Outsourcing versus Insourcing in a Cost-Cutting Climate

To have or to hold

With cost-cutting still an economic necessity for FMs, the question of whether or not to outsource services has never been more relevant. You need to ensure you balance short-term gains with long-term efficiencies when making your decision.

by Kevin Stanley

FM quick facts

  • Value of the contracted-out sector anticipated to reach £77.5 billion (at 2008 prices) in 2013
  • Anticipated growth of contracted-out sector partly attributable to rising trend for companies to outsource non-core activities to focus on core activities and gain expertise
  • Value of internal FM projected to increase to £126.9 billion by 201.
  • Segmentation of UK market for contracted-out FM, by service, 2008, top three:
    Cleaning £13.3bn (19 per cent)
    Catering £12.4bn (18 per cent)
    Security £9.7bn (14 per cent)

Which is best — insourcing or outsourcing? The issue has long been a source of debate. The key drivers of large-scale outsourcing are cost reduction, efficiency and the expertise, knowledge and support gained from a specialist provider.

What better time to put outsourcing to the test than in a recession, when every penny counts? In a downturn companies must take advantage of any strategy that might give them a competitive edge. Can outsourcing non-core sections of your business allow you to concentrate on more important elements? Richard Thompson, managing director of PBMS (UK & Ireland) believes it can: “In an economic downturn, outsourcing is a smart way to get your organisation moving forward. Managing processes internally can distract an organisation from focusing on growing the business and from being flexible and can possibly contribute to missing out on growth opportunities,” says Thompson. “Sometimes people fail to act in this type of economy, to create positive change through a new partnership.”

Indeed it seems that the prominent opinion in these tough economic times is that more organisations should be outsourcing their FM in an effort to cut costs. “In this economic climate, cost is critical. Businesses need to be more robust when dealing with suppliers by benchmarking service provision and working closely with them to drive value and achieve savings. Outsourcing gives access to the skills and knowledge that will help reduce expenditure while improving service quality,” says Tony Sanders, managing director, commercial, at Interserve Facilities Management. “In fact, we would often argue that businesses should move to the next level of outsourcing, from single to bundled, or bundled to total, to help drive further value across their assets,” says Sanders.

However, organisations are now clearly being more frugal with their money than ever. The question is, are companies willing to spend money to save money? Johnson Controls Global WorkPlace Solutions (GWS) advises companies to concentrate on their core business and outsource FM services to an external provider. “But companies should feel free to challenge the outsource process too,” says a spokesperson for the company. “This can typically extend over 12 to 18 months and use up large quantities of internal or costly consulting resources. Companies should be careful to choose a reputable supplier, with a good track record, because benefits can be delivered within a few weeks.”

The burning question

Outsourcing pros and cons

Advanced Workplace’s Andrew Mawson highlights the theoretical advantages and disadvantages of outsourcing:


  1. Focus upon core business — investment of management attention upon core business can detract from back office tasks or infrastructure management.
  2. Cost and efficiency savings: the purchasing power of an outsourcer should provide cost benefits and efficiencies through their specialisation in FM infrastructure.
  3. Staffing flexibility: an outsourced contract can provide flexibility in applying the right level and skill mix of resource quickly and at less cost.
  4. Reduced overheads: spreading the overheads of an internal operation over several accounts can enable the supplier to provide this management service at lower costs.
  5. Continuity and risk management: outsourcing should aid continuity while reducing risk that a substandard level of operation would bring.
  6. Developing internal staff: bringing in new skills from outside can develop your own staff.


  1. Loss of management control: client and provider business objectives are different and this can lead to different management control objectives.
  2. Hidden costs: there are costs incurred in procurement and selection of outsourcing suppliers and in the mobilisation of the contracts.
  3. Threat to security and confidentiality: make sure your data is protected and the contract has a penalty clause if an incident occurs. Issues such as intellectual property rights need protection.
  4. Being tied to financial strength of another company — providers operate in different marketplaces to your core business. Your services are in their hands and this risk needs to be carefully evaluated.
  5. Bad publicity — outsourcing can lead to ill will and poor morale in the rest of your organisation.
  6. Different cultural approaches — businesses inevitably have different approaches so partnerships can be difficult.

