Facilities management, which is not easy to define, has become a widespread corporate concern. As companies look for ways to increase their bottom line and their level of service simultaneously, many have recognized that they can achieve both goals by outsourcing their facilities management.
Trammell Crow Co. recently released a backgrounder to the press outlining the company's history, 1994 results, personnel, divisions and signaling its plans for the immediate future.
"As to this year's business direction," Trammell Crow reports, "with its service company foundation firm, Trammell Crow Co. has embarked on a series of initiatives to thrive in today's business environment." Number one on that list of initiatives was "expansion of facilities management services."
For what has been touted as the largest property/facilities management assignment in real estate history, Ameritech tapped an alliance of LaSalle Partners and Johnson Controls. The huge outsourcing assignment means responsibility for 3,600 Ameritech facilities in five midwestern states. Johnson Controls will take on the facility management work which includes providing operational support, technical support and maintenance management of systems and technologies. "We are excited about the opportunity to provide Ameritech the systems, support and procedures necessary to maintain or increase its building systems, reliability and efficiency," says Harley Mullins, vice president and project director for the Milwaukee-based Johnson Controls.
In February, Colliers, Bennett & Kahnweiler and U.S. Equities Inc., two long-time leaders in thereal estate market, announced they had reached an agreement in principal to join forces to create a new venture called Property Facility Management Group LLC, specializing in property and facilities management. "By combining the resources, energy and expertise of two firms with very similar cultures and reputations but quite different strengths, we are creating an alliance that meets clients' expanding needs and significantly broadens both our service capabilities," comments David Kahnweiler, president of CB&K.
These three newsworthy items are singularly different, but together sum up the vast changes taking over the once sleepy facilities management industry. Just a decade ago, facilities management conjured up visions of building operational management, making sure HVAC systems were working properly, the elevators continued to go up and down and a janitorial staff was on hand.
"Facilities management as we know it today didn't exist 10 years ago," says Bruce Ficke, a senior vice president with Atlanta-based Compass Management Leasing Inc. "What existed 10 years ago was operations and maintenance. What we are looking at today is a full slate of real estate services."
Today, facilities management is no longer so easily defined. In addition to basic building management, it can mean record keeping, day to day lease administration, relocation, industrial hygiene and administration over such diverse operational necessities as security, mailing, shipping and receiving, reprographics and even food service.
Facilities management has become a big, widespread corporate concern, which is why Trammell Crow is increasingly focusing on the industry, why Ameritech is outsourcing the job to service providers and why Colliers, Bennett & Kahnweiler and U.S. Equities Realty have formed an alliance to handle the myriad responsibilities.
"Facilities management is hot because companies now are recognizing that they are leaving money on the table by not having their facilities managed properly," notes Joseph Simone, president of Tishman Real Estate Services Co. in New York. "Secondly, companies now are restructuring and have recognized that they can hire outside firms that can do it more economically."
Trammell Crow, which at one time was one of the country's largest developers, has transitioned over the past decade to what the property business has actually become -- a real estate service provider. But property management has become a very crowded field, with competition so intense it has driven down fees. Companies, however, that do property management are now finding the fields more fertile and less clogged in facilities management.
"The growth in facilities management has been very rapid," says Bill Concannon, chief executive officer of Trammell Crow Corporate Services in Stamford, Conn. The big boost to the industry stems from corporate downsizing. With the corporate focus on core competencies, all other jobs have the potential to be outsourced. Facilities management jobs that were once totally in-house are now being outsourced to service providers.
Groups of those jobs, from the running of the cafeteria to the staffing of the concierge desk in the lobby to the maintenance of an in-building fleet of motorized vehicles like fork lifts, are being lumped together as facilities management tasks and given over to an outside service provider.
Similar to Trammell Crow, the Galbreath Co., based in New York, was traditionally a developer and manager of properties that it owned. As its relationships with corporate clients expanded, Galbreath found itself providing services to third parties as well.
In April 1994, Galbreath formed the Corporate Services Group to initially take on an outsourcing assignment for LTV Corp. Harry Henshaw was director of real estate for LTV and recommended the company eliminate real estate as an in-house function. In eventual negotiations, Henshaw went to Galbreath as a senior vice president and took most of his staff along with him. Now, in addition to an outsourcing arrangement with LTV, Galbreath is doing the same for other companies including Mead Corp. in Dayton, Ohio.
According to Jim Morgensen, vice president of Northwest Asset Management Co. and the head of Northwest's Facilities Management Group, premises expenses in corporate America consume an average of 20% of a company's annual operating budget. In most cases, outsourcing facilities management to a qualified facilities management company can bring these costs down significantly.
