richard maraček bratislava, 1. júna 2011

Strategický pohľad na Facility management

Bratislava, 1. júna 2011

Richard Maraček Principal, A.T. Kearney

Konferenčný príspevok

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Agenda

Introduction

Selected trends in Facility Management

Key success factors of building of strategic partnerships

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Introduction

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A.T. Kearney combines global insights with local expertise, wherever our clients operate

• 50+ offices in 37 countries

• More than 2,500 colleagues

• Growing 1 billion USD revenues company

• Amsterdam

• Berlin

• Brussels

• Bucharest

• Copenhagen

• Düsseldorf

• Frankfurt

• Helsinki

• Kiev

• Lisbon

• Ljubljana

• London

• Madrid

• Milan

• Moscow

• Munich

• Oslo

• Paris

• Prague

• Rome

• Stockholm

• Stuttgart

• Vienna

• Warsaw

• Zurich

Europe

• Abu Dhabi • Dubai • Manama • Riyadh

Middle East

• Bangkok • Beijing • Hong Kong • Jakarta • Kuala Lumpur • Melbourne • Mumbai

Asia Pacific

• Atlanta

• Boston

• Chicago

• Dallas

• Detroit

• Mexico City

Americas

• New York

• San Francisco

• São Paulo

• Toronto

• Washington, DC • New Delhi • Seoul • Shanghai • Singapore • Sydney • Tokyo

Introduction

Source: A.T. Kearney

Our global presence

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Our problem solutions are generated through combination of market know-how and functional competence

Sustainability

Strategy and

finance

Procurement

Solutions and

supply chain(1)

Operations

Innovation

Transformation

and change

management

Se

rvic

es

Industries

Transport-ation

Aerospace & defense

Comuni-cations & high tech

Govern-ment and

public sector

Process industries

Financial institutions

Consumer & retail

Pharma-ceutical & healthcare

Auto-motive

Chemicals Steel Utilities

IT strategies

Complexity

management


Introduction

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Types of projects

• Strategies & Restructuring

– Business strategies

– Pricing

– Support of M&As, PMI

– Performance benchmarking

– Process re-engineering

• Operations

– Procurement organization and strategic

sourcing, incl. facility mgmt

– Production strategies

– Supply chain

• Strategic IT usage

– IT compliance with business targets

– IT security and competitiveness

– CRM strategy

Selected clients

Also in the Czech and Slovak markets we worked for major companies across various industries

Selection Client examples from the Czech and Slovak market

Introduction


http://t-mobile.cz/cms/?menu=1

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Current trends encompass moving from FM to growing IFM services based on changing outsourcing models and more complex pricing



FM category tree

Selected trends in FM markets

• FM industry is moving towards Integrated Facilities Management (IFM), which comprises internal and outsourced facility and maintenance services

• IFM industry is expected to grow in Europe at slower rate than NA, with the UK representing about 46% of the total market (see below)

• European IFM industry is moderately consolidated, top 3 players in the European IFM industry account for 28% (see below)

• Outsourcing models change while playing more and more importance

• Price models are getting more complex - shared incentive pricing model is gaining popularity as it rewards the IFM SP for superior performance and results in cost savings for the customer

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14.315.5 15.9 16.5

17.6 18.6 19.9 21.022.6

7.4

7.1

4.3 3.7

5.9 6.5 6.2 6.0 6.3

2007

2008

2009

2010

2011

2012

2013

2014

2015

Revenues Growth Rate (%)

Market Overview – Europe

European IFM industry is expected to grow at a slower rate than NA, with the UK representing about 46% of the total market

Integrated Facilities Management Services Market,

by Value ($ B)

Europe Integrated Facilities Management Market

Share, by Country (%)

100% = $15.5 B

Notes: 1) All currency conversions are at 1 EUR = 1.33 USD as on January 18, 2011

2) Some of the figures in the graph may not match due to rounding off; Base Year is 2008 Source:‗European Integrated Facilities Management Markets‘, Frost & Sullivan (June 2009)

