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Facilities Management Outsourcing In The UK Information Technology Essay

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Published: Mon, 5 Dec 2016

Chapter One served as an introduction to the dissertation, forming the motivation for the research project on the facility management outsourcing in the UK, together with a brief discussion on factors embodied in the study. Factors such as the problem, literature review; research methodology and limitations of the study are discussed.

This is the appropriate theoretical paradigm of the study, the main focus of which is to specify the facility management outsoaring trend in the UK, together with related concepts. In the next paragraphs, As per research literature author discusses the definition of outsourcing, to understand the meaning of outsourcing from different views of various authors, and thus lead to conclusions of what outsourcing means.

Outsourcing is the long-term results-orientated relationship with an external service provider for activities traditionally performed within the company. Burn et al., (2002) say “Outsourcing usually applies to a complete business process and implies a degree of managerial control and risk on the part of the provider.”

Aaratunga et al.(2008) is in the favour of FM, according to him FM helps organizations as well as employees as a whole to get the full benefit by the integration of property and user related functions. It provides dynamic facilities policies which help in the generation of corporate values. It reduces the problems of space allocation and charging. In improving the environmental condition it can be a great help. Direct and contract employment can also be improved by the introduction of FM.

Facility management is an interdisciplinary field primarily devoted to the maintenance and care of commercial or institutional buildings, such as hotels, resorts, schools, office complexes, sports arenas or convention centres. Duties may include the care of air conditioning, electric,power, plumbing and lighting systems; cleaning; decoration; grounds keeping and security. Some or all of these duties can be assisted by computer programs. These duties can be thought of as non-core or support services, because they are not the primary business (taken in the broadest sense of the word) of the owner organization (Alexander, Keith, 1996).

According to Barrett (1995) there are three approaches for opting the whole of FM services or part of it namely; out-sourced, in-house or a hybrid of both. The firm can choose any of the approach in order to get the FM services. The approach taken by the firm depends on the concerns or priorities already decided by the firm. In case of support providers some organizations goes for the totally in-house option, while some are in the favour of certain main services which are possible, the third type of organization is the one who uses the combination of both. “Many companies have realized that in order to add value to its customers, they must single-mindedly concentrate on their core competencies and leave the running of vital, but yet time consuming and labor intensive peripheral activities to other more qualified operators” confirms Sherratt (2000).

2.2. What is outsourcing

Outsourcing means to have a contract with another company or person to do a particular function. Now a day almost every organization outsources some of its departments in some way. Usually, that function is being outsourced which is considered non-core to the business. Outsourcing takes many forms. Organizations still hire service providers to handle distinct business processes (Sourcingmag, 2009).

Source: MacroTech’s business process outsourcing model

A term often used in the context of outsourcing is vertical integration. Vertical integration refers to the level of ownership of activities either backward into the supply chain or forward towards the customers or end-user of the product and service. Vertical integration is similar to the outsourcing concept in that it is concerned with the decision on whether to perform an activity internally or source it from an external supplier. Another term that is often used in manufacturing context is “make-or-buy”. It is arguable at “make or buy” is most appropriate term in context of outsourcing as it implies that there should be an evaluation of the suitability of either internal or external supply whereas the term outsourcing implies that the decision to use an external supplier has already been made without any consideration whether is it appropriate for the organization. Its necessary for the successful application of outsourcing to analyze whether it is necessary for the organization and how the outsourcing process should be managed (McIvor, Ronan, 2005).

2.2.1 Reasons behind outsourcing

In today’s business evolution, companies seek to remain strong or gain strength in an ecommerce-enabled marketplace. Likewise the factors driving outsourcing have evolved from a focus on solving financial problems to IT or certain business processes which contribute to the competitive success of an organization through enhanced capability, improved flexibility, increased efficiency or enhanced speed to market. “Outsourcing has evolved from a survival tactic to a strategic competitive tool touted by even the most respected management consultants” says Van Bon (2002:249).

The areas which have not run on traditional lines can be introduced by the new ideas, technologies and new findings with the help of outsourcing which has a great positional in bringing the businesslike approach. It can help in upgrading the system or skills of the workers. It has a potential in bringing the reduced cost technologies by specializations and large scale economies. Outsourcing can help in upgrading the assets (Beitz,1998).

Accoring to Heath (2010) outsourcing facilities management enables an organization to focus on its core business functions. Organization can gain many value-driven and many less visible benefits including:-

Flexibility – Increase and decrease staffing levels as needed, without having to interview, hire, or train a new employee or be forced to lay off employees when business slows.

Productivity – Because you are tapping into a pool of well-trained professionals who have access to the best processes, you immediately increase your productivity.

