After years of outsourcing are large real estate firms now looking to self deliver FM services and bring them in-house? Guy Palmer, lead director for real estate strategic sourcing at Deloitte, investigates
When CBRE bought Norland in December some thought it was a sign of intent that one of the world’s largest real estate brokers was moving toward self delivering FM services. Is this deal symbolic of a seismic shift within the UK FM supply market?
To date managing agents in the UK have largely stayed clear of delivering services on any scale, preferring to simply manage services delivered by others. The theory goes that prioritising management as a core capability enables firms to procure the best service providers and allows insightful data and systems to be an integral part of the value they bring to their clients.
But has the managing agent model begun to fall out of favour with corporate occupiers? Clients no longer see service management as their key skill, instead they are focusing on front-line service delivery and their end users’ experience.
Heightened awareness of the potential for data management and analysis in improving service delivery may strengthen the argument for the managing agent model. However, for the present, clients appear sharply focused on their suppliers’ ability to deliver services effectively without jeopardising their core business or upsetting end-users. The client wish list goes beyond this. They want suppliers to find new ways to add value and deliver innovative solutions, but without compromising reliable service delivery .
For many corporate occupiers, the ability to support business-critical systems is the most important capability that the supplier can bring. So if a managing agent wants to take a first step to building self-delivery capability then business critical engineering services is a good starting point.
It could be argued that this is a delayed response by property managers to the rise of service-heavy FM companies. It is only now that they are taking the steps towards establishing their own delivery capability. But they have had added incentive in recent years as client demands have increasingly moved the supply market in their direction. Large-scale clients have been aggregating contracts across services and geographies to the extent that the size and scope of the larger FM contracts are suitable to be delivered directly by the managing agents. This is creating a global supplier market that consists of a smaller number of large firms who are able to self-deliver an ever-increasing number of services in an ever-increasing number of locations. In addition, they are also able to manage the pockets of sub-contracted services in places where they do not have coverage to deliver themselves. This self-delivery trend has now firmly landed in the UK – and there is no doubt that it is changing the market here.
Unless able to differentiate themselves substantially on expertise, quality or price, single-service, single-geography firms already find it hard to compete head-to-head with multi-service, multi-geography firms when larger clients’ property footprints, and their ambitions for their supplier model, stretch over more than one country. The corporate procurement mantra of fewer, larger suppliers is an increasingly common theme for clients and many real estate suppliers are recognising and responding to this.
This increased self-delivery capability is now likely to change the competitive dynamic in the national markets. One interpretation is that the competition between the delivery models – managing agent verses direct delivery – is slowly but surely being been won by the latter. And if this is the case, the continuing race to build capability would suggest more mergers to come, both in terms of services and geographies with the market giants sweeping up mid-market players. This is driving the industry towards a polarised supplier landscape of multi-capability, multi-national giants and local specialists.
But the long-term durability of the self-delivery model is still open to challenge. A model with in-house subcontractors which are also stand-alone individual businesses, each with its own profit ambitions, can be hard to operate in practice and particularly in the tight-margin challenges of the FM market. So the integration of these acquired organisations, culturally, operationally and financially, will be a key measure of success. Those clients which are now approaching their FM procurement, often with decades of insight and experience from their other multi-geography, multi-service procurements (including telecoms, IT, travel services), are alert to the risk of the delivery not matching the sales promise.
The FM delivery model continues to evolve. At the moment, it looks like the trend to build self-delivery capability is at the forefront of this market evolution, with the largest using their multi-national experience to become significant players in individual national FM markets. Whether this evolving model is also revolutionary, capable of driving new services, innovation, insight and delivery models, is the next exciting and unanswered question.