"At the most basic level, corporate facilities management comprises routine, day-to-day services such as cleaning, security, maintenance, repairs and overseeing vendors and subcontractors, Morgensen says. "It may also involve more complex functions, such as the development and implementation of emergency preparedness programs, corporate relocation programs and energy reduction programs, he adds. "And in a multitenant building, facilities management may also include financial watchdog functions such as the auditing of common area expenses and pass-throughs," Morgensen adds. Northwest's Facilities Management Group is providing services to several companies including Bank of America, First Interstate Bank, Citibank, The Southland Corp. and Del Monte foods.
Maura M. Cochran, CRE, and past chairman of the strategic planning committee for SIOR, says that "many corporations have embraced the outsourcing of noncore business groups."
Cochran, also a broker with Bartram Cochran, says that outsourcing is popular for three main reasons: companies need to reduce expenses and alliances allow companies to do so; "salary creep" can cause staff positions to become expensive, and corporate benefits are often higher than those of outside providers; and outside firms can bring innovative techniques and high caliber to problem solving. According to her findings, the No. 1 reason that strategic alliances fail is because of "human nature," since "the byproduct of outsourcing is a smaller corporate staff."
"The concept of facilities management has taken on a much broader scope, it is really almost a full-service business," Henshaw says.
Facilities management has come to mean being in charge of all non-core business functions that the corporation typically has been in charge of over the years, explains Jack Koon, president and chief executive officer of PM Realty Group's Corporate Services unit in Houston.
The integration of services is changing the industry, Koon adds. "Facilities management contracts might include tenant services and relocation of offices not just within a building but within the whole corporate environment from state to state."
The scope of requested services is broader than it was a year ago, says John Wallerius, a senior vice presid of LaSalle Partners Chicago. "Most people start out by looking at what was typically called property management, but the requests today seem to be saying property management is important but we also need management of our occupancy, space, telecommunications, renovations, etc."
The Ameritech assignment, for example, is tremendous in scope. "Until now, outsource assignments have involved mainly headquarters complexes, which are seldom the operational nerve center of a company," Wallerius says. "This portfolio includes maintaining switching centers and other properties essential to serving customers."
Malcolm Bates, CPM, president of the Institute of Real Estate Management (IREM) and vice chairman of Harrison Bates Inc., also says facilities managers now are responsible for much more that just the real estate. "The facilities manager is still responsible for operations and maintenance, but also responsible for space planning and interior design, along with acquisition and disposition." Bates says outsourcing is still a relatively new trend and that it has had a sort of "lemming effect" on some companies. "The jury is still out," he says, on whether or not corporations will decide that facilities outsourcing is the best way to go.
While the corporate world seems intent on outsourcing a jumble of service needs, it is also intent on doing that with one contractor, which is why companies like LaSalle and Johnson Controls, and Collier, Bennett & Kahnweiler and U.S. Equities have formed alliances.
LaSalle is much more focused on property management especially in regard to office properties, while Johnson Controls is well known for facilities management, with expertise in industrial buildings and mixed-use properties for the likes of Cape Canaveral and Glaxo Pharmaceuticals.
"What LaSalle and Johnson Controls did is becoming typical in the industry," Wallerius says, "because corporations are asking for a boarder set of services and the service providers are saying, well we know about that, but not enough to win the business."
Cushman & Wakefield uses a number of informal alliancess. One informal venture with a large buildings control and engineering firm is expected to turn into a formal arrangement. "The engineering firm's particular expertise brings value to the facilities management approach," explains Steven Ford, managing director of facilities management for Cushman Wakefield in New York. "We believe combining our talents makes us more valuable to our clients."
Property & Facility Management Group unites Colliers, BennettKahnweiler's experience in industrial property management and leasing and U.S. Equities' expertise in high-end commercial property management, leasing and disposition. Property & Facility Management offers industrial property management services and facilities management services to corporate, institutional and entrepreneurial clients.
"As we all know, these alliances are happening for a number of different reasons," says Katherine Scott, an executive vice president of U.S. Equities and president of PFM. "In our case, forming PFM gave us an opportunity to enter the industrial market and broaden our service base by aligning ourselves with a company with different strengths but the same commitment to, and reputation for, quality and service."
John Englert, director of property management for Eastman Kodak Co., says that in a strategic alliance, corporations share resources, including people, equipment and support services. The "lines blur and it is difficult to tell the difference between customer and client." Kodak and its custodial services provider, Intenational Service System Inc. (ISS), entered into their alliance in October 1992. Englert reports that "outsourcing can result in significant cost savings based on in-house staff reduction and in the increased efficiency of having outside experts perform functions that are their core business."
