Corporate real estate and facilities management (CREFM) organizations commonly employ a balance of insourcing and strategic outsourcing solutions. This is driven by the need to minimize costs while avoiding negative impacts on the employee experience or the quality of services provided. There is no “one size fits all” solution. With the broader business strategy driving the outsourcing decision, the CREFM organization can become a major contributor to the corporation’s success.
While the broader business strategy should be the primary driver in outsourcing decision-making, there are certain functions and/or service lines that organizations commonly retain internally and others that are commonly outsourced. For the purposes of this discussion, we will break down these service lines into three major buckets.
Who are your stakeholders? An obvious question, but one that is often overlooked. Recently I spoke with a client who didn’t know the answer to this question.
Sure, the executive leadership teams of each organization were considered critical stakeholders, but who else was being overlooked? After a series of comprehensive interviews within the client and service provider organizations, it became clear that not all stakeholders were identified, and communication relating to strategy, vision and even the mission was not communicated to everyone with a vested interest in the delivery of the services.
As we delved deeper into the organization, SIREAS discovered there was a significant disconnect on the part of the client and provider in their understanding of and communication about the mission.The mission/strategy was not shared far enough down the line within the organizations to reach all of the stakeholders.This created substantial alignment and communication gaps among the teams responsible for implementing the vision and strategy.
Two crucial principles of successful governance are: identifying all stakeholders; and there must be communication and collaboration– at all levels–across the client and provider organizations.
Stakeholder inclusion should be wide-ranging, to include senior executives from both organizations, the operational teams and the “users” of services (employees, customers, suppliers and others).
Communication should occur formally via steering committees and boards, and also informally on the day-to-day operational level. Broad stakeholder involvement results from an effective combination of information exchange and action. For example, a governance group can set up ad hoc advisory teams, pursue the opinions and participation of key business leaders, and offer informal educational presentations that stimulate the exchange of information.
It also is important to balance stakeholder needs so that all parties feel invested and strategically aligned. Companies that successfully outsource continuously “take the pulse” of all involved stakeholders to balance their needs over time. While it may be impossible to please everyone, the governance model should strive to balance the needs of all stakeholders.
Another key governance principle for successful stakeholder interaction involves company cultures. For example, outsourcing facilities management successfully requires a strong relationship with a foundation of trust and collaboration. Finding commonalities between the company cultures of the client and the provider improves results.
Yet, communication is an imprecise science, and misunderstandings can increase when people try to bridge language and experience gaps across functions and organizational cultures. By taking special care to develop a deep understanding of stakeholders’ motivations and expectations, the organizations can negotiate more creative and mutually beneficial solutions.
The most successful outsourcing initiatives have strong governance models that focus on stakeholder involvement, collaboration, trust, and alignment of vision and objectives for the client and the provider.
Successful governance requires regular interaction, a strong flow of information and meaningful action to reach better solutions that more effectively meet each sides’ needs.
But first you start by knowing who your stakeholders are.
Here’s the not-so-secret word for outsourcing success: governance.
And a proper governance framework can prevent disaster.
A global service provider recently shared a story with me that I’ve heard many times. The provider has had a ten-year relationship with a client to perform all their facilities management services across their portfolio and the contract was coming up for renewal.
The service provider was confident the contract renewal was a slam dunk. Why? Performance was strong, the scorecard was green and the team enjoyed a positive working relationship with the client. So when the team heard the client intended to go to the market seeking a competitive bidding process rather than renewing the contract, they were blindsided. The explanation was that despite the green scorecard, there was dissatisfaction with the service provider’s performance.
The service provider was perplexed to find out this information and the client was frustrated that the provider didn’t have a clue about the dissatisfaction. So what happened? Where was the disconnect? How did the relationship breakdown and how could it have been avoided? Can this relationship be saved?
Circle back to the word of the day: governance, something that everyone knows is vital, but that is also difficult to establish and implement. This is precisely where the relationship broke down.
Governance is the framework of people, processes, tools and infrastructure that enables an organization to preserve and achieve the intent of an outsourcing effort. Traditionally, a governance structure is developed at the outset of a relationship, then rarely reviewed again through the duration of the contract. Generally, it has limited flexibility, and is often viewed as a system focused on compliance and service provider performance rather than collaboration, regular communication, innovation or improved outcomes.
There is a better way. What if governance is structured as a collaborative, win-win framework for all of the parties involved? What if the goal is a flexible, transparent and adaptable relationship that enables a results-oriented operation?
Getting to that “win-win” outlook requires a governance structure that includes five elements that align companies and their service providers around common goals and expected outcomes. A strong governance program leverages trust, open communication, a shared commitment, a focus on performance, and accountability. The elements are summarized further:
The Foundation of Trust
Trust depends on the service provider’s ability and willingness to meet and exceed contractual obligations. This not only creates confidence in the service provider’s ability to perform, but also releases the company from tactical oversight: it is able to go back to focusing on the core business. Building trust relies on good two-way communication and fact-based performance reviews.
