the refm outsourcing landscape: insight from the front lines
TRANSCRIPT
The REFM outsourcing landscape: Insight from the front lines
2015 Global Real Estate and Facilities Management (REFM) Outsourcing Pulse Survey Results
© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. NDPPS 527556 2
REFM Pulse Survey team
Stan Lepeak Patrice Gilles
Doug Burr Clinton Fairbanks
Director, Global Research, KPMG LLP (U.S.)
Leads research efforts globally for KPMG’s Management Consulting service line, focused on trends, issues, and futures.
Managing Director, SSOAKPMG LLP (U.S.)
Clients include organizations looking to assess service delivery across multiple areas and/or geographies of their support organizations.
Director, REFM KPMG LLP (U.S.)
Strong background across the life cycle of REFM sourcing, strategy, and improvement program management experience.
Manager, REFMKPMG LLP (U.S.)
Know-how covers go-to-market strategy development, internal training and solutions development, supplier identification, transition and implementation, ongoing supplier governance, and transformation.
KPMG LLP’s (KPMG) Shared Services and
Outsourcing Advisory practice recently surveyed
service providers and buyers to get a pulse on the
current state of REFM outsourcing. What we learned
can help differentiate your organization from others.
© 2016 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services.No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 527556 3
© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. NDPPS 527556 4
KPMG’s Shared Services and Outsourcing Advisory practiceWe’re about transformation
The Shared Services and Outsourcing Advisory practice brings a specialized global team of more than 800 professionals within KPMG’s global network of independent member firms operating in 155 countries. Our professionals help clients design, build, and manage information technology (IT) and business processes across the enterprise.
We help clients align their business strategy, organization, and execution to enable them to manage the entire IT and business process life cycle, improving business performance, and laying the groundwork for genuine business transformation.
We apply focused research, automating tools, proprietary data, clear business acumen, and a forward-thinking mindset to provide timely, objective, actionable advice and practical approaches for clients. KPMG’s Building, Construction & Real Estate (BC&RE) practice serves our clients’ needs across a broad spectrum of issues and geographies.
Who we are
What we do
How we do it
KPMG has the ability to help member firms’ clients transform enterprise services to help improve value, increase agility, and create sustainable business performance.
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KPMG REFM Pulse Surveys
Focus on performance, trends, and futures
The Global REFM Pulse Outsourcing SurveyAn annual review of real estate and facilities management outsourcing market trends and individual observations from the REFM “front lines.”
End users actively pursuing or undertaking REFM outsourcing, “Buyers”
REFM third-party advisors and outsourcing service providers, “SPA”
More than 200 survey responses
All major industries and geographies covered globally
Current REFM outsourcing market trends and conditions
Deal drivers, challenges, and service delivery models
Global REFM sourcing trends
REFM outsourcing deal attributes
Facilities management
Facilities services
Workplace services
Portfolio strategy/planning
Transactions/brokerage
Lease administration
Space management
Project management
REFM IT systems
Input sources: Topics evaluated: Primary functional focus:
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Current pipeline growth and new deal pricing pressure Provider focus Contract profitability
Service delivery model preferences Outsourcing deal pricing models and tenure Challenges to successful consummation of REFM outsourcing efforts Major drivers for REFM outsourcing Means to better prepare for REFM outsourcing
REFM Marco and market trends Market characteristics Buyer / SPA planned REFM outsourcing levels Future REFM outsourcing demand levels REFM demand by industry and process Why some processes have not been outsourced
Respondent demographics 2015 survey highlights and comparisons
Presentation content
Overview
Market Trends
Market Conditions
Market and deal characteristics
© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. NDPPS 527556 7
REFM outsourcing respondents by geography and industry*
32%3%4%11% 7%14%17%
All Others
Business Services/Consulting,Construction/Engineering
CPG, Foodand Beverage,Retail, Wholesale
Manufacturing High-tech Products/Services
Pharma/Biotech
Banking, Financial Services, Insurance
AsiaPacEMEAAmericasGlobal
24% 59% 21% 11%
Respondents by industry
Respondents by geography
Source: KPMG 2015 REFM Pulse Survey*Numbers might not add up to 100% due to rounding and multiple selections.
12%
Healthcare
As we heard from people in the field,
several macro trends came to the surface
along with insight into the current REFM
trends.
