Fundamentally most of us believe that the reward for a fair day's work should be a fair day's pay, so why is it taking so long for the Facilities Management industry to embrace the UK Living Wage? People tell me that it's because no one wants to pay extra, but what most don't realise is just how much that decision costs. In this blog I argue that the Living Wage is a lot more commercially viable than is popularly believed.
For those not familiar with it, the Living Wage is quite simply the hourly-rate a person needs to earn before they no longer qualify for state benefits. It's a little more complex than that of course, but that's the synopsis. If you're interested in learning more check out the Living Wage Foundation (livingwage.org.uk) which promotes a scheme of accreditation for employers who voluntarily agree to pay these rate. The UK Living Wage (LW) is calculated to be about 20% above the National Minimum wage (NMW). In London it's approximately 40% due to the cost of living in the capital.
Though I promised that this blog would be about the commercial aspects of the LW, rather than the moral justifications, it's still worth saying that in 2014, we should all feel a little outraged at the idea of employers earning a profit whilst paying people less than they need to live on and passing on a burden to the tax payer. Some might think that statement evocative, but in an age of Corporate Social Responsibility(CSR), there's a growing expectation on employers to act responsibly towards both their own staff and the communities they are part of (it's why tax evasion gets so much press) and the above demonstrates neither. Ok, moral-rant over, let's get commercial.
I'm going to start building my case with a simple statement: Good, well motivated, loyal employees are more reliable, more productive and less likely to be absent. I'm not going to bother backing most of that up with facts: it's not exactly controversial stuff. But there is one statistic from the Living Wage Foundation that I do want to quote: 80% of LW employers have noticed around a 25% reduction in absenteeism. Let's talk about that for a second shall we? It is generally agreed that high rates of absenteeism are indicative of poor workforce motivation and loyalty. They're not the only indicator, but they are more quantifiable than others like productivity, dedication and time-keeping and are therefore considered good leading indicators.
The FM industry is full of low-paid service jobs; no pun intended, but you might say they are ten-a-penny, particularly in services like cleaning, catering and porterage. At the low-end of the wage scale, loyalty and motivation are low, churn is high and as a result there is poor consistency in productivity and quality. How many times, have you found yourself telling someone or being told by someone that quality issues are the result of changes in personnel or difficulty attracting and retaining the right people? This is the reality of a low-pay workforce: managing them to ensure good standards of quality and productivity isn't at all easy. It takes a lot of time, it takes a lot of effort and (most importantly to my case) it takes a lot of money.
It's not controversial to say that absenteeism costs money – it's a foundation stone of Health & Safety principles. When staff are absent, there are overtime costs, temp labour, lost productivity, time and effort wasted on ringing around to sort things out, etc. It's also agreed that employee churn costs money too: there are recruitment costs, training cost and supervisory time amongst others. Finally, managing poor performance can really drain resources too: It's not just the money credited back to customers or the time spent dealing with complaints, it's the supervision, the retraining, the formal meetings, the letters from HR, etc. Basically, choosing to pay low wages, is also choosing to incur a lot of additional costs. Now some will argue that; wages are direct costs and the costs I've descibed are indirect and therefore difficult to quantify in any meaningful way. In one sense they're right, but in another they're wrong. They are hard to quantify, but the total cost information can usually be found in the service tender proposal: Its the line item on the breakdown identified as “management costs”.
In low-wage service contracts, management costs are often one of the largest cost areas (after wages). Depending on whether things like training & recruitment (and sometimes profit) are included in them or listed separately, they could account for a significant proportion of the total contract cost. I've even once or twice seen proposals with combined management costs that almost equal the wages costs! The point here is that management cost are built into the contract delivery cost at the commercial tender stage.
Let's talk about commercial tendering for low-wage contracts. Most tenders are calculated using pre-defined formulae. If we over simplify it: some basic volume data (such as square footage) is entered to give an idea of hours required. This figure is multiplied by a wage rate and other costs are calculated as percentages of that resulting figure and added together to generate a total contract cost. There's a little “commercial” wiggle room of course, to give the sales-person something to play with, but in a nutshell, that's how it works. So here's the issue I have with that: Surely the management costs should be calculated using a sliding scale which significantly decreases as the wage rate increases? We've just established that if wages are increased 20% absenteeism reduces by 25%. We also accept that recruitment & training costs will decrease. We accept that less time will be required to supervise and manage both performance and customer dissatisfaction. There will be higher quality, less refunds and fewer complaints. Yes, many of these things are difficult to quantify, but let's not mistake difficult to quantify for unquantifiable or non-existent.
In fact, a move to higher wages creates a lot of potential for cost-saving, especially when combined with good people management practices. So surely the correct way of considering LW commercial viability is to (at least partially) fund increased wages, using management cost savings? Should customers pay extra to support the Living Wage? I don't believe customers should accept a pass-through uplift on wages, but I do believe that there are alternative solutions which are not just palatable for customers, but commercially viable or even, commercially advantageous, for suppliers too.
And here's one final point to consider. In the fiercely competitive world of FM Services contracts, real commercial viability comes not from undercutting to win volume, but through retention of business. During a re-tender process motivated,loyal staff and happy customers, are worth their weight in sales-people and corporate hospitality.
Once upon-a-time Facilities Management was largely an in-house function, but the growth of the outsourcing market has led to an increasing number of facilities professionals following career paths that never lead them to acquire client-side experience. As someone who has always worked client-side, when I meet a peer who has only ever worked on the supplier-side, I find they quite often want to ask me the same thing – what’s it like over on my side of the fence? This blog is the result of one such request for information and gives my thoughts about what you might see if you were to peek over that fence.
