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Debra Floyd, COO, Outsourcing Center; Bill Biggs, Executive Director, Administrative Services, Group Health Cooperative; Kathy Flynn, Alliance Director, CB Richard Ellis; Lance Wilken, Alliance Director, CB Richard Ellis; George Williams, Regional Director, CB Richard Ellis; Carl Esposti, Principal, Everest Group

Most Flexible: Group Health Cooperative and CB Richard Ellis

Awards Criteria: Both parties consistently demonstrate flexibility in addressing challenges that arise and remain flexible to ensure their interests remain aligned.

Group Health Cooperative, a non-profit healthcare system that coordinates care and coverage from Seattle, Washington, signed a facilities management contract with the Trammell Crow Company in July 1998. (CB Richard Ellis Group, Inc. acquired the Trammell Crow Company in 2007.) “The ability to drive savings” was the sole reason for outsourcing, according to William Biggs, Executive Director, Administrative Services.

When the first renewal approached in 2008, the two decided to pen a new and different contract that included new partnership priorities, including the desire to move toward an incentive bonus and fee-at-risk contract. The old 140-page contract didn’t reflect external market conditions either.

“We understood the old contract did not incent either of us to do the work we needed to do. We had an ‘a- ha’ moment when we realized we needed to fundamentally restructure this relationship for the next phase so we could move forward,” says Biggs.

Group Health asked CB Richard Ellis (CBRE) to come up with a proposal to realign the relationship “that worked well for both of us,” according to Biggs. They did, and the two partners quickly signed their second contract. This contract has KPIs (key performance indicators), which “keep us focused on what is most important.”

CBRE provides a full complement of integrated commercial real estate services to Group Health ranging from transaction and facilities management to human resources and finance and accounting services. It manages 3.3 million square feet of hospital and medical office space. It administers 58 leases. It has a $250 million five-year capital budget and manages over $97 million in operational expenditures.

Concerns at the beginning

Lance Wilken, Alliance Director, CBRE, says it is “uncommon to find an outsourcer offering the depth of facilities management” present in this relationship. He says the in-patient arrangement with Trammell Crow Company was “groundbreaking at the time and is still the case today.” Flexibility in all areas, from contracts to service delivery, is important to create successful, long-term relationships. “It’s especially important when the outsourcing scope is new and untried,” he adds.

Wilken says initially there were “natural concerns about how outsourcing would impact the in-patient experience and level-of-care expectations.”

Biggs says the healthcare system was “nervous about outsourcing” that would replace the staff model it had for 50 years. “There was no similar operating model for us to reference. In addition, we had little experience with outsourced relationships. We agonized over the decision,” he recalls.

But the executives realized their staff model “had its limitations.” The healthcare system couldn’t hire the best staff or keep them once they signed on. “We didn’t have leverage with our suppliers to improve the services we used.” And the buyer wanted to move facilities management from a tactical operation to a strategic one “so we could pull off change management efforts we historically had not been able to do.”

Moreover, Biggs cared about the facilities team with whom he had worked for years. “I was convinced they would be better served as employees of a real estate company than a healthcare company,” he says.

The fact that the service provider “put its fee and reputation at risk” helped mitigate some of the perceived risk, adds the Group Health executive.

Being flexible

Biggs explains this relationship has created “a flexible facilities management model that responds to the resourcing requirements of Group Health as it flexed over time.”

At the outset, CB Richard Ellis had no experience in healthcare, so Group Health specifically stated in the contract it would not take on hazardous waste disposal. But “it became apparent pretty quickly” that that decision worked for neither partner. “They had a contractual agreement to stay away, and yet we needed them to be involved. They saw the problem and rose to the occasion,” recalls Biggs.

He says “CBRE has always been flexible to add on to meet our needs. That is only one example.”

Another example is business continuity planning. “This was another area where we didn’t perceive a need when we did the initial contract,” says Biggs. Three years ago it worked with CBRE to put a program in place including “figuring out how to resource the program management with existing resources.” Price, he adds, “never came up” in these discussions.

When Group Health had the opportunity to move people to Tukwila, a Seattle suburb, it didn’t have room for 1,000 people to park their cars. Together, the two partners came up with an innovative plan to shuttle people to and from work while the new parking garage was under construction.

“A lot of people thought we were crazy. But the CBRE team took on this project. Their goal: to make people miss the shuttle when it went away. And that happened,” says Biggs.

Flexibility actually started early on. Biggs says the original contract reflected inaccurate operational data that did not “truly reflect the nature of the operation.” Once the two groups corrected the information, CBRE targeted areas for savings, which it did by eliminating or redeploying properties that were under utilized.

Why this relationship works

Rick Woods, Executive Vice President and General Counsel of Group Health, says one of the chief factors for success is Biggs’s championship of the relationship from the beginning. “We wouldn’t have had the success we enjoy without his energy and commitment,” continues Woods.

The two partners have developed trust. When the relationship began, Group Health asked the service provider’s employees to sign confidentiality agreements before they shared sensitive news. Today, “we’ve gotten comfortable sharing some pretty detailed information. We just tell them what the sensitivities are. We don’t agonize over that issue,” Biggs says.

This trust allowed Group Health to proceed with new initiatives without setting up service level agreements (SLA) first. “Ten years ago we would have done SLAs and formal agreements before undertaking anything new. But once you trust people to deliver, you just figure out how to get it done rather than wasting effort trying to put an agreement together,” Biggs explains.

There have been occasions when CBRE represented a client in a real estate transaction that could be perceived as a conflict with Group Health’s interests. “When there’s perception of a conflict, somebody raises their hand. Then we just have an honest conversation. We’ve been able to get to an agreement pretty easily,” says Biggs. The two put Chinese walls in place to ensure CBRE concludes its transaction “in a manner we all could feel good about.”

The leaders of both organizations have forged both personal and professional relationships. But so have the people at lower levels. Biggs says CBRE employees help raise funds for hospital foundations. “Their leadership endorses this,” he points out.

Whenever a challenge occurs, Biggs says the Group Health-CBRE team “listens to the feedback and finds opportunities to improve. They take the steps needed to optimize alignment and create the business outcomes desired.” Wilken adds, “There are no villains, just process misalignments.”

Results

The original contract focused on savings. To date Group Health has saved $87 million cumulatively. Biggs says these savings allowed the cooperative to cut fees for members, making it more competitive in today’s price-conscious healthcare environment. Woods says U.S. Senators discussed this operating model as a solution during this year’s healthcare reform debate. Group Health serves more than 600,000 residents of Washington State and Idaho.

One of the sources of the savings was administrative space consolidation. CBRE analyzed how much money Group Health could save if it could move people “out of choice office space in downtown Seattle overlooking Puget Sound and move to an industrial zone in Tukwila. “The numbers were compelling, but the change management was difficult,” Biggs says.

CBRE introduced workforce planning to Group Health; this was a novel idea for the 60-year old healthcare group. “Their plan is very different” from Group Health’s historical operating procedures. They had us look at what we do, where we do it, and how we do it. Are we working in the most effective way? Could we outsource that work?” he explains.

Biggs says CBRE helped his team understand “why this is important. We see the world a lot differently now.” Group Health is currently working on “supporting this effort so we can enhance the quality of our real estate plans.”