© 2016 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services.No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 527756 8
© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. NDPPS 527556 9
When we compared responses from previous surveys, here is what we found…
There are a few areas of similarity among respondents:
The standout areas, though, included:
Similar geographic distribution of respondents as in prior years
Similar top demand by industry as in prior years
Similar to prior years, reduction in operational costs (OpEx) remains the top outsourcing driver
Increase in interest by SPAfor business intelligence for REFM reporting systems
Increase in interest by buyersfor outsourcing workplace services in the next 12 months
8%
5%
More interest by buyers in outsourcing routine ops and maintenance22%
Increase in interest by SPAfor reporting system needs for performance reporting and service levels
9%
Increase in interest by buyersto gain economies of scale as an outsourcing driver18%
10% Lower expectations by SPA on growing business in existing accounts.
© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. NDPPS 527556 10
Market overview: The top macro trends
There is a growing bifurcation between “leaders” and “laggards” in the service provider market based on industry and business process experience and diversity of services mix, including cloud and analytics.
Traditional generic and transactional outsourcing continues to commoditize. Cloud and client maturity are major drivers for this, especially in IT. Buyers are seeking more platform approaches tailored to specific industry, geographic, and regulatory needs.
Many organizations’ GBS remain fragmented across functions, geographies, and business units, complicating governance and detracting from potential business benefits. Defined efforts to drive GBS maturity are the norm among more experienced and sophisticated GBS users.
Global business services (GBS), combining onshore, nearshore, and offshore shared services and outsourcing, has become the predominant means through which organizations support global operations.
Negative global economic conditions continue to weigh heavily on organizations’ decisions on how, where, and why they source services globally, though few firms are pulling back from global sourcing of services’ globalization.
Source: KPMG 2015 REFM Pulse Survey
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Market overview: Current REFM outsourcing market trends
Leading end-user organizations have increased their focus on REFM IT systems, reporting, and business intelligence, leveraging their IT systems to coordinate globally and using their data to support the organizations’ overall business goals.
Typical end-user organization expectations are that REFM outsourcing will improve their operational model, introduce leading practices, and drive continuous improvement. These expectations are often met, but when they are not, it is often because of the quality of the on-site service delivery team or not working effectively together with the client as one team.
Reducing costs continues to be the most common reason why organizations outsource REFM services. While service providers’ capabilities and service offerings continue to improve, most of the REFM services outsourced are tactical as opposed to strategic.
The REFM outsourcing market remains very healthy and continues to grow. Firms are bundling REFM services under a smaller number of service providers, to operate under a coordinated model to further reduce costs, drive consistency, and improve governance, controls, and performance reporting.
Source: KPMG 2015 REFM Pulse Survey
One of the more interesting observations was
the discrepancy between REFM buyers and
service providers when asked about near
future outsourcing plans—with buyers being
much more optimistic than service providers.
© 2016 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services.No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 527556 12
© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. NDPPS 527556 13
REFM market characteristics
Many buyers are including technology in REFM outsourcing deals. Buyers value lower cost, ease of administration and reporting functions. SPAs value efficiency brought by using systems they are familiar with. Both groups value having a single source of data.
Buyers are continuing to push sourcing and coordinating new major REFM outsourcing efforts globally, though many buyers continue to manage and coordinate both new and existing outsourcing efforts around geography, business unit, or functional area.
There are a variety of topics high on organizations’ REFM agendas, including reducing cost, improving process performance, improving the workplace to attract talent, and improving sustainability.
There is a continuing trend among organizations outsourcing REFM services to bundle the management of these efforts and associated service provider relationships; buyers are continuing to cede control of higher-level service management functions to third-party providers in the form of more turnkey outsourcing efforts.
Source: KPMG 2015 REFM Pulse Survey
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Next 1-2 quarters Next 3-4 quarters 12+ months out
Future REFM outsourcing plans
33%
56%
11%
44%
41%
15%
50%
23%
27%
Decreased usage of outsourcing
No change in usage of outsourcing
Increased usage of outsourcing
*Numbers might not add up to 100% due to rounding and multiple selections
47%
41%
12%
53%47% 46%
46%
8%
Buyers
SPA
Source: KPMG 2015 REFM Pulse Survey
In a business landscape where
organizations seek to differentiate
themselves, there were several
processes and industries that led in
demand for REFM outsourcing.