Expert Assistance – Rely on experts in facilities management to ensure that your company is operating efficiently and cost effectively.

Better Service – By having the right personnel available to handle your facility management issues, your customers will benefit as well.

The cost-savings alone can make outsourcing management an attractive idea; instead of paying salary, bonuses, benefits, and taxes, as well as the administrative costs associated with those items, organization willl simply pay a flat rate that makes it easy to budget and plan.

2.2.2 Outsourcing relationship management process (the modern outsourcing model)

In the new era of outsourcing, the customer regards the vendor as a long-term asset that is a source of ongoing value to the company. An asset, time and resources are dedicated to the management of a relationship, thereby maximizing its value. The customer’s resources are held accountable for extracting value from the outsourcing relationship. This is a more strategic approach.

“Good relationship management requires thought, planning, coordination and dedication of resources to be successful. Management cannot overlook the importance of this structure and its supporting processes. Good relationship management can be used to fix many ills inherent in a sourcing transaction. While this area of expertise is relatively immature, it is nonetheless important if the promise of outsourcing is to be realized” concludes Van Bon (2002).

Often a person called the client contract manager of an outsourcing deal is left to determine what was just negotiated after the outsourcing contract is signed. Van Bon (2002: 258) has shown that in a lot of situations this is a recipe for disaster, when it comes to realizing the benefits of outsourcing. Fortunately in today’s world, organizations realize the importance of processes and a sound governance model by the time the deal is finalized. The big questions to be asked is how does one go about building into the process and how does one operate the process after an outsourcing deal is done?

When an outsourcing deal has taken place, interdependency exists between the two companies. Both the vendor and the customer therefore change, as the one affects the other. Therefore both parties must understand the cost drivers of the two infrastructures and coordinate changes so as not to introduce additional costs into the process. Both the customer and the vendor must behave as an integrated supply chain rather than as win or lose adversaries.

MTW (2010) found in this research that the FM market has become increasingly characterized by closer relationships between suppliers and contractors, as greater efficiencies and lower procurement costs are sought. During 2009, several FM companies established programs specifically designed to improve supplier relationships to ensure that material and equipment suppliers were aligned with customer relationship principles and accountable for their own supply chains.

2.3. Types of outsourcing

For the purpose of this study and based on the area of study on which the author is focusing, there are two types of outsourcing models identified by Greaver, F. Maurice (1999):-

Total outsourcing: In this type of outsourcing, organizations outsource all of their activities. It is easiest way to in the easiest way to get good results with less effort. Service provide so same things but they produce better results, mostly organization choose it as it saves money.

Selective outsourcing: Some times organization does not want to outsource all the activities of an individual, function or process. In Facility Management industry if an organization wants to outsource its whole building control but keeps automated entry exit control in their own system to make sure who come in and leaves the building and when. “Most successful experiences were associated with a reasoned, incremental and selective approach to outsourcing which is increasingly reflected in the structure of the market” confirms Willcocks and Fitzgerald (1994).

Table 2.1 Types of Outsourcing and the risks associated with them.

In-house

Commitment

Selective Outsourcing

Total Outsourcing

Total

Attitude

Core Strategic Asset

Mixed Portfolio

Non-Core Necessary Cost

World Class

Provision

Providers

IT Employees Loyal to Business

the Horses for Courses

Vendor

Strategic Partner

Emphasis

Value focus

Value for Money

Money

Added Value?

Dangers

High Cost Insular & Unresponsive

Management

Overhead

Exploitation by

Suppliers

Unbalanced

Risk/Reward &

Innovation

Source: Alexander (1996)

This table 2.1 shows that all arrangements have inherent risks associated with them, in addition to the above types of outsourcing, Other types of outsourcing services as defined by Glomark-Governan (2006) include Business Process Outsourcing (BPO) which involves the transfer of management and execution of one or more complete business processes or entire business functions to an external service provider.

Research done by Currie and Willcocks (1997:180) concludes that most companies chose selective outsourcing. In the United States only 8% has gone total outsourcing and in the United Kingdom only 2%. This figure as low since total outsourcing is very risky. Data collected on total outsourcing indicates a 35% failure rate. With total outsourcing, vendors build in a high switching cost. Total outsourcing should be done on a joint risk-reward basis and never on a fee-for service (time and material) contract. It is recommended that re-negotiation stages be included in the original contract of big deals.

