Perspectives on outsourcing—Benefits, evolution and approaches

How has a word as simple as outsourcing created such interest? It is not a new phenomenon, but part of a highly competitive business reality—agility in the delivery of facility services. For years, outsourcing meant little more than contracting out the few services that could not be done in-house, such as building construction, remodeling, and tenant improvements. However, the term is taking on more significance.

The array of services and functions that constitute the facility management profession is now so wide that an organization cannot provide all or even a major portion of facility services itself. Rather, it must focus on its core competencies—making widgets, providing services, selling products. This is not to say that outsourcing is for everyone or that a company cannot provide management and most in-house facility services. What it does say is that the decision about what to do in-house and what to outsource is complicated and requires intelligence, understanding, and detailed analysis.

Despite protests from senior managers and human resource professionals, most practicing facility managers cite two reasons to outsource. First, to reduce personnel, even if doing so does not reduce direct costs. Second, to simplify the personnel decisions—especially disciplinary ones—associated with permanent employees in large organizations with complex personnel policies. In-house corporate employees usually receive benefit packages unmatched by their counterparts in the companies to which they outsource—packages that cost the corporation funds it need not spend if it hires contractors. And although complex legal and contractual red tape is involved in either case, many facility managers find it easier to terminate a contractor than to terminate an unproductive or incompetent employee. As resources become scarcer, there is less tolerance for sloppy or slow performance, especially in a service organization whose mission is not considered a core competency in most businesses.

Top Benefits of Outsourcing

Hellmuth, Obata, and Kassabaum (HOK), Inc., a large architectural firm, commissioned a survey to ask facility managers to list the benefits of outsourcing. The respondents listed the top benefits of outsourcing and identified these findings:

Better access to specific technical skills and expertise

Because facility service typically falls outside the core business of a company and is not usually considered part of its core competencies, organizations have access to better and more varied technical skills through outsourcing, yet retain a single point of responsibility. This specialized expertise, particularly in those organizations that have complex facility operations, can range from complex machinery lines in manufacturing plants to large-scale computer chip operations. Furthermore, the facility management organizations can often be merged with the manufacturing and engineering operations through outsourcing, a feat somewhat difficult to achieve in-house.

Higher quality skills

In smaller organizations where a limited number of facility personnel must perform a wide variety of services and where a specialized skill is not represented, outside providers can increase productivity and efficiency in areas requiring highly specialized technical expertise and access to specialized equipment.

Reduced total cost of function

Outsourcing can free capital for core business activities. The technology in computer-aided facility management (CAFM) systems, for example, continues to change so rapidly that it is not feasible for most companies to replace useful yet outdated equipment with the latest version. Similarly, software is evolving so quickly that it often makes better sense to have the outsourcing provider prepare drawings using the latest software and allocate the cost of upgrades over a greater volume of work. In other service areas, supplies and equipment providers usually can offer better purchasing agreements, often nationwide, and are better able to move equipment among clients with changing needs.

Adaptability to workflow fluctuations

As needs change, the use of service providers can expand or shrink along with fluctuations in the demand for such ongoing routine services as unusual cleaning requirements after a move. The supplier assumes this risk.

Reduced personnel costs

Organizations striving to cut costs through personnel reductions see outsourcing as one way to save money. Service providers also offer a wider array of skills than could be maintained in-house, contracting these skills only when and where necessary. Frequently, they can operate under flexible work rules that permit a higher level of responsiveness.

One-time situations

Outsourcing can be used to intensify production under emergency conditions, to supplement overloaded in-house personnel, and to test outsource contractors on a trial basis.

Based on these factors, it seems that a third-party contractor could perform almost any facility management service. However, outsourcing all facility management services is neither necessary nor common in most organizations. Central management functions such as budgeting and project planning are typically the last functions outsourced. Senior facility management, working with other senior staff in the organization, generally administer strategic planning that encompasses the organization’s business strategy, mission, and goals. Typically, this amount of control is not given to outside contractors.

It is also important to recognize that, even if almost all facility management functions are outsourced, the management core (that is, the decision makers) should remain in-house. In other words, you should retain control of facility management even though you outsource many of the services. Even if corporate facility management remains active in approving tasks, deliverables, delivery dates, and scopes of work, these decisions and actions are inescapably in-house management functions.

Evolution of Organizations and the Effect on Outsourcing

R.E. Miles of the University of California at Berkeley tracked a significant change in various service delivery structures, of which facilities outsourcing is one. Organizations were once aligned vertically according to function, meaning that a full range of services was provided in-house. Management was done by exception, by measuring and tracking how things were done—with recriminations when things went wrong. Organizations, including their facility management departments, improved by growing, putting all their resources and assets under corporate control, providing centralized planning, and establishing policies and procedures.

However, this model has given way to more compartmentalized and decentralized service delivery models. In large organizations, management by objectives has become the rule. Individual components of the organization could downsize to the level of full utilization of assets. Facility operations have begun to see a national trend toward outsourcing of all so-called low-value-added operations such as custodial, general maintenance, housekeeping, security, and other low-skilled work. (Value-added refers to the gain that an activity produces—usually corporate profit, sales, or market share.) In the past few years, “mixed” organizations have evolved, where some facility services are provided in-house and others are delivered by outsourcing.

This model features networked structures for outsourcing, bound together by a management and technology network, including management alliances between companies.

Basic Approaches to Outsourcing

In The Age of Unreason, Charles Hardy argues in favor of a new model of organizational structuring. Building on Hardy’s work, it is possible to develop a facility-staffing model to determine systematically how work should be allocated. The three components of this strategy are:

Outsource—Determine the amount of work to be handled by consultants, subcontractors, and outsourcing suppliers for the specific needs of the organization.

In-house temporaries—Determine which skills an in-house workforce of temporary employees or those with flexible work arrangements can provide. Such in-house support is useful for coping with peaks in demand. Such employees would perform some of the services remaining in-house.

In-house, full-time—Determine the appropriate level of in-house, full-time employees who will be needed to staff either a peak work level or a median level, and then retain enough permanent employees to establish that threshold. These employees would administer the outsourcing contracts and perform any other services that remain in-house.

When considering which strategy or combination or strategies to employ, keep in mind the type of service or product you want to outsource.

This article is adapted from BOMI International’s Fundamentals of Facilities Management, part of the FMA designation program. More information regarding this course or BOMI International’s new High-Performance Sustainable Buildings credential (BOMI-HP™) is available by calling 1-800-235-2664. Visit BOMI International’s website, www.bomi.org.