© 2016 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services.No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 527556 15
© 2016 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. NDPPS 527556 16
Buyers: Current and planned REFM outsourcing levels
Workplace servicesFacilities servicesTransactions/brokerage Lease administration
Major project management ($20M+/project)
Project management (<$20M/project)
Space management
Facilities management
Real estate and facilities IT
Portfolio strategy/planning
Source: KPMG 2015 REFM Pulse Survey*Numbers might not add up to 100% due to rounding and multiple selections.
No plans to outsourcePlanning to outsource 12+ months outPlanning to outsource in next 12 monthsCurrently partially outsourceCurrently fully outsource
63% 31%
10%
14%
21%
27%
37%
45%
49%
2%
4%
4%
2%
4%
2%
2%
6%
4%
18%
27%
54%
50%
40%
40%
20%
27%
31%
74%
63%
29%
30%
35%
31%
37%
24%
20%
4%
2% 6%
2%8%
63% 31%
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The top industries for REFM demand? Banking, pharma, and healthcare
Banking, financial services, insurance
Pharma/biotech
Healthcare
40% Manufacturing
26% Energy/utilities, oil and gas
25% High-tech products and services
22% Gov’t (fed, state, local) education/nonprofit
14% Real estate
14% CPG, food and beverage, retail, wholesale
14% Aerospace/defense
Other**53%
65%
44%
Source: KPMG 2015 REFM Pulse Survey
*Numbers might not add up to 100% due to rounding and multiple selections** Other includes: 11% Telecommunications, 11% Bus Svcs/consulting, construction/engineering10% Automotive, 8% Transportation & Logistics, 8% Entertainment/media, hospitality/travel6% Chemicals, minerals/natural resources
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When we look at areas of increasing demand by REFM process,three processes lead
REFM IT Systems and Reporting
Space Management
Portfolio Strategy/Planning
+70% Facilities Management
+66% Project Management <$20M+/project)
+65% Workplace Services
+61% Facilities Services
+55% Lease Administration
+52% Major Project Management (>$20M+/project)
+48% Transactions/Brokerage+72%
+76%
+74%
Source: KPMG 2015 REFM Pulse Survey*Numbers might not add up to 100% due to rounding and multiple selections.
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So why have some REFM processes not been outsourced?Strategy, cost, and change.
Source: KPMG 2015 REFM Pulse Survey*Numbers might not add up to 100% due to rounding and multiple selections.
Activities aretoo strategic
in nature
Costs wouldbe higher
No compelling business case
to change
Risks aretoo high
Satisfied with current service delivery model
60%
45%43%
36%
BU
YE
RS
60%
SPA
36%
22%
SPA
22%
49%
SPA
49%
39%
SPA
39%
28%
SPA
28%36%
BU
YE
RS
36% 41%
BU
YE
RS
41%
BU
YE
RS
43%
BU
YE
RS
45%
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Service delivery model preferences are changing: Data shows us that buyers are moving toward a portfolio-based approach to manage their outsourcing efforts.
Source: KPMG 2015 REFM Pulse Survey*Numbers might not add up to 100% due to rounding and multiple selections.
1.00 = Significant decrease in preference/demand, 5.00 = Significant increase in preference/demand
Bundle individually contracted services, but retain high-level management functions of services
Bundle and outsource increasing number of individually contracted services
Bundle individually contracted services and outsource key management functions of services
Continue to manage multiple services with individual contracts
Insource services currently provided by service providers
SPA
1.89
SPA
3.25
SPA
3.67
SPA
3.62
BU
YE
RS
3.61
BU
YE
RS
3.24B
UY
ER
S3.29
BU
YE
RS
2.23
SPA
2.44
BU
YE
RS
2.35
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Outsourcing deal pricing models and tenure: We see that deal lengths tend to be shorter in the 3-5 year range in the REFM space compared to other functional areas of outsourcing.
Deal Tenure
3-5 years
SPA
83%
BU
YE
RS
77%
SPA
10%
BU
YE
RS
16%
SPA
8%
BU
YE
RS
8%
1-2 years 5+ years
Source: KPMG 2015 REFM Pulse Survey
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Fixed price contract
Shared savings Cost-plus contract
Guaranteedsavings
Management fee at risk
Performance based contract
Management fee incentives (bonuses)
SPA
3.39
BU
YE
RS
3.02
SPA
3.05
BU
YE
RS
3.00
SPA
3.02
BU
YE
RS
2.64
Outsourcing deal pricing models and tenure (continued)
*Numbers might not add up to 100% due to rounding and multiple selections.
