How are alternative officing, outsourcing transforming facility management?

As facility management outsourcing and trends like alternative workplaces are becoming more common, they are causing those in the business of managing facilities to stand up and take notice.

Outsourcing of facility management services by corporations has gone beyond just a trend and, today, is considered a relatively standard practice in most corners of the business world. The International Facility Management Association (IFMA) recognized this by expanding its membership to include facility management professionals working for third-party service companies, rather than limiting its ranks exclusively to corporate employees as in the past.

"The organization made the change because they saw how much outsourcing was occurring and that facility management was becoming much more than an in-house operation," says Prentice Knight, executive director of the International Development Research Council (IDRC), Norcross, Ga. "Outsourcing has been strongest in facilities management; it is clearly a trend that is continuing."

"Our business has been doubling each of the past three years, in both the number of clients we have and the amount of square footage we service." says James C. Ricker, president and principal of Codman Corporate Services Inc., a Boston-based real estate services and facilities management firm. "We don't consider the increase in our facilities management business a cyclical occurrence. it is just a fundamentally good way for companies to do business."

Alternative workplaces

But more has been changing than the membership of the IFMA. The methods used to provide and obtain facility management services also have continued to evolve to keep pace with other aspects of business.

One area of particular interest has been the growing number of companies experimenting with alternative workplace options for their employees -- such as telecommuting, satellite offices, desk sharing and virtual offices.

Joint research by the IFMA and IDRC found that 83% of facility professionals had at least a few employees participate in some form of alternative office program in 1995. Furthermore, the survey indicated that 94% expected to be involved in the practice by the year 2000. These findings and others were reported in the organizations' joint publication of Managing The Reinvented Workplace, authored by William Sims and Franklin Becker of Cornell University and Michael Joroff of the Massachusetts Institute of Technology. The report is part of the IDRC's Corporate Real Estate 2000 Project.

The perceived advantages to alternative workplace programs are cost savings, the ability to attract and retain quality staff and increased production. The cost savings comes from less office space being needed for employees and increased production from the fact that employees can spend more time with clients or, in other situations, less time commuting and more time on the job.

Alternative workplaces also make some jobs more attractive. By allowing individuals to work at home, the alternative workplace program increases the number of potential candidates that could work for the firm. Results on the cost-saving issue have been easily tracked and have proven successful, while a measure of results on the production issue have proven more elusive.

"It has definitely worked well from a cost perspective," says Eric Richert, director of real estate and the workplace at Sun Microsystems, a Menlo Park, Calif.-based company that designs and markets network computer technology.

Sun Microsystems is currently conducting several test models of various alternative workplace programs, including one at the company's major sales offices in the United Kingdom. "We have only had to lease 30,000 sq. ft. of office space vs. 150,000 sq. ft., which we would need if everyone in the company has an office," says Richert.

"If cost saving was the primary driver of our interest in alternative officing, we would implement it throughout the company right now," he says. "But, while cost is important, the primary driver for us has been production, and productivity is difficult to measure."

Richert says successful alternative workplace programs consider three important dimensions: the physical, the organizational and the technological. All three of these areas have to be designed and developed concurrently so each can support the other two.

"It is not just a physical resources problem," Richert says. "People think that because we are on the real estate side that space is the most important aspect, but organization and technology are just as important." He stresses that understanding how people get their work done and setting up the proper organization to support them is important, as is providing the proper technology.

"One common thread in our alternative workplaces is creating them in such a way that collaborative work can be done although the employees may not be in the same building," says Richert, citing, as two necessities, video conferencing technology and high-band width networks, which allow for the quick transmission of data between locations.

Sun Microsystems begins another of its work alternative trials this month in its Atlanta office, or more precisely not in its Atlanta office. With the Olympic crowds making access to the company's downtown location difficult. Sun Microsystems has opened a satellite office.

The company's test programs are currently only affecting a few hundred of the corporation's 16,000 employees, but the results will eventually have an effect on everyone.

"We will be studying the results very carefully," says Richert, adding that the results will differ depending on the type of work done in a particular office. "What works best will differ between a sales organization and a research and development operation -- possibly, even, for a sales office located in a downtown area vs. one located in the suburbs."

He stresses that the layout of the physical space is important, but organization is what helps people get their work done, and technology is what helps keep cost down.

Third-party management

Third-party facility management companies have become the point where these two new business plans, outsourcing facility management and alternative workplaces, intersect. Service providers have altered their services and the way they provide them to more completely meet their clients needs and, thus, can help in all of the areas outlined by Richert.

HQ Co. is a New York-based firm that provides support services for its clients' alternative workplace employees. The company has 150 locations worldwide including Europe, South America, Central America and the United States, where its clients' telecommuting or virtual office staff can come and use the office space, equipment and services.

"It is really an old business for us," says Cathy Donahue, president of the HQ Business Centers in New York, referring to the company's beginnings as a provider of executive suites. But, she adds that business has definitely picked up in recent years. "Companies have always had sales staffs on the road that needed support services, and our job is to give them what they need."