Jan Kaupas, executive vice president of ISS, says that by working together, both companies believe they can be more creative about how they do business and achieve greater value for stockholders. At present, ISS is responsible for maintaining 3 million sq. ft. of Kodak space in Rochester, N.Y., which includes the corporate offices and some peripheral office buildings.
As noted, corporations want their needs taken care of in one contractual arrangement. Not only does this include a wide range of services, but multiple locations as well. Corporations either divide up their facilities and find outsourcing partners on a regional basis, or pass their entire real estate portfolio to one service company. Galbreath works with Mead and LTV, LaSalle and Johnson Controls with Ameritech, but there are many other examples.
PM Realty handles 3 million sq. ft. of space for Texas Commerce bank in Houston, Dallas, Austin and, El Paso, Texas, while Compass recently contracted to handle Mellon Bank's 5 million sq. ft. in Pennsylvania and Massachusetts.
Compass was started by Equitable Real Estate in 1989 as a property management and leasing organization, but clients continually asked the company to expand its services and perform facilities management type assignments. "We call ourselves an integrator," says Ficke, "because we integrate the services and present a single point of contact."
Binswanger Property Management Group based in Charlotte, best known as property manager for corporate headquarters-type buildingsm, and can boast a number of strategic alliances icluding such companies Kodak and Campbell Soup. It, too, has moved towards facilities management.
"We saw an opportunity to expand our portfolio by offering both property management and facilities management to corporations," says Charles Madsen, president of Binswanger Property Management.
Recently it contracted with Coca Cola Bottling, also based in Charlotte, N.C., to provide real estate services to the company's 90 locations in 10 states. "We are managing all the individual buildings," says Madsen. "We are responsible for all the service contracts, everything from janitorial to purchasing building supplies, from maintenance and painting services to handling operating and capital budgets."
Alliances aren't formed only to unite two companies with different areas of expertise, sometimes it works with companies in different geographical locations, especially overseas. Binswanger, for example, has an alliance with the Chesterton Group from the United Kingdom. Now Binswanger is doing disposition for Kodak on a global basis, as well as acquisitions for Amoco.
"Unless you can bring global expertise or you have some sort of partnering arrangement that will allow you to deliver global services to major corporations you don't even get to bid," says Madsen.
Others are beginning to see this as well. According to LaSalle's Wallerius, corporate clients are coming to LaSalle and asking the company to replicate its services at overseas sites. Currently, LaSalle operates on a limited basis in foreign countries, but Wallerius says "that is going to change quickly."
Compass also is beginning to venture overseas. It now provides facilities management for Digital Equipment in the United Kingdom.
"Everyone is trying to figure out a way to reach overseas because clients have needs overseas," says Ficke.
Cushman & Wakefield boasts an international operation called Cushman Wakefield Worldwide, which is an association of global real estate service firms in Europe, Canada, Mexico, South America and Asia. The company is just beginning to get facilities management under that umbrella, as "we intend to have a presence on an international basis in facilities management," says Ford. The company already handles 1.1 million sq. ft. of space for Bank Itau based in Sao Paulo, Brazil.
Axiom, which was formed when part of IBM's facilities management organization combined with Grubb & Ellis' property management division, currently doesn't do facilities management outside U.S. borders, but it, too, might be traveling.
Ira Williams, senior vice president for Axiom, said he met recently with one client that soon will have control over all of its facilities worldwide and once that happens, it wants Axiom to get involved with those sites. Although service providers tend to follow their clients, Williams says, what has impeded facilities managers from extending their work to foreign ports is the particular structure of many corporations. Overseas plants may not report to the United States, but to a country manager; so the decision about an overseas facility is made in that particular country.
In-house facilities management
When companies manage their own assets, they call it facilities management, observes Williams. But for awhile, it looked like it could be called dinosaur, as more and more corporations began to close out the in-house facilities management staff and outsource the work.
However, a recent survey by the Houston-based International Facility Management Association (IFMA) reports that out-tasking, the hiring of individual, specialized vendors to provide one or more functions, is more widespread than outsourcing.
In addition, Richard Cooper, chairman of IFMA and manager of property administration for Yellow Freight Systems Inc., says that while organizations have turned to outsourcing, many have brought back some of the functions in-house. "The big issue is how do you serve the customer and how do you best serve the customer," Cooper says. "Sometimes that means outsourcing, and sometimes it doesn't."
In September 1993, the International Facility Management Association (IFMA) had 8,200 professional members responsible for aspects of facility management in the service, manufacturing/production, government, education and other sectors. To better understand how its memberswith the outsourcing and out-tasking of facility management functions, IFMA retained Gelb Consulting Group Inc. to assist in conducting surveys on outsourcing with IFMA members and selected outsource advisers.