6%

5%

France 8%

Italy Benelux

UK 46%

Germany 23%

IFM services market in Europe

(2) (2)


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Competitive Landscape – Europe

Top three players in the European IFM industry account for 28% of the market share, making it moderately consolidated

Europe IFM Market Revenues, by Players (%)(2)

100% = $15.5 B

Notes: 1) All currency conversions are at 1 EUR = 1.33 USD as on January 18, 2011 2) Some of the figures in the graph may not match due to rounding off; The base year is 2008 Source:‗European Integrated Facilities Management Markets‘, Frost & Sullivan (June 2009)

Carillion FM 14.0%

Johnson Controls 9.0%

Gdf Suez 5.0%

Dalkia 5.0% Others

67.0%


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To build a strategic IFM partnership we recommend to follow a structured well-defined approach

Illustrative Building of strategic partnerships


Assessment (current & future status)

Selection and negotiation

Transition Partnership

mgmt

• Business and FM Strategy

• Opportunity potential

• Processes and interfaces

• Organization

• Existing contracts

• Budget and resources

• Scope

• Outsourcing requirements / SLA

• Analysis of cost, benefits, risks

• RFI long-list of service providers

• RFP short-list of partners / service providers

• Evaluation criteria

• Negotiation strategy

• Contract structure

• Pricing models

• Interfaces and governance

• SLA bonus/ penalty systems

• HR / asset transfer

• Transition

• Communication

• Change mgmt

• Governance boards and interfaces

• Performance reviews

• Periodic bench-marking

• Renegotiations of contract

Assessment of current status

Definition of future status

RFI/ RFP process

Business Case

Contract negotiation

Implemen-tation

Partnership Mgmt

• Evaluation of proposals

• Business case

• Risk analysis

• Selection of service provider

Note: IFM – Integrated facility management Source: A.T. Kearney knowledge database

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To ensure successful realization several imperatives need to be fulfilled

Selected key success factors (KSF)

• Assess what are the potentials of outsourcing of FM service provider

• Identify and mitigate early on the corresponding risks, keep on managing risk continuously

• Assess the current status (strategy, processes, organization, contracts, budgets)

• Define the future status based on requirements on the FM service provider

• Create flexible platform for long-term FM partnership building

• Develop a state-of-the-art SLAs

• Enable effective and efficient management of the SLAs


Business case and risk mgmt

Current and future status

Partnership mgmt

Contract structure

1

2

3

4


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At the beginning diagnose your current status and outline the future strategy and concept

Current and future status

KSF area Typical client questions

1

Tactical considerations

Strategy definition

Optimization of ROA

• Which tactical topics need to be taken into account?

• How shall we operationalize the IFM strategy?

• What are the key strategic considerations for building an IFM partnership?

• How shall we derive the IFM strategy from the business strategy within the context of our organization?

• We strive for maximization of ROA? How shall we proceed?

• What are the main levers to optimize ROA?

Source: A.T. Kearney project experience


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A number of strategic and tactical initiatives form part of the Integrated Facilities Management Strategy

Note: Colours in tactical circles reflect link to strategic question Source: A.T.Kearney

Strategy definition – Model of Integrated Facility Management

Corporate Strategy

Organization Implications

Integrated Facilities Mgmt

Strategy Achievement of financial goals (e.g. return on

assets)

HR Strategy

Provision of the best cost-

service combination

1. Formally engage the

supply market – RFP process 2. Short Term

Facility Rationalization

3. Employee Facility

Infrastructure

4. Unique Asset

8. RE Sales and Acquisitions

9. Special Projects

7. Leases

6. Tele-commuting

5. Facilities Management

Which functions should Client retain in

house and which should be

outsourced? How can Client

consolidate and rationalize

lease space to reduce

costs?

What is the

optimal facility

strategy to

support Clients

resource

requirements

How can Client

obtain the highest

yield or best use for

the Facility?

