 to 50 per cent of the decision.

Pamela Young is editor-in-chief of Canadian Facility Management & Design magazine.

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