This outsourcing relationship has made Group Health more competitive in its market, in Biggs’s view. Before outsourcing he says there were “huge variations” in its buildings. Now, the 50 locations are taking on similar characteristics. “We’re enhancing our brand,” he explains.

Biggs reports customer service has improved. “Before, we would accept excuses from services departments. Now we don’t have to. And they don’t make any excuses. Our users feel like valued customers whose needs are heard and met,” he says.

“We are exposed to some really sharp real estate minds,” he adds. “CBRE opened our eyes to opportunities we didn’t know existed and we were able to take advantage of them.”

One of the reasons for outsourcing was consolidation of services. Both the hospital and corporate had their own facilities departments. In addition, the 50 local clinics also did their own work. “We used outsourcing to bring it all together,” explains Biggs. The only bump in the transition “was some people who had their authority taken away got pretty excited. That was an interesting wave to ride for a while,” he recalls.

The biggest challenge going forward was doing something differently; the average tenure of this group was 12 years. Biggs says his staff and the CB Richard Ellis team leaders sat within 30 feet of each other to “exchange information on what someone wanted help with. Working together, we helped the staff through this.”

Summing up, Wilken says “No one else has this type of outsourcing contract with a healthcare provider. This relationship has the potential to benefit other healthcare organizations at a time when healthcare is under increased pressure to control costs and deliver true reform.”

Lessons from the Outsourcing Journal:

• Flexibility in all areas, from contracts to service delivery, is important to create successful, long-term relationships. It’s especially important when the outsourcing scope is new and untried.
• Flexibility and trust allow partners to make changes to the relationship without having to look at the contract. In some cases, flexibility means the service provider will take on work specifically included in the contract once it’s clear that is not the best tactic for the relationship.

After the 9/11 attacks and the subsequent anthrax scare, Océ Business Services Inc. noticed packages containing a non-descript white powder arriving in the mailrooms at Verizon Wireless. The service provider, which handles mail, shipping and receiving, and provides facilities management for the wireless company’s operations, immediately notified its executives. It turned out the white powder was a mass mailing for a new aspirin.

Hurricane Katrina brought the Verizon mailrooms to a standstill, freezing “millions in assets inside mail envelopes and packages.” Océ secured the mailrooms to protect the assets as well as Verizon’s high-value documents and inventory. “Océ stepped up to the plate,” recalls Terence Phalon, senior processing leader for Verizon. Océ quickly moved the mail off site and re-routed FedEx, USPS, and UPS deliveries.

The service provider, a documents processing outsourcer, is there for emergencies. But it takes care of the daily details, too. Its improved document processes and performance management systems generated savings of $1.5 million over four years rather than the projected $300,000 ? exceeding expectations by 500 percent.

Here is their story.

The original business challenge

The cellular company was not new to outsourcing. But it was not happy with the incumbent supplier that had been there six years. Service levels had fallen “drastically” and in some cases “had become a liability,” Phalon recalls. So its first requirement was to find an outsourcing partner “that could make significant improvements in the service standards.” These improvements included implementing more efficient workflow techniques through applied technology.

At the same time, the economy was inducing Verizon to drive down costs. It wanted to reduce staff, postage, and overnight courier costs.

Supplier selection

Océ provided everything Verizon wanted. First, it specialized in managing one- and two-person sites. “This was a crucial component in our go-to-market model,” explains Phalon. Verizon discovered Océ “offered a higher level of flexibility” than the other suppliers it considered. Phalon liked the Océ MAX Business Performance Management system, which allowed Verizon “to measure on our terms and see how they delivered expected value.” Océ also understood Verizon’s business, an important criterion.

The cultural fit was a good match. Both companies were growing. Both have an entrepreneurial bent. And the size was a match. “We needed a company large enough to provide services across a wide geography with the ability to set up new operations on short notice because of our growth,” says Phalon. Verizon’s new service provider had to have national reach with identical processes and the ability to turn on a dime.

Verizon knew it made the correct selection when Océ began the relationship “by putting skin in the game: guaranteeing a three percent annual savings,” notes Phalon. The guarantee insured the supplier had an ongoing financial reason “to find more effective ways to operate.”

Transition

The partners signed the contract in July 2004. The busy season started in October. “We required Océ to be up and running in 30 days,” says Phalon. Of course, Verizon insisted Océ “keep the service levels up” during the transition.

As if that assignment weren’t tough enough, knowledge transfer appeared to become a challenge since the former supplier was going to lay off or take many of the key employees who served and knew Verizon. But Océ was not about to let brain-drain happen. The supplier agreed to interview all the employees and bring some on board. “This was a win-win for both of us,” says Phalon.

To make sure the transition went smoothly, Phalon formed a team from Verizon and Océ that traveled to each geographic area to meet Verizon’s local regional facility directors. They explained the new processes and how they planned to implement them. That’s when Océ deployed its transition process and began the assimilation process, which included interviews, background checks, testing, etc.

Ted Ardelean, director of marketing for Océ, says the reason for the transition’s smooth success was “our detailed planning and careful implementation.” That included documented procedures and comprehensive training. The result: “a seamless transition of 33 sites in 30 days that did not interrupt the business.”

Even with all this planning, Phalon reports cultural change “was a big challenge.” He says it was difficult telling Verizon employees “we’re removing the people they had gotten to know.”

Governance

Phalon says “strong” corporate governance practices “insure Océ and Verizon work together toward mutual goals with no surprises.” Each of the four Verizon regions has quarterly management reviews. Océ’s national enterprise operations manager is involved in the review.

The Verizon executive says the contract’s “clearly stated metrics allow both companies to measure and manage our goals and obligations. Both partners synchronize using an action-item log with a set timeline for completion. The process keeps both organizations in tight lock-step that ensures the supplier hits SLAs and meets or exceeds goals.

Benefits

Cost savings were “significant, exceeding all expectations by saving over $1.5 million over four years rather than the projected $300,000,” reports Phalon. He points out Océ also “dramatically improved the overall service levels” while achieving these cost savings.

Océ was able to save money by improving processes. For example, it reduced shipping costs by changing overnight procedures to control use of courier accounts.

Océ consolidated Verizon’s billing processes. It also provided employee drug and background checks, something Verizon wasn’t getting pre-Océ. Outsourcing also provided “a deep bench to cover for individuals who called in sick.”

Phalon says this outsourcing relationship has provided intangible benefits, too. “Océ puts a high premium on training, professionalism, safety, and business ethics. Their values have rubbed off on our people,” says Phalon. He says Océ’s employees “communicate their knowledge” on topics ranging from office safety to cultural sensitivity. “They share their best practices, which makes Verizon staff more efficient and better all-around employees. Océ brings benefits we could never have anticipated in a contract,” the Verizon executive says.

Why this relationship works

The partners created mutually beneficial guidelines about the staff, which they believe “are the cornerstone of our success,” says Phalon. For example, rewarding exceptional employees is important to Phalon. “Providing incentives helps the Océ employees become part of the Verizon family,” he explains.

Phalon appreciates the fact that Océ’s staff “became our eyes and ears.” Because Océ’s employees deliver mail throughout each site, they are often first to recognize hazardous materials and security issues. He says “from the beginning, they have had Verizon’s best interests in mind.”

