Successful Outsourcing Strategies

Outsourcing facility services can be a monumental challenge for organizations that perform those functions using in-house staff. But as even the most routine tasks become more complex, facility executives search for innovative ways to improve services and save money.

Despite a steep learning curve, hiring service contractors is a logical business decision that, if implemented properly, can benefit an organization for years. Following a few common-sense strategies from those who have already hired contractors to service significant portions of their facility operations can make the process less daunting.

Identifying needs is the first step in developing an outsourcing strategy.

“Start with an internal assessment,” says Kenneth Cooper, director of corporate real estate for Scholastic Inc. “Why do you want to outsource? Has the internal staff failed in some way? If it has, what’s to say the outsource staff won’t fail for the same reasons?”

That issue must be addressed and corrected internally before any external partnership can succeed.

Next, recognize what tasks can be successfully outsourced and what tasks must remain in-house. Realize that different organizations have different requirements, but generally the early focus should be on services readily available, says Andrew Millest, executive director of property services at Morgan Stanley.

“Look for services that are available and mature in the marketplace,” he says. “Look for services that are competitive in that marketplace. If there is no competition, it isn’t a mature industry.”

Millest says that services available in one market might not be available in others. For example, in New York, it’s possible to find any type of service. In less mature markets, there are fewer choices.

The most commonly outsourced tasks are the day-to-day, labor-intensive operational chores. “Service delivery functions, such as building management, administration, security, janitorial and food service, lend themselves well to outsourcing,” says Alan Abrahamson, asset management director for AT&T Global Real Estate.

Deciding what to outsource
Large projects undertaken only as needed or on a quarterly or annual schedule also are candidates for outsourcing. Examples include architectural design, space planning and construction-related services, such as plumbing, painting and electrical, Cooper says.

Most facility executives agree that an organization’s core competencies should never be outsourced.

“We would not outsource services that are core to our business,” Millest says. In Morgan Stanley’s case, the company considers information technology a core function; thus, it is handled in-house.

Abrahamson says projects requiring strategic planning also should remain internal. For example, portfolio planning, contract management and expenditures for large capital improvement projects shouldn’t be turned over to outsourcing partners, even if the outsourcing partner oversees other aspects of the facility’s operation.

After determining which tasks within a facility are eligible for outsourcing, facility executives should research the various vendors. Thorough research includes checking references and determining whether or to what degree the company can be bonded and insured.

The vendor should be a reputable company with experience, Millest says.

“It should offer a clear expertise in its core business,” he says. “It also should have a degree of flexibility and should adapt to our culture. We also want outsourcers looking for a long-term relationship.”

If possible, look for a vendor that has provided the service to similar organizations, even if the contract is for something as routine as janitorial or security services. Cleaning a hospital’s surgical theater is far different than cleaning the executive suites of a class A commercial building, Cooper says. The security requirements between class A buildings and class B buildings can be substantial. Security requirements from industry to industry can be significantly diverse as well.

“It’s one thing to provide security in a class B building,” he says. “It’s a different thing to provide security in a corporate headquarters. Even from industry to industry, there are nuances that exist. Outsourcing services aren’t something a vendor can provide without direct experience, knowledge and training.”

In return, the vendor should provide some evidence that they have done their homework about the organization. “They should have some experience in the field to know what’s important to you,” he says. “They need to know who their client is.”

The selection process
AT&T has established selection criteria to help winnow the list of potential service providers. Criteria include performance history, experience, geographical coverage, responsiveness, success in meeting goals and customer satisfaction, Abrahamson says.

“Responsiveness is important because situations will change and errors can occur,” he says.

AT&T also reviews a potential vendor’s operating practices, measurement plans and improvement plans and procedures to achieve customer satisfaction when conflicts occur. In some cases, AT&T looks at the outsourcing partner’s process for performing the task.

“Good suppliers innovate and make improvements,” Abrahamson says.

It’s also important to understand the human resources aspect of a prospective vendor’s business. “What is the quality of the people that the outsourcing firm brings to the assignments?” Abrahamson says. “How do they attract talent? How do they train their staff? A facility is only as good as its people.”

It’s imperative to look at how the outsourcer’s personnel will be integrated with the in-house staff. “What is the transition plan?” he says. “The company should also have enough management to handle your account.”

Cooper says that size of the outsourcing operation is another point to consider. To a small vendor, every organization “automatically becomes an important customer.”

As a result, smaller vendors may be willing to customize services. On the other hand, a larger vendor is more likely to have greater resources and the ability to spread overhead across more clients. Larger vendors usually have the ability to offer greater quantities of services because they have more people and equipment.

While the above criteria can serve as the hallmark of a good outsourcing partner, failure in any of those areas can serve as a red flag that requires careful evaluation. For example, watch for companies that turn over staff quickly. That might mean the vendor has internal issues that could affect performance. One way to prevent this is to seek outsourcing partners who provide clear paths of career progression for their own employees.

Another red flag is the promise of substantial savings without a clear plan to achieve those savings.

“You need to look at what’s behind the curtain, so to speak,” Abrahamson says. “Be cautious of a supplier that offers savings, but says, ‘Trust me,’ on how. We believe in trust, but we also believe in getting things in a contract. Ask about the suppliers’ operating practices. These things should be included in the contract as well as the processes that support how they achieve those savings. You must have a disciplined process during the negotiation period. Remember, it’s a business transaction for both parties.”

Be wary of any company that asks for additional fees after the contract is signed, Millest says. It could mean they weren’t specified in the contract, and the services that were expected might not be received. It could also mean the outsource partner can’t provide them within the agreed upon rate.

