FM deal making: The rise of collaborative deal making and true strategic partnerships
Historically, the approach to execute FM outsourcing has been quite consistent across industries and organizations. “The traditional approach” with competitive tendering, transactional business models and transactional contracts has been the most widespread, built on mergers and acquisitions theory. However, if you look at the most common pitfalls, there are many inherent flaws with this approach. For example the demand side dictates for the market “how to do the work”, when in fact the market is the expertise. Another pitfall is that often quality and integration value gets sacrificed due to sole focus on short term cost savings per service category. Experience tells that yesterday’s best practices do not equal tomorrow’s next great innovations within value enabling FM deals.
The FM market as we know it embrace these pitfalls and challenges and is therefore undergoing continuous transformation. Comparing how the market worked only 10 years ago with today, there are remarkable differences. The market is growing steadily and today companies more often approach deal making with a focus on TCO (total cost of ownership) which literally brings FM strategy execution closer to the boardroom, and more often it is owned by the CXO team. With an increasing frequency FM outsourcing demand organizations and sourcing departments want their collaborators to be strategic business partners, and they also expect their FM operating model to deliver on both top and bottom line objectives. Consequently, leading companies are considering FM management/workplace management as a strategic concern led by the executive team. Still, worth noting is that a vast majority of the deals that are concluded still have a “spend focus”, most of the time due to a lack of awareness of alternative sourcing business models.
FM executives are also increasingly being seen as strategic business partners internally, focusing on creating as much value as possible rather than acting as a savings driver, tactical and operational support function. In line with this, there is a growing trend to ensure that FM business is based on facts and analytics. Governing through oversight is no longer seen as the best approach – in today’s market, instead all stakeholders must work together to harness as much insight as possible in order to harvest new value pools. Buyers and providers must come to the table to join up the dots, and the more transparent the parties can be, the more collaborative they can act.
Another hot topic is “the choice of business model” to achieve strategic objectives. Similarly, the choice of sourcing business model (Transactional, Performance Based or Outcome based) is integral to orchestrate the system that will enable achievement of these objectives. Tendering-wise RFPs (Request for Proposals) have served well but now give room for more RFSs (Request for Solutions) or even RFPartner processes (Request for Partner/Collaboration). The rules you choose to follow during negotiations, and the moral codes you build into the relationship with your business partners are crucial for joint success. The “traditionalapproach” to conduct FM business is still useful when a company wants to buy commoditized services at the lowest cost. However, if your objective is to enable strategic results and generate value beyond savings and transformation, the traditional approach falls short.
Most players in the market can today architect deals that comprise mechanisms to support and incentivize achievement of strategic objectives. Currently, there is a movement away from traditional transactional contracts with power and zero-sum game based negotiations to more collaborative partnership-oriented models based on trust and win-win ideology aiming for creating corporate strategic value. Moreover, the focus is shifting toward more strategic and company-wide objectives such as workplace experience, minimization of environmental impact, minimization of TCO, digital transformation, radical innovation, safety, CSR and contribution to corporate transformation.
One piece of attention is though that there is not one magic model or approach for solving all the challenges in successful deal making. Every unique deal must embrace the requirements and objectives that are on the table. Choose wisely with help of the market utilizing their experience.
Henrik Järleskog, IFMA Head of International Relations