Océ also has a stable staff. He says normal industry turnover “is approximately 35 percent.” But Verizon’s turnover has been “minimal.”

Carlos Gamboa, enterprise operations manager for the supplier, says “Verizon’s issues are our concern. We are eager to collaborate on new solutions and champion initiatives that conquer obstacles. As partners, we shared the same business goals from day one.” He says his job “is to anticipate and plan for Verizon’s needs ahead of time.”

From the beginning, Phalon says Océ’s strategy “was to form a long-term relationship of trust.” Gamboa says trust “is the single value that drives mutual results.” The OcÈ executive adds this trusting relationship allows Verizon to openly critique Océ. “That has pushed our performance,” he reports.

Going the extra mile

A year ago, Verizon’s IT department determined the company needed a more secure ID system for dialing in from remote offices or the field. The department wanted all employees to use a secure roaming device. Océ had to quickly deploy these devices to 100,000 geographically dispersed employees with 100 percent accountability. Océ worked with Verizon’s IT department, set up the process, and got the job done in 60 days.

Océ also proposed that the partners create a procedures manual for Verizon support operations. The new manual details the responsibilities and procedures for each employee. “The manual’s benefits are enormous,” according to Phalon. It has become so important Verizon updates it annually.

The manual also outlines the procedures for disaster readiness and preparedness. “We didn’t have a good plan about what to do when a hurricane comes,” says Phalon. After the partners recovered from Hurricane Katrina, they implemented emergency processes for blizzards, tornadoes, and earthquakes as well as bomb scares and terrorist attacks. “Verizon is susceptible to threats. The first point of contact would be the mailroom,” says Phalon. He says Océ put all the processes in place that Verizon now uses nationally.

Phalon says when a natural disaster strikes, Océ “has repeatedly gone above and beyond expectation to insure the safety of Verizon employees.” Océ organized back-up sites and implemented relocation plans. “This allowed us to continue our workflow uninterrupted during a trying period,” says Phalon.

But Océ hears the call even when there is no disaster. Phalon says Océ repeatedly has opened new call centers “within a short period of time.”

Concluding, Phalon says, “We are happy to finally have a service provider that continually looks for ways to provide better services and reduce our overall costs. They’ve become more than a vendor. They’ve become our partner. This is why Verizon nominated Océ for the Verizon Supplier of Excellence Award chosen from thousands of Verizon suppliers.”

Lessons from the Outsourcing Journal:

• A relationship built on trust allows the buyer to feel free to critique the performance of the supplier
• Allowing the buyer to increase the salary of a supplier’s employee who is doing exceptional work can also increase overall performance.
• Large, national organizations need a supplier that can respond more quickly to market changes as well as crises like natural disasters or terrorist attacks.

Transitions are challenging for most nascent outsourcing relationships. But how do you survive a global transition where geo complexities and cultures are part of the process of transition?

CA and Jones Lang LaSalle (JLL) survived this challenge, forging a profitable and valuable outsourcing relationship in the crucible of tough change. Here is the story of how to build a partnership.

In 2005 CA had 138 locations worldwide housing 14,500 employees. Managing its five million square feet became a challenge since each property manager ran his facility his way. The company created a centralized global facilities organization in 2005 to standardize operations.

An internal survey a year later discovered “little emphasis on strategy and no emphasis on performance measurement or financial planning,” according to Ken Bell, senior vice president, global administrative services. Even worse, he says the staff’s “primary focus was on day-to-day operations instead of strategic direction.”

The bottom line: the best opportunity to create process efficiency was to outsource. “We liked the cost savings outsourcing produced. We also needed scalability as our business needs change. We wanted consistent reporting capabilities, more granular and better financial accountability, and value-added expertise in other areas such as energy management and sustainability,” he reports.

How Jones Lange LaSalle won the work

Geoffrey Gatling, vice president, Global Administrative Services for CA, worked in the procurement department at the time. He says CA invited seven facilities management outsourcing companies to bid on its RFP. “But only three were viable,” he says.

No. 1 on its list for supplier selection: a provider with a global delivery model. Technology and competitive pricing were next on the list. “Jones Lang LaSalle wasn’t the largest firm, but it was the most competitive when you considered all aspects of what CA was looking for in a service provider,” says Gatling.

“We liked JLL’s ability to scale,” adds Bell. In today’s economy there are acquisitions and divestitures. “We needed to allow for that ebb and flow in our real estate properties,” he continues.

Gatling notes CA was impressed with JLL’s implementation approach. “It was much more defined than the other contenders,” he reports. JLL has a dedicated 10-peson team that focuses on implementations. “We then expanded the core team with our account people and the CA transition team,” explains Don Dowden, JLL’s global client relationship manager for CA.

But a real defining moment was the fact that JLL brought to the table its actual implementation team as well as the proposed global account lead. “We gained insight into who we would be working with. We appreciated the opportunity to have the people that would actually be executing the program answer our questions. We were looking for a group to partner with and one that would also be able work together as a team with us,” says Bell.

Bell was impressed that the JLL team honestly told them what their strengths and weaknesses were. “They shared what they were struggling with. This was the beginning of an honest and open relationship.”

Europe: the transition challenge

EU employment laws make the transition to outsourcing challenging under the best of circumstances. CA had to have agreements with each country to comply with local laws.

CA and JLL faced a difficult challenge because facilities management outsourcing was new to Europe and not as mature there as it was in Asia and North America. “Outsourcing was challenging for the stakeholders to reconcile the long-term value when the short term did not show the value as in other geographies,” Dowden explains. He says JLL had to demonstrate outsourcing’s value to the skeptical. “We brought in technology and best practices and started the process of consolidating third-party providers to leverage spend.”

Fortunately the spirit of partnership prevailed. “We learned to manage expectations in Europe,” says Gatling. When communication miscues arose, JLL acted quickly to replace an out-of-step account executive and relocate the global procurement position from the United States to Europe.

The benefits of a supplier transition team

Everywhere else on the globe, Gatling says “the transition process went better than we expected. I have only seen a few outsourcing implementations that went as well as this.”

Bell reports there was continuity across all geographies on the approach. CA linked the JLL HR specialist with CA’s HR people. Together the teams established a communications program that identified when they communicated to the people who were impacted, the organization as a whole, and the executive leadership team.

“We identified the projects and linked the people on both sides to work through it. They reported on a weekly basis, discussing the challenges they had or barriers they faced at CA to get things done to stay on track,” he says.

The ease of this transition was remarkable given that CA was in the midst of its budgeting process at the same time. “Transitioning all the elements of the outsourced services required a substantial amount of work, which reduced the number of hours available to work on the budget,” explains Bell.

CA asked JLL to provide some budget information for the current fiscal year while planning for the coming year. “We partnered to understand the issues surrounding budget preparation and worked collaboratively to set priorities, make compromises, and establish reasonable deadlines,” reports Bell.

Outsourcing’s benefits

In today’s economy every penny counts. CA restructured more than 30 offices worldwide in just 90 days. “We couldn’t have done this if we hadn’t partnered with a facilities management company,” Gatling says. “JLL responded at a moment’s notice.” This was important to CA because those savings found their way to the bottom line when the company reported its year-end results.