Candor and healthy conflict are essential to identifying and resolving issues quickly. Ensure that communication is bidirectional and focused on facts, not subjectivity. Companies and their service providers should set the tone and cadence of communication early in the process so that as misunderstanding, conflicts and discrepancies arise, they can be dealt with quickly. When communication is collaborative rather than directive, it allows issues to be addressed immediately and openly. When an ongoing dialogue is maintained, a clear and cogent understanding of desired outcomes is revealed. Misunderstandings hinder process and impact business outcomes. Open and transparent communication enables everyone to trust the process.
A shared commitment to collaborate drives improved results and puts the focus on continuous improvement. Jointly-developed action plans cultivate high performance and lead to a tighter alignment of business objectives. A shared commitment built on transparent and open communication enhances process effectiveness and allows performance issues to be identified and resolved quickly. Timely resolution of problems can also limit performance review surprises.
Develop and apply performance measurements that facilitate a results-oriented operation. Jointly develop scorecards and other tools; they are valuable for tracking progress and moving forward toward future targets.
A structured, unified approach with clear goals, objectives, KPIs and performance measurements provides a framework of accountability understood by the parties. Establishing clear expectations early in the relationship helps to address and move beyond discrepancies. Accountability occurs as needed and not at a later performance review meeting.
Implementing these key governance concepts elevates the relationship, allowing the parties to focus on strategic issues for improving collective performance.
Open communication between the parties is vital and worth emphasizing. Some organizations opt to have a third-party consultant or mediator participate in the governance and performance management of the relationship. Doing so ensures that the relationship remains healthy and on course by focusing on the changing goals and objectives of both organizations.
Getting your governance right means you can avoid getting blindsided in your next client relationship.
In this Corporate Real Estate Journal article, Ingrid Fenn, Co-founder of SIREAS, teams up with Kate Vitasek, faculty member for Graduate and Executive Education at the University of Tennessee’s Haslam College of Business Administration.
In 2003 the University of Tennessee began a research project tasked to answer a simple question: ‘Is there a better way to outsource?’
Researchers studied some of the world’s most successful outsourcing relationships, including Procter & Gamble, Microsoft and McDonald’s. Researchers immediately saw trends in these successful relationships where organisations were shifting away from transaction-based agreements to collaborative outcome-based outsourcing relationships that the researchers described as a ‘vested’ mind-set.
Researchers codified their learning into a methodology they coined ‘Vested Outsourcing®’, or Vested for short. Today, Vested is referred to as a mind-set, methodology and business model that enables highly collaborative relationships in which buying organisations and their service providers are committed equally to each other’s success. Organisations that have applied the concept often refer to it as a movement because of its power to transform the way organisations outsource.
This article addresses the fundamentals of Vested Outsourcing as well as its applicability to corporate real estate and facilities management, including under what circumstances it can be most beneficial.
Case studies from within Corporate Real Estate and Facilities Management (CREFM) are shared, including TD Bank, Vancouver Coastal Health and Novartis.
In this Workplace Unplugged interview, Ingrid Fenn, Co-founder of SIREAS, shares her experience helping clients develop strategies to manage their real estate and facilities organizations most effectively.
Ingrid has more than a decade of multinational corporate real estate and facilities management expertise. From serving as Global Head of Real Estate for health products leader Covidien to integrating an international real estate strategy with business unit planning for Fortune 100 multinational United Technologies Corporation – Ingrid has a depth of expertise in strategic CRE and FM. We asked Ingrid to share her background and share her story of what led her to co-found SIREAS. Read the Full Article Here
SIREAS President Ingrid Fenn was recently featured on the FacilitiesNet blog. Her two-part article narrows in on how to move to strategic outsourcing relationships.
Over the past 25 years, outsourcing has become a widely used strategy in corporate real estate and facilities management. But there is often a sense among both service providers and facility management organizations that these outsourcing arrangements aren’t working as well as they might. Frequently, there is a misalignment of expectations in transaction-based outsourcing. Read the Full Article Here
Governance is the people, processes, tools and infrastructure that enable an organization to preserve and achieve the intent of an outsourcing effort.
The critical aspects of a good governance program:
I have had many conversations with our clients and industry peers this past year about the state of the relationship between service providers and clients in Corporate Real Estate and Facilities Management (CREFM). Both clients and providers describe a level of pain. Many Fortune 100 companies who have outsourced their CRE or FM functions are in the second (51%) or third generation (39%) of outsourcing and the current model and contract structure is no longer working for either party.
How did we get here? And where are we going? An examination of the historical progression of outsourcing in general, and CREFM outsourcing specifically, provides some insight and guidance in determining a future strategy.
One of the most important principles of successful governance models revolves around collaboration at all levels across both organizations.
Corporate real estate and facilities management (RE&FM) organizations commonly employ a balance of insourcing and strategic outsourcing solutions, as they weigh the need to minimize costs while avoiding any negative impact on the employee experience or the quality of services provided. There is no “one size fits all” solution. With the broader business strategy driving the outsourcing decision, the RE&FM organization can become a major contributor to the corporation’s success.