Ever wonder exactly when the concept of outsourcing business services first started? Well, me too. So I fired up Google and asked. Although I found lots of interesting ads and articles on the subject, I never did find anything specific about who pioneered the idea. One suggested Coca-Cola was the first when it outsourced its distribution network, a practice that has lead to a whole third-party logistics industry so common today.
Another pointed out that when the industrial age was kicking into high gear, plant operators and manufacturers bought and managed on-site generators to create the electricity needed to run their factories (making Edison a very rich man). Eventually, Westinghouse created a reliable, low cost power grid that, technically speaking, allowed businesses (who weren’t in business to make electricity), to outsource the generation of electricity to a third party and thus, move some of that wealth from Edison to Westinghouse while leaving Nikola Telsa penniless and insane (but that is another story for another blog).
Personally, I think the whole notion of outsourcing can be traced back to the earliest days of mankind when collectively, the cave men decided they were better at hunting and killing mastodons and three-toed sloths, and their cave women counterparts decided they could live with that.
Regardless of when it got started, it is safe to say that outsourcing is a way of life globally. In the commercial real estate world, firms have been outsourcing transaction management, facilities and property management, lease administration, project management, etc., for years. As before, the idea is simple: why would a firm whose primary business is not real estate hire and manage a real estate team internally, when there are highly skilled, highly scalable, and thoroughly trained and accredited professionals who could manage the process better and at a lower cost?
Okay, now stop it. I can already hear the fingers out there in cyber-space typing the hate emails, so let’s just caveat there may well be times when it makes sense to keep it in-house. But given the RFPs that C&W gets every month from every economic sector and from firms based all over the world, there seem to be plenty of cases where outsourcing real estate services must make sense. So spare me the emails, okay? And by the way: you haters out there, your mom wishes you would move out already.
However, there is a trend emerging that will cause some to re-look at their value proposition because the market is moving fast. When outsourcing in our space first started, the value proposition the market was clamoring for was all about costs. In response, real estate services firms organized their enterprises around an operationally efficient model in which variability was eliminated as much as possible. Why? Because variability is the enemy of low costs.
So when firms organize around lowering costs, what do they look like? They look like they are doing all they can to create the same thing over and over and over. They will have extensive process controls in place and detailed training programs so that everyone does everything the optimal way. Decision-making is centralized and their most intelligent assets are kept close to their core where their brightest can come up with all the best ideas.
In addition, the field staff, those closest to clients, are structured around conformance, characterized by highly-regimented protocols and procedures. Innovation, encouraged of those at the core, is discouraged in the field, because that would introduce variability.
Under this model, the idea is that costs will be driven down so long as the client adapts to the provider’s way of doing things. “One size fits all,” is their mantra, but this is not seen as a negative at all. Vendors in this space pitch their services by saying, “We are the biggest, we do this really, really well, we do it the same everywhere, and if you want to save money, we are better at that than anyone.” And a lot of businesses bought into this premise and have indeed succeeded at lowering their real estate portfolio costs.
But lately, it seems as though the market has found one thing missing in this approach. See anything in the description above about providing an outstanding customer experience? I will answer that for you.
No.
As a result, many of the RFPs we are now seeing are focusing on qualitative aspects of service. And the whole measurement system used to determine vendor effectiveness (typically expressed in Key Performance Indicators/Service Level Agreements, or KPI’s/SLA’s) is beginning to morph. Sure, there are still KPI’s and SLA’s focused on managing to budgets, schedules, savings, etc., but we are now seeing internally focused measurements asking business managers, for instance, “Given the opportunity, would you be willing to work with this service provider again?”
So what characterizes such service-first firms? Unlike the operationally efficient model described above, service-minded firms are flexible and adaptive to each individual client’s needs. They put smart, highly skilled people into the field and as close to their clients as possible and look for ways to better serve a given client or their vertical market segment. Their mantra would be ‘have it your way’ because the service provider adapts their approach, their staffing, their in-field skills to suit the client, rather than the other way around. And innovation in the field is not only encouraged, but rewarded.
Am I suggesting one approach is better than another? Not at all. I am, however, saying they are different. No one firm can focus on operational efficiency (cost) while simultaneously focused on delivering a great customer experience.
So when considering potential providers, firms looking at outsourcing real estate services should take the time needed to fully understand their priorities and then engage the service partner that is best structured to meet their unique needs.
Randy Thompson is senior managing director and head of U.S. corporate project management for Cushman & Wakefield. Contact him at [email protected].