Technology is just as important as scalability. JLL’s financial and work order systems provide much more granularity than CA previously had. “We now have the financial and operational visibility we need to better manage our facilities,” says Gatling. “In addition, all work orders and service tickets are now visible on one system worldwide.”

CA appreciates JLL’s expertise in category management. “They have subject matter experts on sustainability and data center infrastructure,” notes Gatling. Specifically, Dowden says JLL is helping CA implement green initiatives. For example, there is a software application that allows users to identify applicable strategies from a comprehensive list of sustainability initiatives. JLL also has a centralized call center in Pittsburgh. “This was something CA couldn’t afford to do before,” says Dowden.

Of course, CA likes the cost savings. “Now we need far fewer people to manage our facilities and finances more tightly,” he reports. Dowden says this is a key pillar in the relationship’s success. “Keeping a large number of in-house employees in place is a big mistake because it makes the operation inefficient. CA structured its retained organization properly from the beginning.”

Why this outsourcing relationship works

JLL puts CA’s interests first. CA originally wanted “unit pricing” for move/add/change (MAC) work. Dowden evaluated JLL’s original proposal and determined that this model would cause CA to overpay for the service. “I suggested we use a new model,” says Dowden. Under the old plan, unit prices kicked in every time CA did an internal move. Dowden’s new model used hourly labor rates for MAC labor and leveraged other dedicated account labor who weren’t assigned to the MAC function; JLL then could do it for no incremental cost.

“Their suggestions took out a substantial amount of cost. We appreciated their openness to come to us with a recommendation to improve our costs,” says Bell.

JLL recommendations saved CA a considerable amount of money. “We have to make a profit but only if it’s fair,” says the JLL executive. He says JLL makes decisions based on the long-term effect on the relationship. “We want to manage CA’s facilities in perpetuity,” he says.

“We feel comfortable having a totally transparent partnership. I routinely bring issues to them before they even know they exist,” Dowden says. Adds Bob Paul, vice president, Global Facilities at CA, “This fiscal year CA and JLL leaders jointly created a business plan that provides a road map for annual improvement.”

He praises CA’s approach to the relationship. “From day one they had a spirit of partnership. We don’t see that in every relationship.” He says some buyers don’t want to take advantage of what a supplier can offer. “CA is open to evaluate everything JLL has to offer,” he says.

Gatling says JLL “does what it says it will.” And the firm’s executives take responsibility when things go wrong. One example occurred when a JLL subcontractor performed in a manner that put a CA critical environment at unnecessary exposure and risk. “We were impressed that JLL took total responsibility for the error. There was no finger-pointing, just timely and expert resolution.” Bell says “the focus has been on the solution to the problems, not the problems. Blame does not enter the discussions.”

The teams are co-located; Dowden says visitors “can’t tell who works for JLL and who works for CA.”

Lessons from the Outsourcing Journal:

• Suppliers can gain an edge in the bid process by including the implementation team and the proposed account lead in the negotiations. It allows the buyers to get to know and feel comfortable with the people they will be working with.
• Outsourcing helps companies survive tough times by allowing them to respond to economic conditions quickly.
• Keep the retained organization small.
• Buyers benefit when they take advantage of the knowledge suppliers offer. This is particularly true in new areas like green technology.
• Focus on the solution to the problem, not the problem, and don’t let blame enter the discussion.

“Until a few years ago, energy prices were relatively stable,” says J. Christopher Perdue, Senior Director of Market Research for UtiliPoint. “But now it’s a volatile market producing increases of a third to a half in a short time, primarily due to higher fuel costs.”

“Our expertise in this field–both electricity and gas–had pretty much outstripped our limited ability to manage this changing energy market,” says James Hall, Baxter’s Senior Director of Facilities.

Fortunately, Baxter had the solution close at hand: its longtime Facilities Management (FM) provider, CB Richard Ellis (CBRE) along with its provider-partner, Constellation Energy. Hall says its “long, successful track record” with the Trammell Crow Company, which CBRE purchased in 2006, made it logical “to take this problem to them first.”

That was a wise move for this firm that owns 22 buildings, totaling 7,200,000 square feet in eight states. Over the life of the three-year energy management partnership with CBRE, Baxter realized its goals of mitigating risk, leveraging provider expertise/efficiencies, and keeping true to its business core as a healthcare provider. But also, Baxter’s overall savings on total energy rates (both actual and avoidance of higher open-market-rates) reduced payroll costs, and the elimination of other related expenses has been about $10 million over this now three-year engagement.

Longtime Outsourcing Partnership Leads to a “V-8 Moment”

No one within Baxter was following energy procurement when management handed the job to Hall. And he quickly realized that this volatile environment was, in his words, “a classic ‘the more you learn, the less you know’ experience.”

Hall says, when the issue got too intricate, he discussed the situation with Doug Bushing, CB Richard Ellis’ Global Director of Sustainability and Energy Service. The two decided to fashion an outsourcing plan with their FM provider with Bushing introducing Baxter International to Constellation, he says. “I stepped back and let them build this energy management program and trusted their plan based on our history with (Crow)/CBRE. It’s worked as well as can be expected.”

Brad Christensen, Senior Director, I2I Product Development for Constellation New Energy, says outsourcing is a good idea because there’s lack of transparency in energy markets because they are an over-the-counter market. He says the CBRE/Constellation shared-services package essentially creates a new market with better transparency. “This gives them an understanding of market movements and appreciation of why things are different.” The shared-services package includes rate structures and other factors that affect them, such as conservation and other “green building” issues.

“Outsourcing to energy management program providers allows building owners to transfer some ‘rate risk’ to a third party,” adds Perdue. “This enables them to focus on their core. The cash they save is at times not as important to the buyer as the ability to focus on core and mitigate risk.”

“Energy is a top priority across our portfolio,” notes CBRE’s Bushing. “And the need for an outsourced management process is apparent. Our clients expect us to provide a workable management plan, which brings value, for this changing marketplace rather than short-term benefits at the expense of better long-term outcomes.”

Multiple Benefits…Even if You Have to Look For Them

Baxter’s Hall agrees with Perdue about the need to focus on core issues. “We’ve been outsourcing non-core tasks and services to providers for almost eight years and the greatest driver is keeping to our stated business path–medicine–and generally mitigating risk.

Of course, the healthcare provider appreciates the savings. “If you add all the numbers from a lot of different line items, we’ve probably saved $10 million over the three-year life of this engagement when you factor in the transfer of 65 employees to CBRE, the money we saved on rates directly, and the money we didn’t over-spend had we still been subject to open market rates.”

But, he adds, that’s just the dividend. “What we value most is having a competent partner–partners actually–who are looking out for our best interests in an industry we know too little about. This allows us to continue focusing on being the best healthcare provider we can be.”

Constellation’s Christensen further explains his role in this successful triad. He notes that Baxter’s general cost-avoidance factor (in rates and management of both electricity and gas) is currently running in the 10-20-percent range of the open market prices for both these commodities at any given time. CBRE’s Bushing puts it closer to 15 percent, but adds there other factors having less to do with the actual energy provided that produce his figure.

Relationship Success

Hall says the two partners have had a team approach from the beginning of their relationship, well before this engagement. “And a lot of that comes from our long period of success first with Crow, and now its new parent CB Richard Ellis.”

