By Ronald Chapman, Solutions Manager: Group Sales and Marketing
The Facilities Management (FM) industry in South Africa is facing many challenges. In a country where unemployment sits at a staggering 16.17 million, the citizens of South Africa have had to resort to many different ways of finding and creating employment for themselves, The recent ‘outsourcing must fall’, which formed part of the South African tertiary education system’s 2015/16 ‘fees must fall’ campaign, generated protests across South Africa’s higher education institutions. This was as a consequence of public expenditure cuts, making the institutions increasingly reliant upon student fees, and external private funding. These protests spilled over to the staffing of ‘non-core’ services by these institutions. It was felt that private-sector companies are profiting from providing these services, such as cleaning and gardening, among others – this perception greatly influenced FM strategies.
Economic and socio-economic factors in the country directly impact the sustainability and growth of the various business sectors. Businesses are constantly seeking for new ways of reducing their overheads through value engineering, optimisation, and cost reduction initiatives. This is no clearer than in the FM services sector, where the focus is predominantly on value propositions and guaranteed cost savings. Another examination shows that payment terms are stretched to the maximum, whereby terms of 30 days and less are exploited by clients, with the tendency of leaning more towards 60 days, however, it can easily be set at 120 days. It is clear that organisations and businesses want to improve their cash flows, and at the same time reap the benefits of outsourcing non-core services to increase their bottom line – at least in the FM business. So whilst cost to the company points to being a key deciding factor in selecting a FM provider, the South African Facilities Management Association (SAFMA) also note the following factors as challenges;
- Finding a competent and skilled service provider
- A fragmented industry with small niche service offerings
- The lack of technical capabilities and skills
- A lack of transparency, resulting in poor ethics and practices
- Large FM companies’ inability to adapt.
Fundamentals for FM solutions start by understanding the context of what is at play, what are the risks and what is the potential and realisation of the client’s expectations? Make sure that you are fully aware of what is going to “make or break” the deal.
The following SAFMA graph indicates the important factors that companies consider when selecting a service provider in the FM sector.
Important aspects when selecting a service provider
[Source: South African Facilities Management Industry (SAFMA) study 2016]
These guidelines, directly match the indicators from the Servest Knowledge Executive Research that was conducted in 2017, which is indicated in the graph below.
What is important when evaluating tenders or bids?
[Source: Servest Knowledge Executive Research 2017]
It is clear that the top three deciding factors are cost, innovation and expertise. It is fair to say that facilities management businesses where the majority of the FM services are self-performed, is exceptional to say the least – But that is not all, it creates a platform for real integration potential through initiatives that will optimise service delivery without compromising on quality and customer satisfaction. Developing a “one stop shop” service delivery model, removing management layers, and standardisation of management fees are only some of the benefits which could be derived from a self-performance business model. A well-defined service integration process and/or system can go a long way in exploring opportunities and initiatives, which can give you the competitive advantage as an FM business. Collaboration with all internal stakeholders through service integration and innovation forums sets the tone for future development, growth, and claim of being a market leader.
The on-going demand for innovation is something which is broadly stated within the FM Industry and Business sectors, but the realisation of innovation within a service delivery context can be challenging if it is not a well thought through process. Factors such as the level of effort, investment, and the achievable returns must be established for each potential initiative at the beginning, to determine its feasibility. Fortunately, there exists much information on market trends, benchmarks, technology and competitor analysis which can kick start the process. Be that as it may, the one question that we should always ask ourselves is – Are we there yet?
As we established earlier in the article, price is key and can literally be the “make or break” aspect of new business propositions. It can also ruin the relationship if it is not presented properly the first time, or when a contract is concluded without a measured pricing proposal. To get it right the first time, all commercial aspects of the contract must be fully understood. Contract resourcing, risk provisions, payment terms, contract periods, penalty structures and SLA’s are only some of the items which should be considered and highlighted in the pricing proposal. And all of this must still ensure capital investment and the returns for the FM company. It is therefore imperative to level the playing fields along with the risks, at the very start of the process.
Pricing models should be linked to the solution by establishing asset data, staffing requirements (including transfers), historical trends on cost of services, facilities management requests, statistics, and the condition of equipment, which are among the key considerations. A ‘one fits all’ price model carries with it great risks if it is not carefully evaluated against the output requirements or Service Level expectations of the client. Accessibility to critical data and the level of risk that a FM company is willing to take are deciding factors when entering into a fixed price agreement. Strategically, it is recommended that in the absence of critical information, a cost plus model is proposed, until such time when the exact service scope can be determined as part of a due diligence process. The transition into a “fixed price” model can therefore be considered as part of the solution to assist companies in controlling their FM spend. This will enable FM companies to reduce their margins on the base cost and be incentivised for good performance and saving achievements, which is also the “carrot” to improve efficiencies within the FM services sector; and an open book approach is a showcase, and proof to the client that you are not in the business of hiding information. Be open and transparent in the pricing approach, be factual and impel the cost allocations.
Finding innovative ways to provide the required services is yet another factor, consider technology in this regard. You don’t need someone to tell you that the paper towel dispenser is empty, this could be linked to an intelligent system that alerts you to this fact before it becomes an issue.
Client relationships must be maintained, and there is no compromise on dedication and honouring your contractual commitments. To lose a contract due to poor performance is not only a ‘slap in the face’, but it is breaking the confidence of all future business prospects. Setting up a good infrastructure for customer interfaces and interventions is critical for business continuity. A single point of contact is of utmost importance, and addressing poor ratings that emanate from Customer Satisfaction Surveys to acknowledge their concerns are imperative to keep the client, and more importantly; to maintain the (good) reputation of your own organisation. It must therefore be made clear that resolutions will be put in place within reasonable timeframes and this promise must be fulfilled.
The growth prospects for Facilities Management in South Africa look positive. and the pie is big enough for sharing. Business sector needs analysis, benchmarking, and economic development are critical factors which must be pursued and improved, to ensure that every potential client has access to a pool of Facilities Management experts.
The 2017 South African Facilities Management Survey revealed that FM outsourcing continues to increase, despite the fact that 28% of respondents indicated that they want to insource their facilities services and to in-house management thereof. Conversely, about 74% of organisations that outsource, contract out more than 50% of their FM services, utilising one, two or three suppliers.
Understand the various business sectors, as not every company have the same needs. Apart from general good practices for FM service delivery, which are generic across business sectors, there are distinct service delivery expectations. For example; in the Healthcare sector, some expectations might be to ensure a healthy and hygienic working environment, and no failure on essential power supply for the Operating theatres. In the Industrial sector, environmental impact assessments, monitoring and improvement, as well as energy savings might be the core focus areas. No matter what, your solution must be directed unambiguously to the expectation in order to unlock the potential value proposition for the client.
The outlook for FM services in South Africa over the next five years can be summed up in two words, diverse change. This is according to the 2017 South African Facilities Management Survey, which further expands by stating that over half of the responds (54%) say they will return to in-house management and service provision or absorb facilities services into broader business outsourcing (BPO). However, an equally large proportion of end-users and clients (43%) will continue to outsource with large multiservice providers of individual service specialists. Service quality, access to technical expertise, and reducing costs are the top three most important factors that will drive outsourcing.