I’m part of a minority in FM networking circles: I started off ‘in-house’ and despite making a number of career moves, somehow I’ve managed to stay there. It’s been more by chance than by conscious design, though I have tended to express a preference towards in-house opportunities because I think they suit me fairly well. In fact, I’d even go so far as to say that I’m something of an advocate for in-house FM. But this blog is not about whether it is better on to be client-side or the supplier-side: this blog is about the differences that matter to an FM professional. And it started with an email.
The email was from a respected industry peer. In contrast to me, their background is supplier-side, but they had an opportunity to interview for an exciting client-side role. It was one of those too-good-to-resist opportunities with a very well known brand name and as they didn’t know much about how in-house FM worked, they thought it would be a good idea to reach out to their network and ask? They wanted to understand how things get done. Things like; how in-house FMs deal with budgets, KPIs, planning, etc? Who the stake-holders are and what interactions are expected, who ensures compliance, do we get audited, how do we support culture, how is success measured, etc? These are all excellent and fundamental questions I replied and you should definitely ask them at the interview because I really can’t answer how they might do it. I can tell you how my organisation does it, or how any of my previous organisations do it, but each of them do it differently. You see the thing about in-house FM is that it can vary significantly.
At its core of course, in-house FM is interested in all the same things that outsourced FM is: the basic need to provide safe and comfortable work environments and the amenities that support the work activities taking place. Things like budgets, SLAs, risk management, legal-compliance, etc, all derive from this. But what is really different is the way in which business needs are determined, defined and met. The outsourced FM industry is well established and as a result of learned best practices, good procurement principles and supplier convenience the basic framework of most outsourced contract arrangements are broadly similar. Now that is not to say that there isn’t a great deal of variation in the way that outsourced FM is delivered, but just to say that a supplier-side FM moving from one contract or employer to another will generally feel like they are on familiar ground, because the framework behind the service set-up is broadly similar.
In-house FM is different. It has more flavours than a well-stocked ice cream parlour. An in-house FM moving to a new employer could well find themselves feeling like they’ve tumbled down the rabbit hole and ended up in wonderland: the basic needs are the same but there are no hard and fast rules about how they are met.
It all goes back to the basic agreement between client and supplier for the provision of services. In an outsourced arrangement we refer to this as a contract, in an in-house provision we might generously call it a strategy, although it could just as easily be based upon the attitude of key players (including the FM), policies, financial organisation, organisational hierarchy, culture, history, attitude to risk or a multitude of other factors. It’s an important difference: at the heart of the client/outsourced-supplier relationship, there is a (legally) binding agreement that defines the client’s needs, the required services, expected quality standards, the principles of measuring success, etc. If these needs change, they get re-negotiated. In an in-house arrangement, the agreement for the provision of services between client and the FM function is much less tangible. It might be documented, though partially documented or undocumented are equally, if not more likely. But regardless of how well defined the agreement might be, the chances of it being binding are slim to none. This can be something of a double-edged sword: the existence of a contract can shield an outsourced-FM from the worst excesses of whimsicality and prevent goalposts from unexpectedly getting up and moving around the pitch, but absence of that very same binding agreement gives a canny in-house FM an inherent flexibility. An In-house FM can re-write policy, define new standards and bend, flex or even change the rules completely if they can exert sufficient influence on those that define needs, set standards or determine budgets.
So what does this mean in practice? Well take KPIs and SLAs as an example. In an outsourced arrangement, performance measures and success criteria are usually defined by the contract. The outsourced FM at least knows and understands the rules of the game and the rules cannot be changed without their agreement. The downside being that sometimes this can lead to slightly farcical situations, such continuing to report SLAs which have ceased to have relevance or carrying out unnecessary actions simply to serve the needs of an SLA or even being able to demonstrate success despite it being evidentially obvious that a service is failing.
Most In-house Facilities functions will also have an interest in SLAs and KPIs and may report on both internal and external ones. However in-house FM is a lot more “personality-driven” and the rules around performance measures and success criteria (particularly the internal ones) may be much less clear. They will often be based on what a senior executive deems to be of importance or interest and they can change as quickly as the weather during Wimbledon. Half a dozen complaints could be enough to see a new KPI established and a change of personnel might completely change the landscape overnight. In a personality-driven landscape, requirements can vary depending on the role of those further up the hierarchy: whilst it would be grossly over-generalising to say that a Finance director would only be interested in cost saving and a HR director in colour-schemes, it is obvious that the FM function would be influenced by the objectives and priorities of the role to which it reports. Of course the great thing for an in-house FM is that personal influence cuts both ways: An FM who is able to exert sufficient influence can make quite sweeping changes.
Now although I’ve focussed my explanation on performance indicators and success criteria, the situation is very similar for most of the other areas my peer was asking about: budgets, interactions, standards, etc. In general the big difference between in-house and outsource is that: the outsourced arrangement is inherently stable and is great for delivering a standard (which in many cases can be very high) and ensuring compliance. Whilst in-house FM is inherently flexible, which provides potential opportunities for FMs to take a more direct role in needs definition, specification and method of delivery. FM’s working in the outsource-sector usually have access to a level of support, resources, expertise and knowledge from within their own organisations that in-house FMs in all but the largest organisations would give their right arms for and are protected to a certain degree from flights of fancy and sudden changes of direction. But on the other an in-house FM is playing without binding rules (legal compliance aside) and the only real barriers to increasing funding, services or changing the culture are the extent to which the FM can exert their influence. And FMs are excellent influencers.