1.00 = Significant decrease in preference/demand, 5.00 = Significant increase in preference/demand
SPA
3.71
SPA
3.19
BU
YE
RS
3.60
BU
YE
RS
3.36B
UY
ER
S3.16
SPA
3.27
BU
YE
RS
3.04
Pricing Models
No
resp
onse
fro
m B
uyer
s
Source: KPMG 2015 REFM Pulse Survey
Discrepancies between buyers and
providers were not just limited to future
plans. When we asked both sides about
drivers and challenges, we saw
differences, sometimes notable, in
buyers’ and providers’ perceptions of
challenges.
© 2016 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services.No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 527556 23
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As always, there are drivers and challenges to REFM outsourcing efforts
Cost savings from outsourcing have become “table stakes” for most buyers, a minimum standard to justify outsourcing.
Once that standard is satisfied, end users are looking for more strategic benefits like improving global delivery capabilities and improving process performance.
Buyers will use an outsourcing event to improve their operating model by centralizing management of REFM services, consolidating the number of service providers, and accessing process knowledge from those who can bring “off the shelf” playbooks to manage the work.
Buyers cite the quality and fit of service providers, enabling successful governance and transition efforts, and prioritizing competing agenda items as the top challenges to the successful consummation of REFM outsourcing efforts.
Providers have different styles and approaches to service delivery, and buyers are looking for a provider that “fits” their culture.
Costs savings and improvements in facilities management service levels are competing with improved space usage and portfolio strategy as top priorities.
Service providers highlight inadequate management support and weak change management as top challenges.
Drivers Challenges
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REFM drivers: While reducing operating expenses remains the top driver, being strategic requires firms to go beyond cost alone.
Source: KPMG 2015 REFM Pulse Survey*Numbers might not add up to 100% due to rounding and multiple selections.
67%
45%
41%
41%
39%
83%
29%
24%
23%
30%
Reduce operating costs (OpEx)
Redirect resources to more strategic activities
Gain economics of scale
Support business growth/expansion agendas
Improve process performance
SPABUYERS
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REFM challenges: Buyers and service providers are not on the same page.
Source: KPMG 2015 REFM Pulse Survey*Numbers might not add up to 100% due to rounding and multiple selections.
Retained organization/transition/governance 51%
14%
21%
29%
53%
SPA
43%
41%
41%
33%
31% Inadequate executive/management support
Accounting for/managing the complexity of change efforts
Prioritizing opportunities and different change programs
Quality/fit of supporting service providers
BUYERSn
ota
ble
dis
crep
ancy
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How to better prepare for REFM outsourcing
*Numbers might not add up to 100% due to rounding and multiple selections.
SPABUYERS
43% 48%Better baseline costs
35% 47%Better alignment of strategies/plans
37% 30%Better governance structure
41% 15%Improved service level agreements
41% 45%Clarification of roles/responsibilities – in-scope, out-of-scope
33% 48%Working together as one team
Source: KPMG 2015 REFM Pulse Survey
So where are we today when we look at pipeline
growth, pricing pressure, and focus?
© 2016 KPMG International Cooperative (“KPMG International”), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services.No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 527556 28
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Advisors/service providers’ perspective on market deal characteristics
Pipeline growth expectations remain the same as with the results in 2014 with the majority expecting growth, and with a substantial reduction in the number of providers seeing a reduced pipeline.
Pricing pressure from buyers on these deals is still high, but remains the same as the past year. Pressure is still tempered, to a degree, by buyer risk aversion to failed efforts and provider focus on maintaining their margins.
Pipeline growth Pricing pressure
Providers continue to focus on growing business and expanding scope in existing accounts as a means to gain higher margin business. This reflects continued consolidation occurring in the REFM market.
Overall, slight improvements in profitability and pricing pressure and continued substantial growth expectations indicate a generally good market for service providers.
Provider focus
Source: KPMG 2015 REFM Pulse Survey
KPMG can help
Take advantage of our knowledge and resources and join the conversation
For more information,contact Patrice Gilles at 214-498-1553 or e-mail [email protected]
Access the recent REFM Outsourcing Pulse Survey Webcast replay here.
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