Marriages of Convenience
As markets mature, the benefits of outsourcing corporate services become clearer, but does jumping into bed with someone long term always work out? RFP speaks to three different companies and compares their experiences.
Outsourced relationships, in many ways, can be compared to marriage. Both sides can benefit from each other’s strengths, get to know each other and mature to work with each other’s style. Like a money-obsessed newlywed, service providers will often couch the value of a long-term relationship in terms of the inherent efficiencies it will achieve. Similarly, just as in marriages, not all parties will require the same level of servicing or have the same demands. Accordingly, companies are now seeing that personal relationships and the ‘hassle factor’ of switching to another provider is a very good reason to stick with the devil they know.
The Pre-nup
Not all corporate outsourced contracts are the same across subsectors. Daniel Boy is the General Manager at Asia Airfreight Terminals (AAT), which has recently renewed its facilities management contract with service provider Synergis Management Services for the third time. AAT outsource all their corporate support services. They manage these services through a small-in house specialist team reporting to the general manager. For example, the in-house engineer manages the engineering services contract, the security specialist manages the security contract and so on. This “neat arrangement” lends itself to aligning with service providers over a long period. It is also good when new AAT staff are hired they find themselves working with a team that knows the ropes, explains Boy. While AAT and Synergis are entering their third contract, AAT doesn’t rush into relationships quickly. The first contract is generally only signed for two years, allowing ample time for both vendor and client to see if the relationship works before committing for the long haul. However, despite taking this cautionary step he reveals all the suppliers that they currently use have been with them since day one. They are also faithful to just one vendor per service sector across all their buildings to leverage economies of scale and for efficient administration.
Scott Dunn, Regional Managing Director, Planning, Design + Development for Southeast Asia, AECOM, estimates that 80 percent of work in his sector is outsourced. Leading a multi-disciplined group, he aims to secure contracts in multiple areas, which also lengthens the duration of the relationship. For example, AECOM is often retained to go back and update maintenance manuals and ensure that the space is operating in the manner that it was designed. While the average contract generally spans just one or two years, certain clients prefer to retain services right through until after the development is operational.
Another Architectural Model
While this project-based contract tenure is typical of architecture planning and design companies, Dunn says they are currently in a unique relationship with one client. This client has numerous projects of a similar nature that they plan to roll out across the Asia Pacific region and they wanted to work with one company for all of the projects. This win-win arrangement means that a contract’s terms, fees and relationship structure only need to be negotiated once. Each contract includes a contractual mechanism for the inevitable changes that will come up in the design and scheduling of each of the designated projects. The client can even add projects and still work within the same structure.
This concept offers a much larger resource pool to the client particularly in the area of technology and technical skills that can be made available to each of the projects as required. From the service provider’s perspective it allows them to develop the client on a much larger level. According to Dunn the arrangement helps to shape their relationship with their client on a more global platform. Working with clients that you have worked with in the past is particularly beneficial in locations where the client is entering for the first time but where AECOM already has a presence. By knowing both the location and the client they are much better able to determine challenges and opportunities that a particular client might have in that specific location.
Moving Around
Gary French, Corporate Services Director for Crown Relocations Hong Kong, offers a number of different services to clients around the region and notes that, particularly for the office and staff relocation services, the standard duration of an outsourced contract for staff relocation and other managed services is two years, generally with a new tender or option to renew coming up each year. Office relocation projects happen more rarely and generally last for the duration of the project, say four to six months, though often it is the same department with which Crown has both relationships. French says that “most companies see the value in working with a single provider regionally or globally across multiple services as they will be familiar with our systems and account managers and see one point of contact as better than multiple.” But not all companies can make the relationship work out longterm. Boy says that the outcome often depends more on the character of the companies involved then on other factors. He describes the relationship with Synergis as comfortable because of the flexibility they allow each other with regards to KPIs and service levels. He also appreciates the seemingly little things. “Synergis security and cleaning personnel know us. They know who is AAT and who is not” which is not only great for security but makes people feel part of a team. Regardless of the type of facility, he continues, it is still FM so the service and responsiveness are key. Other key benefits when remaining with a long term partner, says French, is that a client will not have to spend time and waste resources rebuilding processes and implementing new systems and workflows. In today’s market clients do look closely at cost but other factors, such as financial stability, reporting and multi-currency invoicing capabilities do count. The same holds true in both design and in FM as much as for relocation. French provides an example in the drive for sustainability and meaningful Corporate Social Responsibility programs are now a part of every RFP (request for proposal) that comes through the door.
Relationship Healthcheck
A series of key performance indicators (KPI’s) will normally have been built into the contract and are a good way of tracking how the relationship is progressing, usually on a quarterly basis. French deals with local, regional and worldwide contracts and notes that once the geographic ambit of the contract has been determined the parties move on to establishing the scope of services. This can extend beyond shipping household goods to as far as helping staff find schools and acquiring visas. It is important to keep the contract current. French notes there are some aspects of the contract that may change from client to client over the course of a relationship. Obviously, the number of people that they are moving or working with may change as the company reacts to business conditions; but other less obvious variables include highly variable shipping costs and currency exchange fluctuations.
Seeing Other People
While service providers generally find the re-tendering process to be an inevitable annoyance (at best) especially as some clients will go out to tender just to benchmark costs with no real intention of hiring a competitor. But, says Boy, if nothing else this is a great opportunity to benchmark against market best practice and companies that never re-tendered may miss out on important market developments. It can also provide an opportunity for the vendor to make sure they are still competitive. French says, “Obviously when they first hired Crown they liked what it had to offer and it is unlikely that this will have changed over the course of a year. The only exception is when a new company or a company that is trying to increase market share significantly underbids with the hope of gaining key clients and then increase rates on renewal.” Dunn notes that there have been many re-tenderings aimed at getting price cuts in the past year, but for architectural services it is unusual for it to happen midproject. Generally, the designer will have known about it in advance, for example if following the first phase the client decides to move to a more cost-effective solution for the remainder of the project. It is far more often that the relationship goes south after a client hits financial difficulties.
Break-ups or Bliss
There are many reasons that break-ups happen. Sometimes, a client may feel that the relationship has gone stale, or fresh blood may be needed. French says that many times things that prompt a change might again be linked to personal issues. For example, if there is a change in manager on the client side, he or she might have a preferred vendor and decide to switch once the contract is up. It seems that across all subsectors there is one common quality that makes a long term relationship work. In a word says Dunn, “service”. Which comes down to both sides going out of their way to get the best from the relationship and making sure everyone’s needs are catered for.