Hall further notes that since Crow and Baxter were pioneers in FM outsourcing dating back to 1991, they had to learn this “brave new outsourcing world” together. “We reached a point somewhere in that third year where we both agreed that successful outsourcing is based on interdependency at both the strategic and tactical levels. Good outsourcing relationships display intimate interaction at many levels between both provider and buyer.”

“History is its own benchmark,” concludes Perdue. “When a trusted provider offers expanded service solutions to new problems, the shared culture between outsourcing buyer and provider can lead to deeper and more productive relationships, especially when they work, right?”

Lessons From the Outsourcing Journal:

• Outsourcing an energy-management program offers benefits of both mitigated risk and relief for enterprises to focus on their core in addition to nominal-to-generous savings over open-market rates that govern energy commodities.
• Experienced Facility Management outsourcing providers are aligning with equally adept energy providers to offer shared-service expertise in both the energy market arena and the efficient development of a long-term, responsive energy-management plan.
• All successful outsourcing relationships, regardless of the services involved are interdependent at both the strategic and tactical levels, requiring intimate interaction at many levels between provider and buyer.

“Just imagine doing something one way for 38 years!” Brown says. “Left unchanged, people tend to get locked into doing something a certain way; and they think that’s the only way that things can be done. But we are living in a complex world that is changing. To move ahead, we really needed to look at the whole process; and that’s what we did.”

All of Oregon’s public school districts were in an unstable fiscal situation at the time because of several years of budget shortfalls in state revenues, and PPSD is Oregon’s largest district. Brown says they determined that PPSD could achieve cost reductions by changing business processes; in doing so, they could alleviate the impact of the shortfalls. PPSD’s Request for Proposal for custodial services stated the school district wanted to make a big change and was seeking a provider to help in that effort.

Seeing the Ability, not the Disability

PPSD’s board awarded the outsourcing contract to Portland Habilitation Center, Inc. (PHC), the largest unionized not-for-profit organization in the United States. PHC performs outsourced custodial, landscaping, clerical, and light manufacturing work in several northwestern states. It is distinguished not only by a wide reputation for excellent work but also by the fact that 75 percent of its employees have disabilities. Some have vision and hearing impairments, others have medical conditions requiring accommodation, and some are developmentally disabled.

Although the state of Oregon gives preference to qualified rehabilitation firms for some work, this was not the only reason for choosing two finalist providers whose workforces were comprised primarily of employees with disabilities. “You want to model the behavior that you want in the world,” says Brown. “We wanted students to see people working in the world in all different situations. And we wanted our community to see this, too.”

In addition, PPSD could not ignore PHC’s proposal touting an estimated $10 million in operational cost reductions over the first two years of the contract while increasing the scope, frequency, and quality of cleaning. The work was transitioned to PHC on August 23 — leaving very little time to train 300 custodians and do the normal heavy summer cleaning work before schools opened the first week of September. Brown credits the collaboration between PHC and the district’s transition team (including the procurement officer, all the school principals, and others) for successfully achieving the required outcomes

“PHC had ideas about better ways to do the cleaning,” she recalls. “In the old contracting situation, one custodian would do the heavy cleaning and the strip/wax floor work in an assigned school all summer. With the outsourcing situation, the work is done in teams; and 15 people can clean a building from top to bottom in a week.” Besides the teamwork, PHC changed the timing of the heavy cleaning. Its crews do the strip/wax floor work at night during the school year, rather than waiting until summer to do it.

According to Brown, the previous contracting situation had shifted to cleaning PPSD’s schools only every other day in order to reduce costs for the district. With the savings generated by the outsourcing provider’s expertise, it became affordable to clean Portland’s schools every day.

Again contrasting the old ways to the new ways, the district had only two supervisors for 318 custodians under the contracting situation. PHC not only has more supervisors but also has quality assurance people who are responsible for the level of cleanliness in the schools. PHC also won a separate contract to clean the mop heads and rags; in addition, its crews are responsible for separating organic items in the district’s recycling program.

Learning to Stretch

Even with the $11 million savings achieved over the first two years and the quality of cleaning improved, both PHC and PPSD admit their first year of transitioning to outsourcing was tough and required significant change management techniques.

PHC’s custodians faced a completely different type of working environment when they began cleaning PPSD’s schools. For the most part, their background was in cleaning almost-deserted federal buildings on swing or graveyard shifts. On day-shift work in PPSD’s schools, there were children and adults everywhere. PHC’s crews had to learn to relate to children and how to recognize whether the people in a school building were supposed to be there. A significant challenge was learning how to respond to multiple urgent matters at the behest of various teachers, students, and administrative staff, rather than just one PHC supervisor. There was a constant barrage of walkie-talkie emergency calls. “And remember — kids get sick, and there are special disinfecting processes in a school environment,” reminds Brown.

As she explains, the PHC custodians faced other learning curves. “PTAs, music groups, and other community groups use our buildings after school. Every day there may be a different group of people using a building. PHC crews have to set up and dismantle equipment for those activities.” At the schools lacking cafeterias, the PHC crews also do lunchroom duty, setting up and dismantling tables in multi-purpose rooms. Custodians also must monitor boilers, perform emergency lock-downs in some schools, and are responsible for opening and securing entire buildings.

Flexibility was suddenly the skill set most in demand. PHC’s Public Affairs Director, Anne O’Malley, recalls the crews were “at first intimidated and confused by multiple draws on their time, the inability to maintain a routine, and the staggering new array of duties, responsibilities, and cultural knowledge added to the standard custodial skill set previously required.”

It took most of the first school year for the cleaning teams to adjust to the new environment. The school district, in cooperation with PHC, designated two of its schools as training areas. Training includes special security classes and cultural sensitivity sessions. PHC still sends new hires through this important training before they join the workforce assigned to PPSD schools.

Show-and-Tell Days

Their collaborative efforts paid off. “After the first year, it was huge, like the Titanic!” Brown states. “Today, many of the district’s principals and teachers say the schools have never been cleaner and the floors never shinier.” The PHC custodians now regularly win awards and commendations from the student body, the staff, and the teachers. The two Portland organizations are a team.

PHC crews even go to the schools on “Community Care Day” each August, when people voluntarily help the district with lawn mowing, tree trimming, and painting. PHC’s participation is not contractually required. Nevertheless, Brown says PHC always participates, giving the district “hundreds of volunteer hours” not only from the custodians who work in the schools but also from other employees throughout PHC.

Their outsourcing relationship is an excellent example of implementing effective business solutions within public agencies. According to Brown, “It’s a miracle, really. The board’s decision to outsource was a concrete decision to put our money into our core functions — the education of children. This relationship has been one of the bigger accomplishments ever for our district and for PHC.”

Lessons from the Outsourcing Journal:

• In highly successful outsourcing relationships, both parties consider each other’s interests and collaboratively work to further the value of their relationship.
• No matter who the parties or the process outsourced, the first year of transition to outsourcing is often problematic. Effective change management plans must be in place in order to successfully navigate the potential relationship pitfalls during this crucial phase of outsourcing.
• Freeing cash flow by outsourcing non-core business processes is an excellent source of capital to invest in core activities.
• Outsourcing can be an effective solution for dealing with government budget shortfalls.

