By Maria Vickers
From the January 2004 issue of Today’s Facility Manager magazine
Facility management is a profession perceived to be rife with opportunity for outsourcing. As the myriad aspects of the profession have become progressively mature and complex, it has become increasingly clear to businesses that they cannot possibly retain all the necessary expertise and technological resources. More companies are turning to single source providers to manage aspects of their facilities.
In spite of its initial appeal, the increasing trend to outsource facility management has its downside. While this concept looks ideal on paper, the direct impact of outsourcing on employees should be carefully analyzed. What follows is an examination of the impact of outsourcing from one of the most relevant perspectives—when employees are transitioned from in-house operations to an outsourced vendor.
Logically, a facilities employee who is transitioned to an outsourced vendor moves into a profit position and becomes a revenue generator instead of an overhead expense. He or she fulfills the new employer’s organizational mission and manifests its core competencies. The work becomes the source of profit, and salaries might be expected to—and sometimes do—reflect that profit position1. But as members of an in-house operation, employees frequently find themselves subject to corporate initiatives to reduce operating costs. Salary increases and/or bonuses frequently fall victim to these initiatives.
Andrea Felsted of the Financial Times of London says, “Facility management has historically been a low margin business.” She explains that the salaries of outsourced employees are dependent on these margins. During initial negotiations with the vendor, the original employer (the buyer) will naturally look to retain wage parity for those employees who will be transitioned to the vendor, but their reach is limited2. Richard Raysman, a New York outsourcing attorney, says, “…transferred employees usually get wage parity at least for a limited period of time, often six months. Ultimately, employees begin to fall within the wage rates of the [vendor]. Often that means lower wages3.”
Vendors will generally have an embedded salary structure that is quite different from that of the buyer, and they will seek to ensure that transitioned employees fall within that structure as quickly as possible. Indeed, this is necessary to ensure both equity amongst the vendors’ workforce and the validity of their pricing structure. Another point of concern can be identified in the contract renegotiation process. With the ever-present demand that organizations do more with less, a contract that has successfully completed its term has the burden of proving that increased costs are required to maintain service levels.
“One of the challenges for providers (vendors) is that once companies have enjoyed an initial cost benefit from outsourcing their facilities management, they continue to look for cost savings, using the new lower cost base as the standard against which to achieve further reductions,” explains Felsted4. It is inevitable that the cost of doing business will rise from year to year. So unless the vendor has the ability to leverage economies of scale, the stranglehold put on the price of the contract bodes ill for promotions with pay, merit increases, and/or bonuses.
Securing The Future
Issues of job security are particularly acute when an outsourcing initiative is announced. “Because it’s corporate management that’s seeking it, the employees’ initial reaction is that it’s another euphemism for downsizing,” explains Perry Harris of the Yankee Group5. Frank Casale of the Outsourcing Institute confirms. “The sensitivity has to do with the perception of outsourcing as a job killer6.”
Some of that sensitivity may be justified. As previously mentioned, vendors generally agree to retain wage parity for transitioned workers for not longer than six months or a year. This time period also extends to guarantee of employment. Raysman continues this point by explaining, “The vendor wants to be able to shed employees as quickly as possible,” and keep only those people it chooses7.
But the outlook is not all bad. Transitioned employees already have a feel for the buyer’s culture, mission, and internal politics, as well as the distinct personality of the space it occupies-all crucial to successful facility management. “…The [buyer’s] current employees are critical to the service provider’s ability to deliver high quality results,” asserts Corbett8. These employees are in a position to prove their own value and impact their retention.
The outsourced employee’s career with the vendor is somewhat reliant on the contract developed for the buyer. Even though he or she may have proven his or her value, if a contract is terminated without renewal, the employee is not guaranteed a new position with another contract. Because outsourcing requires a large degree of investment in relationship-building, any issues that may arise are generally worked out well before a contract is in danger of being terminated for cause.