What is the optimal

level of cost-service?

How can Client provide flexible

arrangements for employees to

enhance quality of life while at the

same time reduce Facility costs?

How can

Client

maximize

revenue and

reduce cost?

How can Client

maximize

revenue, be

responsive to

operational

needs and seek

sustainable

incremental

revenues?

How can Client ensure it continues to focus on Projects that provide economic value?

Who should deliver the services?

Where should employees be located?

How can the optimal return on assets be achieved?

Strategic

Tactical


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A number of levers were identified to maximize return on assets

De

live

rab

les

Be

ne

fits

K

ey C

on

sid

era

tio

ns

Decreasing Costs Increasing Revenues

Corporate Location Strategy Real Estate Financing Operations Sales and Leasing

• Cost savings

• Increased revenues

• Use of assets to smooth

earnings • Increased revenues

• Savings

• Focus on core business

• Corporate logistics

Alignment with Corporate and HR strategy

• Surplus land and buildings

How to maximise revenue opportunities

• Departmental Needs Assessment

• Alternative locations analysis

• Current lease analysis

• Relocation strategy

• Identification of potential revenue opportunities

• Quantification of value-in-use

• Own vs. lease

• Sale/leaseback

• Run-rate/financial engineering

• Real Estate Investment Trust

• Monetization of revenue stream from key assets

• In-house vs. outsourced service

• Internal process improvement (sourcing, vendor mgmt, project mgmt)

• Asset data - Asset locations, types, square footage, equipment values, preventative maintenance, market/book values, etc.

• In-house performance benchmarking

• Outsourcing strategy and quantification of opportunity

• Sourcing (RFIs and RFPs)

• Governance plan

• Implementation plan

• Business case

• Options analysis on core assets

Highest and best use

• Identification of ownership options

• Owned assets

Lease-up potential—land vs. buildings

Alternative revenue sources—signboards, parking, etc.

• Leased assets

Rationalization of space requirements allowing sublet at current market rates

• Identification of revenue opportunities

• Benchmarking of current performance versus market

How can we achieve the optimal return on assets (ROA)?



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To make a qualified decision assess thoroughly the alternatives, incl. their corresponding risks

Business case and risk management


Business case

Financial and risk assessment

Risk management

• How shall we structured business case in case of building a strategic IFM partnership?

• How can I leveraged my IFM strategy, incl. maximization of ROA?

• How shall we get an assessment of the IFM partnership in the most efficient way?

• Is the corresponding business case not enough? Why?

• Everybody speaks about the risk management shall I really invest in it?

• We did identified risks, how should we maximize our efficiency in managing and mitigating them?

2



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When assessing outsourcing alternatives we consider a combination of financial and risk indicators

Outsourcing possibilities

NPV (€ mil.)

Risks Opportu-

nities Present Optimi-

zed

Full 9,8 7,2

Partial 8,9 6,3

Assessment of outsourcing alternatives

Risks

Risk analysis

Opportunities

Net present value (NPV)

Costs of outsourcing

Financial assessment Risk assessment

Costs of in-house services

Final assessment

High

Low

Client example



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For every risk probability of occurrence and impact on the company has to be determined

Low Low

High

High

Potential Impact

Probability

R1

R3

R2 R4

Probability and impact of identified risks

Carefully monitor

Actively manage Register

Implement mitigation actions

Illustrative

Source: A.T. Kearney knowledge database


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Monitor and report

• Monitor all risks and implementation of mitigation actions

• Support program/project mgmt in conduction of ad-hoc risk analyses

Risk management process

Risk management process is a continuous process with regular reporting

• Implement proposed mitigation actions and

• Dedicate responsible for every action

• Identify possible issues of the program/project that may become risks

• Consider three imperatives - quality, budget and time

• Propose actions that reduce the impact or the probability of the identified risks

• Plan and ensure their execution

• Assess the identified risks of its potential impact and probability of occurrence

• Prioritize among the identified risks based

Source: A.T. Kearney knowledge database

Identify

Risk management

process

Assess and prioritize

Implement mitigation actions

Propose mitigation actions


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Invest in development of the contractual terms and conditions based on sound SLA definition

Contract structure


Performance targets

SLA definition

“Supporting” functions

• How to use KPIs in the most pragmatic way?