Most buyers today recognize that outsourcing is a strategic solution and ensure their arrangement is designed to create continued value over the life of the contract. But what about those who signed long-term contracts more than a decade ago? While some put their work out for re-bid in a competitive marketplace at the end of the contractual term, others are happy with their provider and just need some contractual tweaking to make it more effective in today’s environment.

“From the standpoint of ROI, if you have made the decision to outsource, it becomes incumbent on you to manage that process the best that you possibly can over time in order to make it better and more cost-effective,” says Tom Luszczak, director, Asset Management at Travelers, the Hartford, Connecticut-based property and casualty insurance company.

In the Beginning

When Travelers outsourced its facilities management, property management, and project and construction management processes to commercial real estate provider Trammell Crow Company (TCC) in 1991, cost was the number one concern. In addition to process expertise and resources for continuity of business, Travelers wanted to reduce costs and also move to a fixed-cost structure.

“Outsourcing was just starting to be an in-vogue concept back then,” recalls Luszczak, so their contract was standard for those early days and not focused on value creation.

Travelers houses its operations in both leased and owned facilities around the U.S. Since it deals with third-party management firms in many buildings where it’s the anchor tenant, but also deals with its own tenants (through services provided by TCC), Travelers has continual hands-on benchmarking of real estate/facilities management services and TCC’s competitors across the country. “Good service is more than looking for dust bunnies in the corners of the garages,” states Traveler’s director. Treating real estate tenants well should be simple, he believes; that’s what Dallas, Texas-headquartered TCC does for tenants in Travelers’ buildings. But Travelers finds the opposite to be true; often, service providers are inflexible and don’t place high value on the tenant relationship itself.

This serves as validation for the success of Travelers’ outsourcing relationship with TCC, which manages Travelers’ 12 buildings in Hartford as well as 350 field locations. Nevertheless, cost scenarios changed over the ensuing decade, and Travelers knew its outsourcing arrangement could be made more cost-effective.

Contractual Face Lift

Fast forward to 2002 and a new seven-year contract that includes incentive pricing components. The gainsharing strategy encourages the provider’s value engineering on capital projects (bidding the whole project out before letting a contract) and ensuring the ability to self-perform, rather than subcontracting out to a third party for peak or infrequent requirements. “If the self-perform requires them to add more staff,” explains Luszczak, “that is still more cost-effective for us than some labor costs that can be three or four times higher than the labor costs of a 40-hour TCC employee.”

The new win-win pricing plan aligns their interests. As TCC performs services under the new strategy, Travelers reaps the benefit of lower costs, and TCC receives 50 percent of the initial savings plus five percent going forward.

The Provider’s Trump Card

Both parties approach their relationship with “a give-and-take attitude” to ensure success. Besides incentive pricing, they’ve made another significant change to their outsourcing arrangement over time. The innovative provider suggested that the “specialists,” such as electricians, plumbers, and carpenters on the facilities management staff (many of whom are former Travelers employees) become “generalists.”

The strategy to make people become more multi-faceted was designed to handle the peaks and valleys in staffing needs. Admitting initial reluctance to the plan, Luszczak recalls that Travelers was, for instance, “apprehensive about having a third-generation master electrician installing carpet tiles.” In hindsight, the plan benefited employees with enhanced skills as much as it benefited Travelers and TCC. “We’ve seen the growth in these folks, and this was a good change,” he says.

With pressure to keep expenses down to satisfy tenant needs, the corporate real estate world is a tough business. “The minute you resolve one thing, you have 20 other things right behind it,” explains Travelers’ director. “Yet, there’s really nothing new in this business. And once you’ve done it for 20-50 years, you’ve probably encountered all the situations you’ll face. So, as the business matures, you’re not going to be able to produce big wins, cost-wise.

“That’s why the key to success in providing services is to know best practices and how they’re changing, he states. “That’s the value-add piece that an outsourcer like TCC brings to a mature process.” It’s subtle, but key. What you need to do from a plant standpoint or from a utilities standpoint makes the difference, he believes; and it’s not the core expertise of an insurance company. “So we outsourced to put a process in place that allows us to do our jobs well; and benchmarking shows we’re consistently doing it better than our competitors in Hartford,” claims Luszczak.

Perhaps the best acknowledgment of the effectiveness of this new contract in a longstanding outsourcing arrangement comes from Travelers’ new parent company, Citigroup. Assessing the different models for services performed at each of the companies comprising Citigroup in order to determine a single approach to adopt for the global business, Citigroup selected the Travelers / Trammell Crow outsourcing model as the ideal approach.

Lessons from the Outsourcing Journal:

• Outsourcing is a strategic solution, and buyers should ensure it is designed to create continued value over the life of the contract.
• From the standpoint of ROI, it is incumbent on the buyer to manage the outsourcing relationship over time.
• Tweaking the outsourcing arrangement, where necessary, to produce more value as the environment and needs change is a more effective strategy and less costly than putting the contract out for a competitive re-bid.
• Incentive pricing to motivate a facilities management provider to self-perform and provide value engineering will align the provider’s interests with the buyer’s objective of lowering costs.

Jim Safran, Vice President Operations, Beaumont Services Company, L.L.C.; Pat Stoller, President & CEO, Beaumont Services Company, L.L.C.; Peter Bendor-Samuel, CEO, Everest Group and Outsourcing Center

Outsourcing Excellence Award – Most Visionary – Beaumont Hospitals and Beaumont Services Company, LLC

William Beaumont Hospital is a two-hospital teaching system, with both facilities located in Detroit. Unlike some U.S. hospitals, Beaumont doesn’t dread the Joint Commission (JCAHO) inspectors’ visits. “JCAHO now considers us to be the gold standard in hospital facilities management,” says Tom Brisse, associate hospital director.

Harmonizing

Beaumont’s best-in-class facilities are the result of discussions that began in 1995, as the organization’s leadership acknowledged concerns of its facilities management (FM) staff, claiming there were opportunities to improve performance that could only be realized under a different management structure. Hospital administrators’ time and budgets were rightfully focused on patient care issues. Over time, real synergy grew around their discussions as the healthcare industry compiled successful instances of hospital outsourcing.

When ReSourcing Services Company, LLC (RSC), a holding company that forms standalone outsourcing organizations for facilities management services, brought its model to Beaumont, the problem was solved.

RSC’s expertise and model enabled Beaumont to spin off its FM staff in 1997, marrying them in a joint venture with Jacobs Engineering, Inc. and PriceWaterhouseCoopers, LLC., to provide facilities maintenance, design and construction, and biomedical equipment services.

“As soon as we gave them the attention and resources they deserved,” recalls Brisse, “the whole thing spiraled upward into opportunities.” Structures and systems designed to deliver healthcare are not usually optimal for delivering facilities services; removing these constraints unleashed new potential to improve efficiency.

With implementation of re-engineered work processes and the application of new technologies, the spun-off joint venture became the world-class service provider company now known as Beaumont Services Company, LLC (BSC). Both Beaumont and BSC agree there’s a “healthy pressure” between a customer and an outsourcer, as opposed to the customer and its employees, which keeps BSC on its toes and disciplined in its operations.

