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The benefits and challenges of the TFM model

According to AMA’s ‘Facilities Management Outsourcing Market Report – UK 2016-2020’ the TFM sector was forecast to reach over £21 billion by 2020. This has resulted in greater demand for ‘bundled service’ and TFM contracts. However, it has been argued that bundling a mix of services into one large service contract can result in suppliers vying to win tenders which fail to meet a high level of service. How do you view the benefits and challenges facing the TFM model now and into the future?
 
THE CASE FOR IFM SERVICES
CHRIS ROWLEY,
MD OF PROFESSIONAL SERVICES MITIE

 

Facilities Management Outsourcers provide vital services, by leveraging expertise and experience together with service and system capabilities to offer customers value and allow them to fully focus on what they do best; their own core business. As with any outsource service, it’s important we continue to provide our clients precisely what they need; high quality services, at great value, delivered by exceptional people and through innovative technologies.

Against this backdrop, we continue to see demand for bundled services, as clients typically don’t want the higher expense and complexity, and resulting higher risk, of managing many single service lines when they can opt for simplicity and efficiency in one package.

While the TFM model continues to be popular, it’s increasingly difficult for outsourcers to demonstrate the value and innovation clients expect from a supplier simply by acting as an aggregator of individual FM services. To meet these expectations, we’re seeing the delivery of bundled services moving from TFM into Integrated Facilities Management (IFM), underpinned by technology. This move has been gradual and is largely in response to the increasing customer demand for a higher level of management service and strategic overview of service delivery and performance.

The additional layer of service strategy IFM brings to the model has often been lacking in more traditional TFM where the emphasis has been on the reduction of service management costs and lowest price purchasing of sub-contracted services. In contrast, with a true IFM solution, the client benefits from a single cohesive management team across all areas of delivery backed up by common and integrated technology platforms. This in turn allows the client to operate lean and very efficient client structures, supported by comprehensive reporting and overseeing solutions that deliver the most efficient Total Cost of Ownership.

IFM delivers an optimised structure with the cost benefits of self-delivery services where appropriate alongside the use of specialist sub-contractors to ensure the best service for the client. Not only does this drive greater cost efficiency for clients, it also provides robust performance management capabilities, with greater, technology-enabled, insight supporting strategic decision making or capability development.

Instead of the TFM reliance on supervising bundled services at a local level, IFM can operate at large scale and across a mixed portfolio to ensure service performance continuity at-scale. From a client perspective, instead of dealing with a cleaning supervisor talking about how many cleaners are on a shift, instead they talk to a facilities manager who advises on how to reduce energy costs and improve visitor experience. That’s a fundamental shift in thinking and is instrumental in developing a partner-led approach. That’s where we see the industry moving to and the solutions we want to be providing to our clients.

When looking at the challenges facing bundled solutions, the most significant relate either to a solution that ultimately doesn’t meet the expectations of either party, or to a solution that is (often incorrectly) perceived to be higher risk. It is important for clients to ensure that they are clear on the value and critical success factors they expect from the outsource relationship as issues where expectations are not aligned are typically generated at the point of contract inception. A poorly structured procurement process focusing on driving down supplier pricing, rather than looking at the Total Cost of Ownership of Facilities, will almost always result in a poorly executed contract with very limited partnership and no ability to deliver appropriate performance across service lines. The most significant of these challenges is the drive to create decreasing-cost or savings glidepath contracts where suppliers are prepared to take on the risk of future efficiency within a commercial model often without sufficient data or knowledge. We cannot expect any winners from such a construct.

To get most value from an IFM solution we would encourage clients to think through what success looks like from their outsource relationship and engage with their suppliers early pre-tender to allow them to bring forward innovative solutions that will sustainably meet those needs. Risk also needs to be properly considered and managed at the tender stage. A well-structured IFM solution with transparent pricing and delivery metrics at the service level, and a clear agreed process to improve and replace non-performing components will reduce the risk to both customer and supplier, and ensure expectations are aligned.

The world of FM is changing. Advances in technology including Artificial Intelligence (AI), the Internet of Things (IoT) and robotics all play an increasing role in the way we deliver outsourcing services. Embed these advanced technologies within an IFM contract and you immediately gain better insight which can be acted upon to deploy resources more effectively, whether that is being more responsive to issues or creating efficiencies such as operating a ‘cleaning-on-demand’ model.

IFM enhanced by technology is the way to supercharge the delivery of the benefits TFM has promised. For many it’s rhetoric, but at Mitie, we not just talking about it, we’re already doing it. With our Connected Workspace, we are building on our extensive IFM experience with the technology we’ve developed. This provides unparalleled insight for our clients helping them improve the performance of their buildings as well as have a positive impact on their people to create working environments that focus on efficiency, wellbeing and operational excellence. This is next generation outsourcing. It’s the model of the future, and the future is here now. 

THE FM CONSULTANT’S VIEW
LUCY JEYNES, 
MANAGING DIRECTOR, LARCH CONSULTING

Whenever we see growth projections for the FM sector, we should understand how much of “growth” is tracking overall growth of the economy, and how much is outstripping general trends. FM echoes that growth – new buildings equals new FM requirements and as an industry we can’t claim any credit for that. Only when the FM sector is looking to outstrip the general trend – as is predicted here – can we expect to see a real increase in outsourced FM services.

FM growth predictions signify a step-change from arrangements with local single-service suppliers towards a structured model that hits the statistics of the big outsourcers (which form the significant base of these reports). Large client organisations tend to progress through single service provision through the bundled hard/soft model and often this journey can end up at TFM – which at Larch we estimate to be around 8-10 per cent of the UK market and growing.

Since the demise of Carillion, there has been a new sense of caution around outsourcing generally, and of putting all your eggs in one basket, irrespective of the service provider. And regardless of whether the TFM model is the right or best solution for a client, it is definitely the preferred model for the multi-service outsourcers themselves, as it is the most efficient (and therefore profitable) for them.

The arguments for outsourcing in principle are well-rehearsed. However, the challenges of the TFM model are perhaps not so well understood. The first challenge is that of delivering a seamless, integrated service. This depends on the structure inside the service provider organisation. Of necessity, the operational delivery of each service element (cleaning, M&E, catering) will usually be handled by different departments or divisions – or sometimes even by different companies, due to development of those services through acquisition (e.g. Servest or CBRE); or through the operational business model (.e.g. Mitie); or through a managed model (e.g. Mace Macro). If these service elements are not integrated effectively within the service provider, gaps will show up to the client, who may feel they are having to bridge those gaps themselves.

The second challenge is differentiated service, either by service line or by location. For example, the overall deal is great, overall KPIs are good, but catering at Stevenage is poor and M&E in the north-east region is disappointing. Individual elements of poorer service end up being tolerated in the interest of the wider benefit, and this can leave groups of customers with disappointing service and the perception of poor value.

The third challenge is supplier complacency. Once an organisation has taken the decision to adopt the TFM model, it is very unlikely that this arrangement will be terminated early, due to the cost, risk and potential disruption to the core business. Suppliers know this – and this reduces their risk position.

The concept of TFM delivery is appealing in the ease, efficiency and cost-effectiveness of “leaving it all to the experts” will continue to be so. These three measures of success for clients: ease; efficiency; and value for money; might well form the basis of a set of KPIs for effective TFM service delivery. 

About Sarah OBeirne

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