Among the services these business travelers and telecommuters can find at an HQ Business Center are conference rooms, fax and modem facilities, high speed copiers, desk-top publishing capabilities, mail services, audio-visual equipment and video conferencing capabilities.

"High-tech services are where most of the changes in our business has taken place," says Donahue. "These are expensive pieces of equipment, and the cost would prevent companies from putting them in each employee's home."

"Virtual office staff, such as salespeople, often need the use of a conference room when they are on the road, and some employees that work at home may need an office to make a formal presentation. Our service gives them these capabilities," Donahue says.

Typical locations include three conference rooms and numerous workspaces for individuals, although Donahue points out more prominent business centers have larger facilities. She says most users make reservations to assure a space when they arrive.

Michael Bell, director of corporate real estate at The Dun & Bradstreet Corp., Wilton, Conn., has experimented with alternative workplaces for his firm. "We have tried telecommuting, office hoteling, desk sharing or a combination of the three for a couple of years now."

Bell says outsourcing support services for these employees does not make sense, as yet, because of the program's experimental nature and small scale, but he sees that such a business relationship could have its advantages. "I can envision, at some point, contracting with a service provider for those kinds of services."

AT&T has already reached that point, contracting with HQ on a national program to provide these support services for their sales staff. "We will be providing support for their salespeople on the road," says Donahue. AT&T has estimated its telecommuting workforce at about 30,000.

Benefits of outsourcing

Outsourcing facility management services in more typical office situations is also proving beneficial for many companies.

"A survey of IDRC members showed that the majority feel it has been beneficial with regard to cost savings," says the IDRC's Knight.

Cost is an important issue, agrees Paul A. Uber, senior vice president, national marketing, for Atlanta-based COMPASS Management and Leasing Inc. "Real estate often represents 25% of costs, second only to payroll, so the reduction of real estate expenses directly affects the bottom line. By outsourcing, an owner can concentrate on their core business while relying on the expertise of a real estate services company such as COMPASS."

"We have the advantage of coming into a situation and putting a whole new organization together," says Codman's Ricker. "And since we handle many other clients, we can create many economies of scale and good purchasing power."

The Codman Co. manages in excess of 20 million sq. ft., spread across 23 states, for its clients, which include American Standard, 3Com, Harvard Institute of Medicine, Hewlett Packard Co. and Charles Schwab, among others.

William Yontz, vice president of corporate management at Prudential Insurance, New York, says his company has outsourced all production work related to space planning, space layout and design. All of these functions are part of the ever-expanding definition of facilities management. Prudential has also outsourced the more traditional facility management duties of electrical and mechanical maintenance.

"We have lowered our management expenses by more than 15%," Yontz says. "All of that savings can't be attributed to outsourcing property management, but it has definitely contributed to the savings."

Bell says Dun & Bradstreet's savings from outsourcing its facility management services were in the 10% to 15% range.

In April, the United States General Services Administration (GSA) awarded ed LaSalle Partners, Chicago, a one-year contract with two one-year options to provide facility management and other services for the GSA's region III covering the states of Delaware, Maryland, Pennsylvania, Virginia, West Virginia and a portion of New Jersey. As part of the contract, LaSalle will provide lease procurement services, year-round lease administration and lease alteration services. In addition, LaSalle will inspect GSA facilities every six months to ensure landlord compliance with their terms and negotiate HVAC services.

As with alternative workplaces, outsourcing's effect on productivity is still a question mark.

"Outsourcing facilities management services only started about five years ago and only really became popular with companies during the past three years," says Knight. "So most of the executives haven't had time to get enough good figures to make an accurate determination on the production issue."

In addition to providing cost savings when outsourced to third-party service companies, facilities management is often a good starting point for the creation of corporate strategic alliances, whereby large companies provide each other with needed services or use their combined size to increase the volume discounts they can received.

"If a company outsources, they do it in one of two ways: with local service firms or with worldwide strategic alliances," Knight says.

Strategic alliances

John Englert is president of Contemporary Management Techniques, a Rochester, N.Y., consulting firm, and a former management executive with Kodak. While still with Kodak in 1991, Englert put together a strategic alliance with a Danish firm, International System Services (ISS), which began as a relationship based on facilities management.

"It began with ISS providing our janitorial services, but it was built on a strategic alliance model where both firms looked for other ways they could work together for their mutual benefit," Englert says. He cites how the two corporate giants looked at purchasing paper and other commodities together as well as other similar transactions designed to take advantage of their joint-purchasing power.

While the bottom line is very important, Englert stresses that money is not the only goal of such alliances. "A lot is driven by higher quality of services," he says. "The services you provide in-house may not be done as efficiently as a company whose only business is that service."

Englert says in such strategic alliances, the participating companies create a board with members from both sides. The board discusses and studies new ways that the companies can work together toward their mutual advantage.

"You start with the obvious ways they can help each other and move to the more obscure," says Englert, adding that "the alliance members can be from very diverse industries."

The successful outsourcing of facilities management and other services has been the catalyst for broader business approaches that have led to more encompassing business relationships such as strategic alliances. In addition, the service and support options provided by third-party service providers will have a tremendous impact on the speed and extent to which business ideas like alternative workplaces spread in the corporate world.

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