At the outset, it was still the same people doing the same work they had been doing as hospital employees. Additional business disciplines, workflow ideas and new approaches were introduced over time. Then they began fine-tuning their services, ratcheting down on costs and driving innovation. The outsourcing strategy proved its effectiveness; both services and costs for the hospital continue to improve.

Fine-tuning

When Beaumont set out to increase its patient satisfaction to an A+ level, the hospital director challenged the BSC folks to join in that effort. In the spirit of partnership, BSC staffers committed to model the leadership activity of “rounding” – the hospital’s terminology for its leaders spending an hour a day visiting with an employee, a physician or a patient.

BSC’s staff might, for instance, do a walk-through of a nursing unit, asking if the nurses are aware of anything unsightly from an aesthetics standpoint, anything that needs to be discarded or equipment that needs to be repaired. Brisse says BSC even found a way to work the rounding into its normal routine so that it wouldn’t have to charge the hospital for that service.

BSC’s rounding then turned into an innovative “4-work” line. Now, when a Beaumont employee sees anything in the hospital that needs cleaning or repair, they dial 4-work on any hospital phone and report the issue. Hospital staffers liked the 4-work idea so well, it’s now also used to report telephone issues and information system issues. BSC then fields all those calls; if fixing the problem is not one of BSC’s responsibilities, they forward it to the proper hospital department. “It’s functioning like a help desk for anything in our environment that is not right,” explains Brisse. It places day-to-day “ownership” of hospital facilities into employees’ laps and gives them a simple no-hassle reporting mechanism.

Associate hospital director Brisse attributes the success of the innovative 4-work idea to BSC’s commitment to follow up on the issues reported. “If BSC didn’t get things handled quickly, the employees would not use it,” he says. “But because BSC has done such a wonderful job, our employees have truly embraced this idea; and we’ve all come to rely on this for keeping our hospital in top shape.”

Lifecycle costing analysis is one of the functions for which BSC is responsible. We’ve asked them to be our watchdog and help us make better decisions,” states Brisse. The service provider now advises on the selection of building materials that will provide the best value to the hospital. BSC analyzed flooring products for new facilities and recommended a material that had a slightly higher “first cost” but much lower ongoing maintenance costs. The recommended flooring did not require periodic refinishing, which was costly and took badly needed patient rooms offline for significant periods of time. Beaumont now uses BSC’s lifecycle costing analysis to select products to be incorporated into its building standards.

Whether it’s operational savings, maintenance savings or replacement savings, BSC serves as an example to Beaumont Hospital as a “smarter way to do business,” according to Brisse.

Biomedical engineering is another business process now under the umbrella of BSC’s staff and expertise. Traditionally, this includes functions such as maintenance of medical equipment, testing, and periodic preventive maintenance. BSC discovered that, under the guiding hand of the hospital department managers busy with radiology staffing, technology and patient care, cost savings opportunities in medical equipment original equipment manufacturer service contracts were not being pursued.

Realizing the hospital was not effectively managing its maintenance agreements, BSC created a governance process and now guides the effort in negotiations with medical equipment vendors. “They’ve become experts in service maintenance agreements to make sure we get maximum value for the contracts we sign and dollars we spend,” Brisse says. “They’ve taken this even further by hiring a couple of imaging equipment maintenance technicians onto the BSC team. When they do this maintenance work for us now, our costs change from a retail price to a wholesale price. “We knew they would be able to help us in this area, but we never anticipated how big the savings would become nor the ultimate value of the initiative.”

Innovation is alive and well at BSC, with staffers constantly exploring new ideas. They are testing an ultraviolet light that was placed near air handling system filters. BSC, Brisse reports, is installing the lights in Beaumont’s heating and air conditioning units and conducting a scientific research study to determine if this practice kills biological agents on filters, produces cleaner air and reduces maintenance costs in the hospital’s energy spend.

Performance Scorecard

Each hospital division reviews a balanced scorecard rating for BSC’s performance in key objectives for facilities management and facilities development on a quarterly basis (consistently, they’ve all been met). Besides objectives, the scorecard rates cost savings performance and customer satisfaction for both the facilities maintenance program and the construction projects.

If the scorecard reflects a level above the targeted 100 points, explains Brisse, Beaumont pays a bonus “all the way from the top of the BSC organization down through the staff level.” If they were to fall short of 100, their compensation would be reduced; so far, they consistently exceed the target. The metrics are reviewed all the way up through our executive committee, and Brisse and the joint hospitals’ governing body must sign off on the review.

“Everybody all along the way has to agree that the numbers actually reflect BSC’s performance,” says Brisse. “But we’ve never felt that their getting the incentive rewards were inappropriate – they’ve done a wonderful job. BSC is sort of the angel on our shoulder to make sure that we are always doing and getting the right thing and top value.”

Fortunately, Washington, DC-based CarrAmerica, a developer, owner and manager of over 25 million square feet of office space in the U.S., was prepared. “On 9/11, all our Washington, DC tenants and property managers were extremely anxious about what was going on and what they should do,” says CarrAmerica’s Phil Matchett, a regional director for the firm.

CarrAmerica had recently employed an outsourced Web-based communications medium called InfoCentre. The system demonstrated its value on that day. “It turned out to be the most reliable way of keeping in touch with our property managers and tenants on 9/11,” Matchett says.

On the day of the attack, the area’s telephone system could not keep up with the crushing volume of traffic. But InfoCentre enabled CarrAmerica to communicate with tenants at its DC area properties. “We constantly posted and updated information about security issues,” Matchett says. “Without this technology, communications would have been more difficult. The Web was the most reliable medium that day.”

Even before the tragic events of 9/11, clients were clamoring for more refined disaster plans and the means to communicate them to workers. Today, property and facility managers are re-evaluating their disaster plans to make sure they are up to date and that the communication line with all tenants is clear and effective.

In such an environment, two Seattle, Washington firms, Essention, Inc., a provider of property and facility management technology solutions, along with WPS, a provider of online facility management procedures and emergency response and recovery programs, created InfoCentre in late 2000. Their joint effort allows facility management (FM) outsourcing firms, building managers and tenants to communicate security and emergency response planning/recovery information faster and more efficiently.

“From a human factor standpoint, security communication is a big challenge,” according to Tim Springer Ph.D, analyst, founder and president of Chicago, Illinois’ Hero Leadership, which consults with facility management firms on communication issues. “People are suffering from information overload. The challenge to facility managers is: How they can break through that overload?”

Technology Streamlines Instruction and Communication

InfoCentre offers a secure Web-based information management and a maintenance and document archive along with a 24×7 customer service desk. Essention provides the technology backbone while WPS supplies security content development and revision as needed.

Such information includes step-by-step instructions and training, with detailed procedures for each client facility, ranging from cooperative emergency preparation to disaster recovery communications. It also offers targeted email notices as necessary to advise FM managers and tenants of periodic events that affect security.

By combining both companies’ strengths, commercial facility and property management professionals can more easily implement and manage emergency plans and procedures online with quick communication in case of a disaster.

“WPS is the industry leader when it comes to developing FM communications programs, especially in the area of security,” says Karen Little, Chief Operating Officer for Essention. “Our communication network and their expertise in creating security content tools are a perfect marriage, and this service continues to undergo revisions that only make it better and more valued by our FM clients.

