From Cost To Profit
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Moving FM from a cost centre to a value centre involves integrating facility management with workplace productivity and talent management, argues Alan Masterton.
In the current, credit squeezed world of corporate real estate, facility management (FM) risks falling back into its historic, cost constrained role of reactive repairs and maintenance and endless lobbying for a fair share of the corporate budget.
Over the past thirty years facility managers became increasingly influential through applying the techniques of life-cycle costing; highlighting that a property’s operational cost over its lifetime could easily exceed its capital cost. This life-cycle approach had particular appeal in the sophisticated world of property trusts and public-private infrastructure, where institutional investors demanded clear alignment and transparency between the risks and rewards of long term ownership.
This influence has not extended to the same degree in corporate real estate, where building occupancy costs are relatively small compared to the traditional, “big three costs” of staff, purchasing and rent. The public sector likewise, despite frequently leading the way in the techniques of total asset management, often finds it difficult to maintain the funding commitment to match its long term asset liability forecasts.
But it needn’t be so. In corporate real estate, maintaining a quality building environment should be viewed as an investment in workplace productivity.
In the quest for efficiency and effectiveness, top performing corporations are beginning to view costs such as IT and building occupancy as investments in workplace productivity, rather than costs which were traditionally resented and cut to a minimum. Governments too, mindful of their electoral communities, are keen to demonstrate the overall value of their services by ensuring that costs and tax burdens are balanced by quality outputs. This emphasis on investment is having the greatest impact in the HR and IT departments, where the pressure of the “talent crunch” has been escalating in line with highly mobile workforces and the use of enterprise-wide systems to automate and control an increasing range of business processes. FM is an increasingly important factor in the war for talent.
For example in the higher education sector, demand for researchers is soaring as more and more countries seek to develop their educational skills base and strengthen their economic competitive advantage. Ensuring a well supported, high quality research environment via a proactive FM program can make a powerful contribution to a global recruitment campaign. Similarly in the business services sector, seeking efficiencies from outsourcing and shared service consolidation has magnified the need for highly skilled, techno-literate staff to operate the ERP platforms on which much of the efficiencies depend.
At the University of Sydney, we too seek to balance the competing factors of cost efficiency and service quality. To assist with the budget allocation process for our service divisions, we apply a matrix of high performance drivers, benchmarked against world class standards. This ensures that the desired outputs of service satisfaction, productivity and efficiency are supported by the necessary inputs of technology, process and capabilities. So how can facility managers in corporate real estate apply these value-focused trends? Increasing the relevance and authority of the FM department requires providing the corporate decision makers with greater clarity and understanding on the links between FM and the corporation’s core activities.
In the same way that life-cycle costing rose to prominence in sectors whose core activity was the long term ownership of assets, corporate FM departments must likewise attempt quantify the risks, benefits and leverage of their activities on the core business. Most corporations in the developed economies operate in skill intensive and technology intensive environments, where staff are increasingly aware of their scarcity and value. The challenge of employee recruitment and retention is one of the key activities of the modern HR department, with benchmarks indicating that world class corporations suffer only half the attrition rates of their peer groups.
For investment analysts and risk managers, employee attrition rates indicate the rate at which money is literally walking out of the corporate door. The impact on shareholder value is clear and quantifiable: the cost of a new recruitment program, the lost productivity until the new recruit is inducted and moves up the learning curve of the role.
FM, whilst often not the primary cause of voluntary termination, frequently can be a contributing factor. The attraction of an accessible, modern and employee-friendly workplace can prove the final incentive to quit the current employment. Facility managers are well advised to seek guidance from their HR colleagues on the key messages from the employee exit interviews and the cost burden that can be traced to a low quality environment.
An even greater impact on shareholder value is workplace productivity and the rate of change that now occurs within corporations. For example, a typical billion dollar corporation can expect to undertake 25 process improvement projects each year and on average will be involved in a major acquisition or divestment around once every seven years.
This degree of change requires large efforts by HR and IT in terms of forming and reforming corporate business units and processes in line with such improvements and acquisition / divestment activity. FM can a play key role in workplace productivity through the adoption of building designs that can be more easily re-configured to suit changing business circumstances.
A recent survey on corporate real estate practices by DEGW for CoreNet Global indicates that organisations will be more likely to pay a premium of over five percent for flexible workplace design and contract terms . More importantly, two thirds of the respondents believed that the integration of the corporate real estate function with IT and HR will be accepted as industry best practice in the future.
Closer co-operation or integration of these three departments will have a significant impact on the way in which their services are planned and delivered and will facilitate the relentless drive for efficiencies and effectiveness. In most cases, service integration will require each discipline to broaden their training in order to increase appreciation of how the others perform their services and evaluate how the collective service can improve workplace productivity.
For the corporate “customers”, integration of FM, HR and IT should improve service levels through the provision of a more pro-active and coordinated approach. The integration of FM, HR and IT will have a significant impact on the way in which their services are planned and delivered. For corporations, integration should increase enterprise value by ensuring more productive and flexible workplaces. For FM, demonstrating a clear alignment to the high performance drivers of skilled staff and technology should enable corporate FM departments to shift their focus solely from cost efficiency to a broader, enterprise-value base of cost efficiency, workplace productivity and talent management- finally shifting FM from a cost centre to value centre.
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