By Bryan A. Jacobs, Managing Director, Jones Lang LaSalle
Many industries have reached an inflection point in the growth cycle, having recovered from the shock of the recession and now poised for growth. In the “new normal” economy, companies are managing growth more carefully than in past recoveries, taking care not to increase cost structures along with revenue.
Sourcing executives are responding to this challenge by adopting broader and more innovative uses of third-party services to purge excess costs without sacrificing performance. Corporate real estate and facility operations offer a rich vein of opportunity for cost realignment through strategic outsourcing.
Many sourcing organizations are actively using third parties to manage real estate services, and more are evaluating options, looking to understand capabilities and trends.
There are two primary reasons for the interest. Real Estate and Facilities Management (RE/FM) yields high-impact efficiencies because it represents not just one or a number, but dozens of line items of interrelated costs. Reducing those costs intelligently is a sophisticated task because it involves managing demand above and beyond just achieving lower unit costs. Proper systems and talent are needed to integrate cost reductions without impairing operational flexibility. When done well, an entirely new layer of consistent savings and best practices emerges.
Secondly, real estate activities dovetail with two other corporate functions that are commonly outsourced: information technology and human resources. Changes in workplace technology, employee recruitment and productivity affect—and are affected by--the physical environment where work takes place. An increasingly connected, mobile workforce needs a different kind of workplace. And this simple fact creates cost and operational performance opportunities that only an advanced strategic approach can fully capture.
Organizations outsource real estate facilities management for a number of strategic reasons:
• Operating cost reduction
• Risk management
• Market-leading expertise to deliver innovations and best practices
• Technology and systems to ensure superior information control, metrics and reporting
Outsourcing enables the internal RE/FM team and its leadership to focus on strategic objectives and relationship management rather than the daily urgencies of tactical, low-value operational management. Moving the focus of corporate real estate management from execution to higher value-added strategic functions is the first step in restaging an organization and is the basis for a graduated value curve by which to assess the four fundamental types of outsourcing models.
• Out-tasking – a baseline model of out-tasking or bundled services allows cost efficiency, but lacks the ability to generate organizational leverage, shift risk or drive innovation.
• Functional outsourcing - removes non-core functions to achieve value without changing business processes. The source organization retains its operational focus and controls, but lacks flexibility.
• Partial integration – boundaries between the source and provider are more porous with technology and talent flow-through. Resources are maximized, risk is mitigated and innovation is enhanced.
• Full integration – delivers the greatest benefits using networked partnerships to sustain value creation through continuous business change and cost re-engineering.
Simply stated, value grows from retaining core attributes (leadership, strategy and planning, customer relationships, and outcome management) and pushing away non-core functionality (administration, project activities and tasks, facility management, specialized skills and tactical management). In a challenging economic environment like the one faced today, focusing on the core strategic functions in an organization is more important than ever.
One common operating model keeps the leadership in-house and close, but empowers a qualified partner to become accountable for operational delivery. After the operations have been shifted to a service provider, there are five key areas for cost savings.
• New labor model – collapses management and right-sizes staffing
• Sourcing and service levels – leveraging multi-market and global service and bundling agreements
• Workflow management – efficient deployment of labor, technology and centralization
• Operations management – adaptive, mobile and certified engineering
• Energy management – reducing energy demand and carbon footprint
Truly innovative sourcing organizations structure complex, integrated RE/FM outsourcing arrangements to manage bundled costs, streamline processes and share accountability, consistently reducing costs while remaining fluid enough to adapt to changes in business conditions.