When selecting a vendor, be sure to understand all costs involved. Approach each negotiation as a fresh start. Every contract is different, and every vendor is different.

“Remember, your vendors are not charitable organizations,” Abrahamson says. “They need to make a profit. But you are paying a fee for a service, and you should receive a value for that fee that will allow you to save money.”

The key in contract shopping is to conduct an apples-for-apples comparison. Each contract should cover similar services and similar levels of those services. The lowest-priced contract might not provide the full scope of tasks that a facility requires.

Facility executives also should have a complete understanding of facility costs to gauge how much an organization can benefit from outsourcing.

“This means not only looking at where you are, but also where you have the potential to get to,” Abrahamson says.

Know the market
Find out what others are paying for the same services. Question whether the quoted price is an artificially low introductory price designed to lure customers or a true cost of the service. If the price is unrealistic, expect a hefty increase.

To make sure the rate is fair, ask whether the fee for services is based on an hourly rate or flat fee. That allows for a comparison to be made between the contract price and the in-house hourly rate for the same services. Other questions to ask include: Do the contracted tasks require a supervisory element? If so, who’s going to supply it? Will the contractor be paid annually, quarterly or monthly? Is there any advantage to paying for the service in advance?

Also consider whether the contract includes supplies or if they must be furnished. It might be more cost-effective for facility executives to purchase supplies rather than pay the vendor’s mark up.

Invoices for unexpected extras are the most common surprises. To avoid such surprises, outline the scope of services expected and get everything in writing. The contract should define how performance is measured, spell out how compensation is rendered, list the steps for making changes, explain how conflicts are resolved and describe the exit strategy. Never sign a contract with a vendor who promises to adjust the document later.

“A lot of work goes into specifying services,” Millest says. “Get everything in writing. A comprehensive contract is very important.”

If the contract is negotiated and written correctly, there should be no hidden costs.

To avoid a surprise, be aware of how much it’s going to cost the in-house staff to manage the contract. Some firms choose to outsource the management of their vendors’ contracts, leaving them with a single contract to manage. Others choose to manage all supplier contracts internally. In either case, retain sufficient internal knowledge to effectively manage those contracts, Abrahamson says.

Benefits and pitfalls
To ensure a successful outsourcing venture, facility executives must appreciate the ups and downs that these relationships bring.

Logically, the benefits should include the opportunity to reduce costs. But that’s not the only benefit. A successful outsourcing relationship should be able to match resources to demands when demands are variable or when they change over time.

“If the service you’re looking to provide deviates or changes or has periods of activity or inactivity, it doesn’t make sense to use staff to fill that role,” Cooper says. “It’s a mistake to staff for peak periods, because you end up overpaying.”

Outsourcing should deliver a greater level of task-related expertise and technology and more accountability than what you could deliver in-house.

“You can gain access to best-in-class skills, in turn freeing up more resources for the core aspects of your business,” Abrahamson says. “We hope the supplier will be in a position to bring new ideas, technology and a new way of thinking to the table.”

Miscommunication is likely the biggest pitfall. To avoid a breakdown in communication, Abrahamson recommends routine performance evaluations, starting with a weekly review at the local level through to a quarterly review at the top level.

The primary reasons outsourcing partnerships fail is because facility executives provide insufficient support or give improper instruction, or because the service provider lacks strategic focus or didn’t understand the culture in which they were operating, Cooper says.

Facility executives should give vendors a single contact through which communication flows. If the vendor is failing to meet expectations, tell them. Likewise, the vendor should be able to indicate whether there are obstacles that keep them from doing their job. Don’t make unreasonable demands on the vendor. The defined scope of services detailed in a contract should be the limiting factor.

“If you don’t tell them, you might as well do the task yourself,” Millest says. “Try to be fair. Reward them when they exceed expectations, either with verbal recognition or financial recognition, but if they fail let them know that, too. Your communication has to be quite clear and quite direct. Nothing is worse than keeping quiet, and then ending the contract when the service provider didn’t know they were doing anything wrong.”

Perception may be reality
Conversely, vendors should be free to implement their expertise as long as they meet expectations.

The perceived loss of control and loyalty are pitfalls many outsourcing customers think they will face. Those most affected by the change are likely to feel the most anxiety. It’s critical to alleviate concerns.

The easiest way to smooth the transition is to seek suppliers who share common values and can adapt to an organization’s culture.

“We reinforce it in the contract,” Abrahamson says. “If this is not adhered to, we’ll change suppliers.”

Culture can be as simple as dress code and how visitors are greeted. Any aspect of culture important enough for vendors to adopt is important enough to put into writing.

“People underestimate what goes into transitioning from an in-house service to one supplied by an outside provider,” Cooper says.

In the best-case scenarios, there should be seamless integration between the organization’s facility staff and the outsourcing staff. Building occupants and other customers should not be able to detect any difference in performance.

“The outsourced staff is merely an extension of the staff you already have,” Cooper says. “They provide the same services, and they look the same so that it should be transparent to people. If they are a true extension of your facilities department, it’s not that important whether they are staff or outsource personnel.”

Some key considerations when deciding what services should be outsourced include how often the service is needed, whether the expertise is available from an outside firm and how much money can be saved by using a contractor. Facility executives agree that an organization’s core competencies aren’t good candidates to be outsourced.

Lynn Proctor Windle is a freelance writer who has written extensively about facility management issues.

E-mail comments and questions.

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