• How to set up performance targets, which are fact-based?

• How the performance shall be interlinked with pricing (bonus/malus)?

• There are different ways to defined SLAs, which do you recommend?

• The service catalogue is a nice piece of documentation. How can I leverage it? Do I need to have a service catalogue at all?

• There are many ―supporting‖ functions which are rather tedious (e.g. reporting, implementation of changes). How should I conduct them?

• How and where shall we defined the set of ―supporting‖ functions?

3



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Well-defined ownership enables transparent (i.e. SMART) specification of SLAs

Nr. Service

specification

Service inputs/assumptions Service output KPI 1)

SLA 2) (incl. values of KPI)

Specification Responsible Specification Responsible Target Tolerance y/n3)

… …

… …

Description of selected items

(1)Key Performance Indicators (KPI) define measurable parameters, which indicates level of service

provided, usually in the following categories: quality/quantity, time, efficiency, backlog, etc.

(2)Service Level Agreement (SLA) is a formally negotiated agreement of two parties, service provider and its

customer. Its aim is to establish a unique understanding of the service quality (usually based on a set of

KPIs), priorities, responsibilities, etc. SLAs may cover many different aspects of a relationship between

service provider and its customer.

(3)Indication whether or not a given SLA is a part of the pricing mechanism, esp. the part related to annual

bonus/malus.

Specification of service level agreements (SLAs)

Note: SMART - Specific, Measurable, Aligned, Realistic/Relevant, and Timely.



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“Supporting‟‟ functions and activities – Examples & Principles

„„Supporting‟‟ functions and activities have to be treated in the same way as „ordinary“ services provided by SP

Examples of so-called “supporting” functions and activities encompass various testing, development and administration of documentation, participation on projects

Principles

Definition

Scope

Evaluation

• Has to be part of service catalogue

• Need to be underpinned by dedicated SLA (based on a set of KPIs)

• The scope of providing ―supporting― functions may not be reduce to the actual activity, it needs to encompass:

– Preparation

– Support of mgmt and control

– Monitoring & reporting

• Regular evaluation of reported KPIs, incl. ad-hoc/root-cause analysis

• Annual/Semi-annual analysis of customer satisfaction (interviews, questionnaire)

Note: SP – Service provider Source: A.T. Kearney


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Sound contracts, incl. structured SLAs are not enough, we all strive for efficient and effective long-term partnerships

Partnership management


Long-term partnership

“SLAs are not enough!”

• How shall I sustain the long-term partnerships, while still keeping the control with the service provider?

• What are the efficient and effective ways to manage and nurture partnership?

• I did not have structured SLAs and the cooperation was not optimal. Now, I have detailed SLAs and I still do not feel comfortable…

• How can I ensure required flexibility in the contractual relationship with my service provider?

4



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Establishing

Policy

Performance

Measurement

• Determination of IFM services strategy

• Provision of guidance regarding clear roles and responsibilities

Demand

Management

Supply

Management

• Identification of demand and prioritization of demand levels

• Resolution of conflicts (e.g. differences in interests of internal customers)

• Decision on functions provided by IFM SP or FM sub-contractors

• Definition of guidelines for continuous improvement of service delivery

• Determination of performance targets and approval of annual plans

• Supervision of regular monitoring and reporting of IFM SP

Service

Pricing

• Validation and approval of pricing mechanisms and budget changes

• Validation and approval of contractual changes

To ensure the efficient governance we recommend to create a Partnership Oversight Committee, with well-defined role


Typical roles of Oversight Committee


richard maraček bratislava, 1. júna 2011

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