On June 23, 1993, the IFMA research department mailed questionnaires to a random sample of 1,500 U.S. members. By the cut-off date of Aug. 16,506 completed usable questionnaires had been returned, for a net response rate of 34%. The results of the survey have been published by Gelb for IFMA as Research Report #10 Outsourcing.
An indication of the pervasiveness of outsourcing/out-tasking is reflected by the finding that about one-third of the respondents know of at least one facility manager whose position has been eliminated as a result of outsourcing.
Some results of the survey are mentioned below and illustrated on following pages.
Reasons for outsourcing
According to the report, almost all of the surveyed facility managers who were involved in outsourcing/out-tasking reported that cost reduction had been "very" or "somewhat important" in their company's decision to begin outsourcing/out-tasking. However, all reasons listed in the survey were considered important by at least three-quarters (74%) of the respondents. The importance of these reasons to outsource/out-task did not vary significantly by size or type of facility.
Advantages of outsourcing
Three-quarters of the facility managers in the survey reported that their companies realized lower personnel costs and improved access to specialty skills as results of outsourcing/out-tasking, according to the report. Only one facility manager said his/her company had found no advantage to out-sourcing/out-tasking.
Disadvantages of outsourcing
The most common disadvantage of outsourcing/out-tasking was that out-source/out-task workers are less in tune with company needs than are direct employees. More than four in 10 facility managers disliked the time-consuming bidding process and about a third each experienced slower response to problems and a loss of control. One in eight facility managers found no disadvantages to outsourcing/out-tasking.
Please contact IFMA's research department at 1 East Greenway Plaza, Suite 1100, Houston, TX, 77046-0194 for additional survey information. The Outsourcing Report costs $50 for members and $100 for non-members. Today, IFMA has more than 12,700 members in 108 chapters located throughout the world.
It seems that every project in the business world starts with the selection of team members. Facilities managers are especially familiar with putting together a team. Whether renovating the corporate headquarters, constructing a new regional office or placing a computer system in a department, facilities managers constantly strive to coordinate the physical workplace with the people nd work of an organization. The magnitude of many of these projects calls for assistance. Teams often include the facilities manager, an interior designer, a construction manager and an engineer.
Facilities managers are adept at dealing with a variety of team players and assuring that management's goals and objectives are met. While upper management may be concerned with the bottom line and employees may be worried about their comfort, facilities managers strive to find the balance.
The International Facility Management Association (IFMA), a non-profit, professional association comprised of more than 12,800 facility-related professionals, has defined nine major functions of facilities managers; three of which directly relate to the work of interior designers, engineers and construction managers.
In this age of downsizing and rightsizing, it's rare to find an organization with an array of in-house specialists to complete every facility project. However, a facilities manager may be on staff to provide a productive environment and keep things running smoothly. When a project calls for the gathering of a team, the facilities manager often takes a leadership role. Acting as the liaison between the team and upper management, the facilities manager can assure that costs are in line, the job is getting done within the determined time frame and the team works as a group to meet specific goals.
Much has changed in the past decade. Not too long ago, it was common to find firms with a specific service. An interior design firm might specialize solely in space planning and an engineering consultant might deal only with electrical applications. Today, those firms may offer a variety of services. One firm may offer interior design, engineering, architect and construction management. The facilities manager must determine what services are needed, who should supply them and what price should be paid for those services.
While selecting the firm, the facilities manager evaluates the personnel assigned to the project to assure that capabilities match up with the work scope. The importance of this may not be immediately understood. However, there have been some instances where a service firm presented its high-level employees at pre-selection meetings and then had less experienced staff work on the account. It's up to the facilities manager to assure that "what you see is what you get."
There are many standard contracts used when dealing with service firms. The facilities manager should tailor standard contracts to specific projects and get as much information in writing as possible. The "in-writing" policy is in the best interest of everyone, since the consultant has plans and goals laid out and the client has such information as planned strategies and fees on paper.
Every facility project undertaken by an organization is unique and requires its own plans and rules. Responsibilities of team members should be dictated for the scope of the work, not by preconceived notions of what each specialist must handle.
On any team, members must be allowed latitude to produce the best work possible. A positive and cooperative environment should exist so the team can work together to solve problems and take advantage of opportunities. In facility projects, a facilities manager often is the project leader, assuring that corporate goals are met, end-users are satisfied and costs are kept within check. The facilities manager strives to keep the lines of communication open and work with team members not as a dictator but as a facilitator.