“This Happy Breed”
Employees who have been transitioned to the vendor can no longer feel a sense of participation in the organizational mission of the buyer, as perhaps they once did, but must now remain true to the mission of their new employer, the vendor. This means no longer serving the needs of co-workers, but rather, serving the contract; for it is the success of the contract that benefits the vendor.
This shift in loyalties can be problematic. The employee must forge new relationships while relinquishing old ones, disrupting both corporate and personal communities. The International Facility Management Association’s (IFMA) Outlook On Outsourcing indicates, “Contract staff is less likely to integrate with in-house staff9.” Community in the workplace is also experienced through the relationships of individual employees with the management or executive team. This relationship is generally expressed through communication of goals and direction, performance feedback and appraisals, and incentive programs.
In outsourcing, the relationships between buyer and vendor employees must be clearly defined and boundaries strictly adhered to in order to avoid a co-employment situation, which has legal ramifications. In situations where only one or two vendor employees are assigned to the buyer’s facility, the loss of this aspect of community might be particularly acute.
Because the employee’s management and executives operate elsewhere, communication and feedback in general are at risk of being sparse and remote. Ego motivation is derived from an employee’s need for self-confidence, achievement, competence, and respect from his colleagues10. By transitioning to an outsourcing vendor, the employee’s services become a commodity for which a purposeful decision to acquire has been made. No longer an in-house overhead cost, the outsourced employee is a resident expert whose services are purchased and whose expertise is valued-clearly a point of pride.
Diane McKnight, an executive for real estate management company Trammell Crow, describes the difference between working in-house versus being outsourced as the difference between being a support employee and “providing clearly needed services to your clients and doing it from an experience base11.”
Unfortunately, the scant evidence available to support this perspective is not entirely positive. An article that appeared in the July 2002 issue of People Management makes the following suggestion: “The growth of outsourcing…is damaging professional skills because an increased number of managerial and audit systems are necessary to prove that contract terms are being complied with. A study carried out by the University of Salford’s School of Management, found that in three out of four case studies, outsourced work was more tightly controlled and managed than in-house work12.” Because facility management covers such a broad range of activities, outsourcing contracts can be quite complex. Effective management of these contracts requires that comprehensive metrics and audit controls be built into the contract language to ensure the buyer’s expectations are met. “This means even the most experienced workers are heavily monitored and…unable to exercise their skills and discretion13.”
It is generally assumed that joining an organization whose mission reflects the employee’s function presents greater opportunities for promotion. Whereas an in-house facilities department offers only a limited number of positions, a service provider presents company wide opportunity for advancement.
“It is possible,” states James Wilde, chief executive of Rentokil-Initial, “for management to be transferred to different contracts, and for managers, as they progress, to graduate from smaller to larger contracts14.” However, there is little evidence that widespread opportunities for career advancement actually exist. The concept of career advancement, especially if it involves movement to different contracts, “is a difficult issue for many customers,” explains Corbett. “On the one hand, they want the provider’s best people assigned to them. On the other, they don’t want to lose these people through advancement15.”
Indeed, the outsourced facility management employee becomes a prized commodity and resident expert; this is especially so in cases where the employee has transitioned from in-house to outsourced and has historical and cultural knowledge of the buyer’s company and facility. The buyer will want to retain that experience on-site, as it lends more overall value to the contract.
A good faith search for the positives and opportunities presented to outsourced facility management employees seems to yield an imbalance toward negatives and challenges. Current salary is generally transitioned with the employee to the vendor company, but most often will eventually be reduced to conform with the vendor’s own salary structure. Job security is not guaranteed beyond an introductory time period, though employees might find security in the stability of the contract. The outsourced employee’s working community must change with his or her employer and relationships with former co-workers will likely be adversely effected. A reduction in autonomy may reduce an outsourced employee’s professional skills and decision making opportunities. And though the theory of career-development is quite compelling, the reality has yet to be proved.
Perhaps the very real strength of the facilities management outsourcing trend will spur more formal questioning into its human impact. In order for outsourcing to continue on the upswing, the actual positives will have to prove more compelling than current information suggests.
Vickers is operations manager for Marlborough, MA-based Workscape.