2.4 Advantages of outsourcing

Turban et al. (2002) describes following advantages of outsourcing

FINANCIAL

Avoid heavy capital investment, thereby releasing funds for other uses

Improve cash flow and cost accountability

Realize cost benefits from economies of scale, and from sharing computer housing, hardware, software and personnel

Release extensive office space

TECHNICAL

Be free to chose software due to a wider range of hardware

Achieve technological improvements more easily

Have greater access to technical skills

MANAGEMENT

Concentrate on developing and running core business activity

Eliminate need to recruit and retain competent FM staff

HUMAN RESOURCES

Draw on specialist skills, available from a pool of expertise, when needed

Enrich career development opportunities for staff

QUALITY

Clearly define service levels

Improve performance accountability

Earn quality accreditation

FLEXIBILITY

Respond quickly to business demands

2.5 Disadvantages of outsourcing

In spite of the numerous advantages mentioned above, there can also be less desirable consequences. Most concerns are explored further (Bucki, James. 2010).

Availability: The external provider is not always available full time and may be committed to other clients.

Confidentiality: The vendor will probably need to keep some of the customer’s records off-site while simultaneously working with competitors.

Cost: The customer may perceive that unit costs for the external provider are high. Termination costs of an agreement can also be very high.

Perceived lack of accountability and commitment: There is a possibility that a customer can end up with a provider that does not share the risks of the client and is committed to the agreement.

2.6 Outsourcing decision making

Research done by Caruso (1996) found that the decision to outsource non-core competencies takes place at corporate level in 50% of the cases. A third takes place at the divisional level and 15% at operational level. Normally other departments such as finance, Marketing and Human Resources are also involved in the decision. These departments play a significant role in the selection process. The final decision on which vendor to use is done at corporate level.

Glomark-Governan’s (2006) also found that the finance department is involved with the cost calculations and the Human Resources department concentrates on the smooth transition of employees. The Human Resources department is also responsible for monitoring employee moral throughout the company before, during and after the outsourcing transition has taken place. The Marketing department would then explain the new strategic relationship of the company with the vendor customer and concentrate on the benefits the customer will reap from the outsourcing arrangement.

Vendors should be selected based on their total capabilities, not just price or a single aspect of what they can do. References and reputation are only two of the criteria that should be used when making the final decision on which vendor to contract. A reasonable price should be negotiated and performance measures put in place. When selecting a vendor, close attention should be paid to how candidates measure up in the areas of financial strength, business experience, business development, support services and business arrangements.

Willcocks et al., (1997) also found that assessing outsourcing intangible benefits also requires a careful investigation of links between the technical, the operational, and the economic effects of the benefit. The result provides a sound framework for identifying the measurable variable needed for the economic quantification. As a simple example:

Technical benefit – an on-line sales force Web service enables sales professionals in

a company to produce reports with key content designed for executives in their accounts.

Operational benefit – with the new reports available, the sales representatives can increase the number of meetings with senior managers in their accounts

Economic benefit – an increase in meetings with senior managers will increase the close rate.

The close rate (number of orders closed as a percent of proposals presented) is the measured variable that can be used to define the benefit formula (means of economic quantification).

2.7 Facilities management outsourcing

Since cresting as a trend in the mid-to-late ’80s, the outsourcing of facilities management has now simply become a way of doing business. In the last decade, many facilities managers have exchanged the traditional carts and hard hats for seats in boardrooms with titles like VP of capital assets or VP of real estate. At meetings, they build strong cases for maintaining existing facilities; persuading their brethren that buildings which hold their value are as important to the core mission of their organization as developing a new product or pouring millions into new research (Helene, McEntee, 2000).

Facilities management has changed significantly since the early 1990s. In the early days, such tasks were decentralized. Store or district managers made service vendor selections and managed repair decisions. Often, those providing services were relatives or friends. The corporate headquarters usually had no view into facilities issues at the store level (Barrett, P., Baldry, D., 2003).

By the mid 1990s, centralization became the norm. Major tasks, such as procurement and new construction, became centralized at the home office to achieve buying power. Centralization also found its way to facilities management. Facility maintenance departments began to grow, adding headcount to manage the needs of multiple locations while offloading tasks from onsite managers (Barrett, P. & Baldry, D., 2003).

By the late 1990s, web-based management solutions emerged, known as computerized maintenance management systems (CMMSs). The promise of a CMMS was the connection of all interested parties, including the store manager, facilities manager and service vendors. Unfortunately, service providers often did not have computers and the malls were not connected to the Internet, leading to system inefficiencies (Nakayama, M. & Sutcliffe, N. 2005).

By about 2002, affordable Internet access and the proliferation of broadband connections led to the emergence of powerful new facility management solutions. Leveraging portals and email, facilities management was embracing modern technology to improve communications and accountability (Nakayama, M. & Sutcliffe, N. 2005).

