1 April 2019 | Stephen Gathergood
Outsourced facilities management is continuing to defend itself in the glare of a national spotlight. For this month's Think Tank poll we asked if you think the market is changing to favour smaller providers?
Here is Stephen Gathergood's opinion on what he thinks is happening.
The market has changed. No longer is facilities management the business that it was five let alone 10 years ago.
That doesn't necessarily mean that the smaller players are any more favourable than the larger ones - it all comes down to how the organisation is run and managed.
Some FM organisations have sought growth, but not necessarily growth through smart practice and delivery efficiencies but growth through more hostile means, through mergers and acquisitions. Although not always obvious, as organisations retained their trading names (the power of brand being considered more important to retain customers and acquire new ones), over time these acquisitions transitioned to inherit the name of the acquiring organisation.
This 'forced' growth by stealth rather than through carefully considered and controlled expansion has created organisations that need to survive by any means.
Often this translates to survival by taking lower-margin commissions, often below market levels as well as accepting higher levels of risk; the necessity to then deliver positive financial returns places even more pressure on organisations and the consequence is regretfully foreseeable and unfortunate.
FM is a 'long game'; in this respect it has synergies with the stock market. FM can, if managed sustainably, deliver substantial returns over time; it is however not a business where profit taking at any level can be sustained. So why do the big organisations seek growth at what would appear to be 'any cost'?
If we consider Interserve's iourney, its roots go back to when Tilbury Douglas acquired the Building & Property Group in 2000, themselves a product of the government's Property Services Agency privatisation in the early 1990s.
In 2001 the group rebranded as Interserve. While Interserve embedded and settled down it kept its eye on the wider market to see how it could expand its service offering to hungry clients that sought the 'unicorn' of FM, the one stop-shop for all facilities-related services.
Five years later in 2006, Interserve acquired MacLennan, a thriving business that was also seeking growth through acquisition. MacLennan had acquired First Security two years earlier in 2004. While Interserve chose to trade MacLennan and First Security under their respective names for some time its eye remained upon growth of market share and increasing the range of service it could offer.
Much happened in the intervening period and then a significant acquisition in 2014 saw the absorption of Initial Facilities into the Interserve empire.
Carillion's story is similar and has surprising parallels.
If such behaviour is fuelled by financial performance, the increasing expectation and pressure from the board, from shareholders seeking returns on their investment, then we must question the role of the independent auditors. Despite this independence, corporate governance and control around business practice still allows and incentivises those in positions of responsibility to allow their businesses to grow irresponsibly.
If we look at many of the smaller facilities providers, guess what? They are still there and most are still thriving. Yes, some have been acquired by other organisations, but they are still trading and offering a service. Do they offer everything? Often not, but they do generally offer a service that they are skilled at and are able to deliver consistently and sustainably. The cost is not too low that it damages revenues and profitability but is set at a level that says, 'you get what you pay for'. Yes, they will still need managing but what company doesn't?
We should not forget also that the FM landscape has changed not only in procurement trends, the 'lowest-cost buyer beware' culture, but also in organisational capability and 'corporate competence'.
It's acknowledged and well documented that we are in the midst of a skills shortage; the industry response is to try and increase apprenticeships through the government's levy and to try to entice younger talent into the industry through increased awareness and promotion of engineering and the sciences through 'Young Engineering forums" and STEM programmes.
For these to succeed there must be more support from manufacturers; building engineering services plant and equipment is so complex these days, even when it doesn't need to be. Add asset complexity to an underdeveloped technical maintenance resource and we have a serious disconnect.
This disconnect means that the service you thought you were buying is not the service that you actually get. In fact, the FM organisation that is suffering from resources with underdeveloped skills ends up outsourcing significantly itself. This decision puts additional pressure on organisational profitability contributing negatively to the organisation's financial performance. And so it goes on a perpetual loop until we recognise the need for change and adapt our behaviours accordingly.
Stephen Gathergood is head of engineering at VINCI Facilities