In today's competitive marketplace, streamlining and increasing efficiencies in business processes is of paramount importance. Organizations with multiple business units or locations, each doing their own thing, can't survive. Alliant Energy, formed several years ago from a series of mergers of utility companies in Iowa, Minnesota, Wisconsin and Illinois, recognized this and knew it must outsource its facilities management functions.
But no matter how much up-front planning takes place before a buyer's work is transitioned to the supplier, it's inevitable that some details will be missed or that something unanticipated will occur. How accommodating the supplier behaves when those things happen down the road is a major factor in the relationship's success. A supplier that can grab those situations, rebound and turn them around into beneficial circumstances is a worthy partner.
Alliant Energy found one: FBG Service Corporation.
Alliant distributes gas and electricity in many towns across four states and runs water in some Wisconsin cities. The January 1999 outsourcing agreement turned over to FBG the responsibility for janitorial, trash pickup and pest control services in 188 Alliant buildings. In addition, at approximately 1800 Alliant locations, FBG does the lawn mowing, weed spraying on substations' gravel surfaces and snow removal.
Prior to outsourcing, internal union personnel handled most of these functions, or the work was contracted out. "But there were a lot of benefits for our company to gain from outsourcing," says Steve Gladson, Alliant Energy's regional facility manager-West.
Alliant decided on FBG as its outsourcing partner after researching and receiving proposals from companies with the capabilities to handle the scope of the project. Cost was not the only supplier selection criteria. Gladson says his company relied heavily on Alliant's past experience and recommendations from current clients throughout the U.S.
The three-year contract has automatic one-year renewal options and includes incentives. Gladson says the supplier's profit margin goes up in a year where they achieve cost-savings targets and objectives during the previous year. He says they had to gather baseline data during the first year of the relationship, making it tough to track progress; but, since then, they have met the targets.
One of the first challenges they encountered was internal resistance by Alliant's staff. Gladson says that several communications went out in advance with "the right wording" but that hindsight questions whether they might have placed more emphasis on communicating the goals and objectives of the outsourcing initiative. He adds that people had also tired of the changes occurring throughout the utility industry and were starting to put up barriers because of that.
In some of the small towns, he explains, it had been customary to call the local janitorial staff if something wasn't right. Once the process was outsourced, they had to call the FBG call center, which would then dispatch someone. They were reluctant to follow this procedure at first, Gladson recalls, believing that the call center was an extra step that delayed the process. "Now the number of calls have gone way up in our call centers and the acceptance complaints have diminished significantly," says Gladson. He believes better communication on the value of how the call center helps them, especially out in the field locations, is a step they should have taken sooner.
Alliant's methodology for knowledge transfer and process mapping was hinged on making the staff feel they were part of the process. "We had a team of folks, including office administrators out in the districts, who were handling a lot of that," Gladson explains. "And that really helped with the first reaction of acceptance. We could very quickly communicate that it wasn't corporate that was setting the expectations but that it was the users themselves." It was very helpful in eliminating a citadel attitude of trying to maintain the status quo.
Even after the transition phase, the same group is involved in operational team meetings every two months, where they review progress and how they can make improvements. One of the steering committee's new initiatives is a recycling program, further enhancing the cost-cutting objectives of the outsourcing agreement.
Time to Rebound
The second major transitional challenge came to light when FBG started the weed spraying and mowing. When weeds started sprouting up in some remote areas, it was clear that the database Alliant had given to FBG was missing several hundred Alliant sites. "The missing data was our fault," Gladson admits. But to the Alliant people out in the field, it looked as though FBG wasn't doing the work. And they complained.
"It's a killer if you are missing 5 - 10 percent of the data," says Gladson. It will cause most of your problems, because that's what everybody refers back to."
But FBG rebounded, assisting Alliant at each zone to identify sites. And when complaints were made about a missed site, Gladson says FBG dispatched someone to take care of the problem immediately. The supplier's responsiveness smoothed out the wrinkles from complaints.
The third challenge happened again in small towns. "We found there is a need for a handyman to go to some of the sites on a routine basis and take care of miscellaneous maintenance," says the Alliant facility manager. Historically, the various Alliant locations had an internal handyman on their janitorial staffs. Now FBG has replaced those janitorial staffs, and the new solution didn't include nearby handymen.
Once that need was identified, though, Gladson says FBG rebounded and starting working on an effective solution. "They've been talking to us about FBG putting people in certain zones or territories to make a route and routine stops at these various places and take care of that kind of work," he explains. "We were struggling with hiring our own personnel for this need, or hiring someone on an as-needed basis. But FBG came up with the idea of managing it for us. They continually try to help us solve problems."
The value resulting from the outsourcing arrangement includes far more than better, more uniform customer service to Alliant's internal customers. By outsourcing, for instance, the utility company's risk has been reduced through standardization of liability insurance.
Some soft savings were realized right away - like reducing the number of invoices and purchase orders from several hundred to just one. Direct costs have also been reduced. Some reduction occurs because of changing the frequency of mowing in rural areas, for instance. Other cost savings are realized from FBG's more effective management of third-party subcontractors doing some of the work. The supplier has grouped various Alliant properties together, negotiating better pricing among the subcontractors.
Gladson says the outsourcing also has helped Alliant to better understand its costs. Prior to entering into this outsourcing agreement, it was very difficult through the Alliant accounting system to figure out what was spent in any one of the facilities management functions across the company. "Now, the way we have set up the outsourcing invoices, it is very easy to track and figure out what our expenses are for snow removal or for any one of the categories," says Gladson. "Before, they were just buried with other costs in the budget into one accounting number and not broken out by service or process. It's tough to manage when you don't know the cost factors."
FBG's call center has provided unexpected benefits, Gladson says. FBG logs all calls from Alliant sites and follows issues through to resolution. A big plus is the reporting system and matrix on tracking calls, follow-up work and timeliness of response. He says, "Through monthly reports, I can see what's going on and whether we have issues that are starting to blossom in certain areas. And we have a very good working relationship. If I see an issue that I think is starting to escalate and I make one phone call, they get right on it. And if they see an issue from our side, we also get right on it. We very openly share information."
When asked why their relationship works so well, Gladson responds that FBG is "very professional, accommodating and flexible. I can't say enough about how well our teams work together. If you are going to outsource, choose a supplier that you can develop a trust with and can work with. Then create a win-win situation for both companies."
Lessons from the Outsourcing Journal
- Outsourcing cost-cutting initiatives can produce both hard (direct costs) and soft (reduction of back-office functions) savings.
- Buyers should take every precaution to endure that process mapping, knowledge and databases are as accurate as possible before turning over responsibilities to the outsourcer.
- Where there are third-party contracts involved in an outsourcing arrangement, cost savings can be achieved by giving the outsourcer responsibility for managing those contracts.