Blumberg (1998) presents new viewpoint to explain the FM outsourcing in terms of its positional benefits. FM outsourcing provides the organization many benefits. It helps in reducing the cost of the organization that opt it as the service provider company provides high quality services with the comparatively low cost. It is useful in improving the operating efficiency as the workload is shared. The net effect will be on the returns, they will increase and

In contrast to Bloomberg (1998) and Kotabe (1992), if organization outsource its FM sector it will lead to the loss of overall market performance. He says that innovation will be neglected in case of reliance on outsourcing. When outsourcer does not want to be innovative he outsources its FM as it is much easier in contrast to indulge in innovations. The end result is the decline in the technological advancements which is the base in the innovations in the product and process.

According to Nutt (1999) FM is improving the overall efficiency of the organization. It is a huge deportment in establishing values for all the facilities seekers. Corporations, individual employees, clients, operating units are the chief facilities seekers. FM is growing day by day and because of its increasing demand this market has created a much more competitive marketplace. Different types of FM companies has been established to fulfil its increasing demand such as FM contractors, professional FM institutions, FM suppliers, FM consultants and in-house FM teams.

2.8 Developing a facilities management structure

Atkin, B. & Brooks, A (2009) states that for the efficient and effectively management of facilities, stout strategies must be developed in the framework of organization’s strategic business plan and accommodation strategy. These strategy should include development of strategic objectives and a business plan for the FM function. The process of developing a Fm strategy is demonstrated in Figure 2.2, which shows three main stages with their elements.

These three stages are:-

Strategic analysis

Developing solutions

Strategy implementation

Figure 2.2

Source: Atkin, B. & Brooks, A (2009)

There is no single formulation of facilities management that will fit all situations. Nonetheless, the concept of the informed client function is common to all situations. Most buildings represent substantial investments for organisations and usually have to accommodate and support a range of activities in the organisation’s core business, for which an appropriate environment must be created in buildings that may not have been designed for the purposes for which they are now used. Yet, no matter how well focused on organisation might be on its core business, it cannot lose sight of the supporting services – the non-core business. The relationship between two is shown in the figure 2.3.

Organisations may have already considered the distinction between their core business and non-core business (such as security, payroll or cleaning) as part of the drive to deliver customer satisfaction and achieve best value (Atkins, Brian & Brooks, Adrian, 2009).

Figure 2.3Source: Atkins, Brian & Brooks, Adrian (2009).

2.9 Facilities management & Information Technology

History of computer-aided facilities management (CAFM) dates back to the early 1960s when space forecasting and inventory applications were first run on expensive mainframe computers by people writing their own programming codes. With the passage of time architectural planning and construction project management were added to the suite of applications running on the systems shown in figure 2.4. The number of people writing their own code based on office automation software increased dramatically with the advent of smaller computers. “Islands of automation” introduced in the market during 1970s and 1980s, CAFM began to be used for other applications such as furniture inventory, lease management, aqsset management, and building cost accounting CMMS application such as maintenance management, cable management and security began during late 1980s and 1990s during the end of 1980s internet was introduced and it was revolution in the automated system. Many firms created their own software’s those fits in their organization (National research council, 2001).

Figure 2.4

Space Asset CMMS (Computerized Maintenance

Inventory Management Management System)

1960s…………1970s……………1980s…………….1990s…….………………..2000s

Mainframe > PC Islands > CAFM > Internet

Source: National research council (2001)

Today facilities managers use several software tools. Each of these tools processes and stores only specific information. Only FM specific tools are included in the following list, general tools like email, workflow, word processing belong to underlying IT base support (Redlein, Alexander, 2004).

Computer Aided Facility Management Systems (CAFM)

Geographic Information Systems (GIS)

Enterprise Resource Planning Systems (ERP)

Building automated Systems (BA including security systems)

Management Information system (MIS) (Business Data Warehouse Systems)

As mentioned above, all of the tools are engaged in the day to day objective process. Even in one field one toll alone cannot handle or support all the needed processes. The following table 2.1 shows how the main basic processes of FM can be supported by the software systems (James, R. & Watson, R., 2009):-

Table 2.1

Main processes and IT support

Support of

CAFM

ERP

BA

Maintenance

Drawing, equipment location

Maintenance contracts, cost accounting, billing

Technical data, status of equipment

Space Management

Drawing, current user

Cost accounting, transparency

Technical data

Tenant management

Current user

Tenancy agreement, rental fee

Technical resources

Sales / Marketing

Visualization, adaptation to customer’s needs

Information systems, calculation

Available technical resources

Source: National institute of building sciences

Computer-aided facilities management system (CAFM)