With businesses continuing to feel the pressure of recession, some, so caught up in the drama of it all, are not even prepared to listen to advice. What about those still considering taking FM back in house, should they do it?

“A cycle of changing from outsourcing to insourcing is not productive for any business — there is a tremendous amount of work involved and the costs can be substantial. If you bring in house a smaller contract currently outsourced with an external single service specialist, you will lose the expertise that delivered the superior service you previously enjoyed,” warns Martin Whitten, of Arena21. “Where a service sits should be a strategic decision designed to support the business, not a reaction to the vagaries of the economic cycle,” he says.

Andrew Mawson of Advanced Workplace thinks, however, that the most important issue is to consider what kind of FM capabilities a business needs and what is the best way of sourcing and sustaining them. “The idea that outsourcing reduces cost is only true when your organisation is flabby, has poor processes and is not buying services competitively — the question is whether you think you can do it better than an outsourced provider or whether you want to build a capability to do it,” says Mawson. “The decision to insource or outsource should embrace a range of issues, cost being only one of them.”

For businesses still unsure of whether to outsource non-core activities, does the lure of outsourced FM providing them with better services and skills than its internal staff can act as an incentive?

“This is the main reason why companies and organisations appoint us,” says Sanders. “Our specialist expertise and the economies of scale we can access through turning over £1.8bn of business a year mean we can deliver on both quality and cost. Staff development throughout the organisation is fundamentally important to our business,” he adds.

Interserve was one of the first companies to sign the government’s Skills Pledge, a voluntary public commitment to guarantee all employees the chance to realise their potential through training. The company subsequently rolled out a new training platform that gives their employees the opportunity to develop skills while working towards relevant and valuable qualifications, such as the FM and cleaning apprenticeships developed in conjunction with Asset Skills. “All employees have the opportunity to develop their careers, which leads to a more motivated team delivering services for our clients,” says Sanders.

A major factor against outsourcing is the fear of leaving in-house staff underskilled. Is this a genuine potential problem? “It certainly shouldn’t be,” says Whitten, “but this is the real world. Businesses should drill down into the detail to discover what kind of training and development the outsourced employees would really receive. Most companies include a charge for training in their proposals, but you need to ask what this delivers?”

Whitten advises companies to request training plans, records and course details. “We’re happy to back up what we offer by including a contractual commitment to training in our contracts,” he says. “Will the companies you’re considering do that? They certainly should.”

So can outsourcing result in receiving better service and skills for less than paying your own staff? “Outsourcing FM means companies have access to the highest levels of services and innovation in the industry,” according to Johnson Controls GWS. “The company has a talent pool that works on client accounts such as Barclays and Shell. Outsourcing can help clients save money — positively impacting the bottom line. Over the past 10 years Johnson Controls GWS has delivered $3 billion in savings for some of the world’s largest companies and is currently providing FM to the UK’s BBC property portfolio. Again Johnson Controls GWS reiterate the point that outsourcing FM allows companies to concentrate on their core business.

Cost implications

There is evidence to suggest that the recession has played a part in making outsourcing a more popular option, but have outsourcing costs increased or have the services being provided changed at all?

“The downturn hasn’t increased the cost of outsourcing, but there has been a definite shift in focus. Clients are looking to achieve greater savings and cut costs to ensure they remain competitive,” explains Sanders. “These shorter-term gains need to be balanced with long-term efficiencies. We work in partnership with our clients to evaluate service delivery and best practice to ensure services drive efficiencies and value on a daily basis.”

Julie Kortens, head of FM at Channel 4 Television agrees: “The recession has made outsourcing agencies more focused on service delivery, ensuring their teams are well managed,” she says, before summing up her experience of outsourcing: “There have been many advantages to outsourcing our services. Partnering with organisations whose core business is the service that you require means their training and development is geared to the provision of the service you need,” she says.

“Outsourcing has vastly reduced the amount of time and management expertise required to manage and motivate the team. Outsourcing responsibility for the likes of sickness and disciplinary issues allows me to focus on more strategic issues,” concludes Kortens.

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