“Both our firms had been aware of the other for quite awhile since we’re located in the same city,” continues Little. “Over time, our missions grew closer until we realized our services and products had matured to the point where they complimented each other.”

Changing the Way People Think and React

“Communication of the right information at the right time that has meaning is critical when it comes to security,” adds Hero Leadership’s Springer. “In the world of security, response time is the name of the game. Accelerating that with improved communications certainly hedges your bet.”

“It’s crucial that tenants know how to react during an emergency,” says David Strang, President of WPS. “Our partnership with Essention makes it easy for tenants to know what to do when a crisis occurs and for management to be able to get their businesses up and running as soon as possible following an emergency situation.”

On a daily basis, Matchett suggests that InfoCentre’s security communications system has evolved during the past three years. “Targeting emails is easier than it was at first,” he says. “For example, it’s easier to communicate with specific people about ongoing issues since email list management is much more refined than before. Now, for instance, they can easily notify only those affected that, ‘an indoor air quality subcontractor will be working on the property. Don’t be alarmed at the strange face with all that strange equipment; he belongs here.’”

Matchett says CarrAmerica has now added the InfoCentre security communications system to its list of vertical FM services that it offers to other management firms and third-party FM providers. “It’s part of a user-services product we market. We’re outsourcing the services we’re outsourcing,” he adds.

Essention’s Little also notices an uptick in such requests. “In the past few months, we’ve fielded more inquiries from property managers who ask if we can provide just the InfoCentre security communications program to them and our answer, of course, is ‘yes’.”

Lessons from the Outsourcing Journal

• Even before the tragic events of 9/11, many property and facility managers were are re-evaluating their disaster plans to make sure they are up to date and that the communication line with all tenants is clear and effective.
• Communication of timely, correct information is critical when it comes to security in the workplace
• In a disaster like September 11th, a Web-based communications system is likely to be the most dependable way of deploying timely information to property managers and tenants regarding rapidly changing conditions.

“Service providers are being asked to develop models that are not in line with their services because clients see them as a commodity,” says Ron Holzschu, Senior Manager at Chicago, Illinois’ Deloitte & Touche. “It’s getting harder to deliver services in the manner the clients want at a price they can accept.”

But according to Sven Pole, senior vice president for Dallas, Texas-based Trammell Crow, a vertical property management and FM outsourcing firm, there are still areas of opportunity. “The winners are providers who can afford to lower costs through redundancy, technology and automation, or can deliver dramatically higher value of service than the competition, often involving ancillary offerings.”

These two factors are leading to a shakeout in the market. Although there is a lot of pressure on corporate budgets — making FM outsourcing more of a viable option, the challenge is the clients’ view of equating commodity-type services with specific FM tasks. Service providers seem to be having a difficult time distinguishing themselves as a value application.

This increases the difficulty in reconciling clients’ objectives (and financial means) with the need for providers to make money. “Clients are asking for the same services but not factoring that they want them for less, which is putting a strain on the providers,” says Deloitte & Touche’s Holzschu. “It’s creating confusion and uncertainty because the line between vendor and enterprise relationships is becoming more diffuse.”

He says the providers have themselves to blame for their quandary in many cases.

“In better times, some providers marketed themselves very aggressively. Others weren’t quite so optimistic and probably aren’t under the same pressure to meet inflated expectations,” he observes. “Had they been a little less accommodating and not oversold themselves, the optimistic providers might have avoided their current predicament.”

More Security in the Post-9/11 World

Since the World Trade Center attacks, security is one of the top issues on clients’ minds. Pole says it’s vital. “There are firms that are reviewing relationships with offshore vendors because of security concerns,” he notes.

And while domestic providers are responding to the need for more accountability, Pole wonders if increase security awareness poses greater impediments to global service level agreements (SLA).”Some just might not think it’s worth the trouble to address overseas markets, especially in areas that are perceived (politically) to be less than secure or stable,” he says.

But it’s also further cementing existing relationships, according to Bob Dickhaus, CEO of Atlanta, Georgia’s FM Solutions, a specialty firm that provides technology and energy-based FM services. “It’s a comfort issue, ‘better the devil you know’ rather than taking a chance on an unknown provider, especially in light of outsourcing relationships that have gone to vendors that are now in trouble,” he says.

Ellen Evans, director of marketing for facility services and management at Milwaukee, Wisconsin’s Johnson Controls’ is seeing greater interest in their security-based offerings. “Since we also are a security consulting firm, we’ve seen greater interest in those services. That should probably continue. Customers are also asking us for contingency plans and investigating risk analysis for our services — what sort of plans do we have if worst case scenarios arise?”

Vertical FM Outsourcers Fight to Retain Market Share

Vertical providers in some cases are also faced with a “back to the future” wish on the part of some clients to balance limited outsourcing with internal task responsibility, which is much like things were at the beginning of the outsourcing wave in the early/mid 80′s.

Verticals must sometimes break up their bundled services and offer a “pick and choose” formula to clients who then can select between bundled or individual FM tasks to be awarded to providers. Those not selected are either managed in-house or by another niche service provider.

“It has more to do with matching what a customer is looking for with the strengths of the vendor,” says Johnson Controls’ Evans. “If customers are looking for input on tasking and technical levels for service, then they might use third parties to assist them in performing those duties themselves.”

FM Solutions’ Dickhaus suggests an opportunity for niche FM outsourcers. “Client needs are becoming more sophisticated. Today I see a trend to more specialization. This makes it more difficult for vertical providers to deliver high quality service in multiple areas at a price that’s fair to both sides,” he says.

He sees a future for the single service outsourcing providers that specialize, such as the growing number of energy or telecom resellers that have arisen from deregulation in their industries. Dickhus projects opportunity for “some interesting alliances” between niche providers and some of the larger, more established vertical FM outsourcers, especially in service areas that the verticals don’t see as large profit centers.

Uncertainty Breeds Restlessness and Optimism

Expect marked change over the coming months for the FM outsourcing industry.

Real estate tends to lag behind the economy in general and that will probably continue into next year,” says Pole. “But the opportunities for the vertical companies are still there so long as they can maintain profit margins in the face of client-inspired cost reductions and find ways to generate a nominal amount of ancillary business from their relationships.”

Holzschu suggests the firms that play to their strengths will be able to weather the uncertain times. He sees longer term SLAs that offer a give and take between the two parties, reflecting “a true business relationship rather than a simply transactional one.” On the other hand, “specific tasks that are singularly outsourced will probably have shorter than normal SLA’s,” he predicts.

The overall trends for FM outsourcing appear to emphasize flexibility in the relationship rather than exclusively price, so long as the provider can help the client understand economies of scale, which can be a challenge for a non-core provider to impress on a core business decision-maker.

Facilities Management Outsourcing Trends for 2003:

• Vertical facility management outsourcing firms are fighting to retain market share in the face of niche firms that sell expert services in areas of specialty, such as utilities, telecommunications and security.
• More imaginative SLAs that focus on solutions rather than services as a commodity are needed to keep vertical providers and clients working together.
• Security issues are much more prevalent. The onus is on providers to assure clients they can trust the employees who provide outsourcing services and that detailed contingency plans for worse case scenarios are in place.