There are many Computer Aided Facility Management (CAFM) tools available today. They have become an essential tool for increasing and maintaining the efficient use of space in your buildings. As a planning tool, CAFM can help by creating trial layouts and comparing space efficiencies. CAFM helps track and control the use of assets like furniture and equipment. CAFM can help allocate asset costs to operating units and track employee movements. Many CAFM applications have options to aid in scheduling the use of shared space or maintenance routines like landscaping or snow removal. CAFM also enhances the effectiveness of facility safety and security. Following benefits could be achieved by implementing CAFM system (Teicholz, Eric, 1995)

Increased Efficiency of Asset Utilization

Automates space charge-backs based on your billing and reporting requirements

Link architectural drawings with facilities and infrastructure data, ensuring information is always accurate

Allocates space usage and reports charge-backs with accuracy to avoid external or inter-departmental billing disputes.

Enterprise Resource Planning system (ERP)

ERP is “back office” software which focuses on the key business functions of manufacturing, supply chain management, CRM, financial management and Project Management. A well implemented ERP solution will improve the efficiency of the enterprise, reduce money tied up in stock/work in progress, and run a Just in Time inventory system (BBC, 2005).

Building automated system (BA)

Building automation describes the functionality provided by the control system of a building. A building automation system (BAS) is an example of a distributed control system. The control system is a computerized, intelligent network of electronic devices, designed to monitor and control the mechanical and lighting systems in a building (Redlein, Alexander, 2004).

BAS core functionality keeps the building climate within a specified range, provides lighting based on an occupancy schedule, and monitors system performance and device failures and provides email and/or text notifications to building engineering staff. The BAS functionality reduces building energy and maintenance costs when compared to a non-controlled building. A building controlled by a BAS is often referred to as an intelligent building system (Daintree Networks, 2009).

As it mentioned in the section 2.7 that in around 2002, affordable Internet access and the proliferation of broadband connections led to the emergence of powerful new facility management solutions. Leveraging portals and email, facilities management was embracing modern technology to improve communications and accountability (Nakayama, M. & Sutcliffe, N. 2005).

2.10 The evolution of outsourcing in the FM market

Companies have become more efficient at reducing costs, and this is sometimes difficult to do effectively through in-house facilities managers. They are often constrained by internal political pressures and vested interests, and often they lack the expertise to manage change. Change within a company is a major challenge to any chief executive. “By outsourcing to professionals, the outsourcing company becomes the change agent and a company is able to re-engineer and reposition itself more quickly and efficiently” says Jackson (1997).

Figure 2.1 Trend in FM outsourcing

Source: Holzhhauzen 1999:9

From traditional in-house facilities management, the trend moved towards contracting certain non-core competencies. It then developed into outsourcing non-core competencies to a number of outsourcing firms. The trend is now developing further to full facilities management, which takes the risk away form the customer and places it on the shoulders of a single vendor (Holzhhauzen 1999).

Since the early 1990’s FM has shows the tremendous growth, as different sectors and organizations are interested in control of operational efficiencies and cost. Now a day there is a trend in private companies to focus on the core competencies. So these companies are interested in adopting the outsourcing in order to increase the efficiency as well as output of a company (AMA Research, 2009).

FM sector has shows tremendous success over the last 25 years. Many professional bodies are supporting the growing number of FM practitioners all over the world to establish this market as a worldwide brand. It has been controlled by the global network of FM educational providers who worked jointly with the professionals related to this field, they also have collaboration with the academic community which provides them with the unique and challenging ideas to develop this market. According to writer there is variety in the practice of FM but the main idea of its establishment remains the same which helps in maintaining its distinctiveness (Grimshaw, 2001).

The back casting exercise provided an opportunity of reflecting on the short history of Facilities Management, charting its development and evolution. At the European Facilities Management Conference in Manchester (EFMC08) the vision of a new wave of Facilities Management was proposed in response to the context of post-industrial cities. A leading role for FM in urban sustainability was envisaged, with an emphasis on innovation and creativity, community based planning and open sourcing (EFMC, 2008).

1970s 1G Managed services, outsourcing Operational

total facilities management, CAFM

1980s 2G Quality management, management agency Tactical

benchmarking, FM processes, FIMS

1990s 3G Partnering, re-engineering processes, Strategic

knowledge management, product innovation,

sustainable facilities management

2000s 4G Business processes, open innovation, usability, Transformational

service excellence, transformational outsourcing,

As Facilities Management enters a fifth decade and, perhaps a fifth generation in the development of Facilities Management, what will the next generation be like? (EFMC, 2008).

2.10.1 Facilities management outsourcing trend in the world

Europe is now the world’s biggest market for outsourcing. In 2004, Europe accounted for 49%


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