Will you pay extra for the Living Wage?

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.

Peeking Over Fences

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. 

SLAs: A help or a hindrance?

A report from the debate at the 32nd FM Forum in Stansted

There was a sharp intake of breath from across the room as Liz Kentish posed her opening question in the debate about the usefulness of SLAs.  The assembled delegates looked around the room to find only two half-raised hands in response to the request about who would consider getting rid of their SLAs altogether.  One of those hands was mine, although I had only half-raised it – I’ll get to that bit later.

To be honest, our expectations going into the debate were quite modest. Being on as the last show of the day (and after the bar has opened) is not traditionally the best slot, but I’ll admit we were pleasantly surprised by the turnout and even more pleasantly surprised by the extent of audience participation. It would appear that SLAs are a contentious topic. In fact, this very report is a product of the ongoing interest we received after the debate.

I think it was a strong and diverse panel – that’s something that always helps a debate go well.  With myself (Jason Gurd) providing the client-side view, Robert Cunliffe the service-provider perspective, Adeyemi Adeboye providing expertise of operating PFI contracts. The debate was chaired by the BIFM Deputy Chair, Liz Kentish.

The panel put forward their cases and invited input from the audience.  There was some initial discussion about whether SLAs served any real purpose, with myself suggesting that most of us just settle for supplier’s out-of-the-box SLAs anyway. I’d already made the point that, getting to me in 4-hours wasn’t really all that impressive when you considered how far I could get from Stansted in 4-hours.

It was debated whether SLAs offer more protection to the client or the supplier, with cases being made for both sides. There were suggestions that SLAs were more often stick, than carrot, a get out-clause, if you like and the practicality of actually using that stick was also discussed. 

 Adeyemi and Robert both made strong cases for SLAs being a way to manage expectations and although there was a general consensus that they couldn’t replace a good client/supplier relationship, Adeyemi was able to use his knowledge of PFI to demonstrate that there are times when the client is significantly removed from the delivery.  This led to the almost inevitable question about whether FM is too procurement driven, followed by an equally inevitable round of “procurement-bashing”.  It was light-hearted, but I did step in to support our procurement colleagues by pointing out that it was down to FM’s to demonstrate leadership and influence in specifying services, but that we also need to make use of procurement functions to help us buy more effectively.

There was a lot of discussion about whether drawing a “line-in-the-sand” was a good thing when it came to service standards or not. I argued that, whilst there is a case for KPIs, continuous improvement demands that we seek to improve. Adeyemi countered by talking about the mechanisms which can allow SLAs to develop. 

There was also a great deal of discussion about whether SLAs could really enhance the client/supplier relationship, with Robert providing one of the most interesting examples of the night about how SLAs could be used to support organisational objectives, such as offering Local Authorities SLAs relating to creating local employment.

It was a pretty heated debate and I think most people were genuinely disappointed when it came to a close. I don’t think we managed to resolve the question, but I do think we managed to make a room full of FMs decide to think a lot harder about what SLAs they will ask from their suppliers in the future. 

To wrap this report off, I’d like to leave you with the closing thoughts of each of our panellists & chair;

Robert Cunliffe       
@robertcunliffe 
http://fmfuture.blogspot.co.uk/


“SLAs should be intertwined with KPIs and penalties or credits to ensure that the service provider has a framework to understand the quality expectations of the customer.  SLAs  & KPIs should not get in the way of building a good relationship between supplier and customer to further improve or enhance services so the customer is genuinely happy, however they provide a safety net should the relationship deteriorate.  To provide a true partnership SLAs and KPIs should focus on outcomes or the customer’s business priorities, as only then will the supplier really understand what the customer really, really wants.”

Adeyemi Adeboye 

@Yemmycornelius


“Forums like these, which bring the provider and the client together to discuss how the equilibrium of demand and supply of service agreements could be improved upon, is not only a necessity but a requirement for an enhanced and positive experience.  SLAs in this modern business age are here to stay: Whether you achieve your strategic goals and objectives will be down to how you structure your service level objectives in relation to your organisational goals."

Jason Gurd 

@jgurd

http://everythingfacilities.blogspot.co.uk/

“Even I’m not enough of a maverick to completely dispense with SLAs all together, but I do think FMs should give serious thought to what SLAs they ask for and whether they really need to be accepting all of those out-of-the-box ones.  I would suggest you might get a better service if you dispensed with the majority of your SLAs and focussed on the ones that are really important to you.”

 

Liz Kentish (Chair)  

@FMCoach   

http://www.lizkentishcoaching.co.uk/

“I love it when FMs get together and talk about what works!  Our debate at the FM Forum demonstrated that there is of course a place for SLAs, but they must be regularly reviewed and amended when services change.  Key to service delivery and managing expectations is the relationship between the service provider and the client, whether in-house or not.  One of the courses we run is influencing skills and managing relationships, and the feedback is always that this is what really makes a difference - get it right, as an FM, and your life will be an awful lot easier!”

SLAve to convention

Conventional FM wisdom tells us that we should manage our client/supplier relationships with SLAs, but maybe some of us would be better off ditching them altogether.

Service Level Agreements (SLAs for short) are an agreement between the customer and supplier about the extent, the quality or the speed with which a service is provided; 90% callout within 4-hours is a commonly used example.

In theory, SLAs are a way for the customer to make it clear to the supplier what standards they expect (that’s the Service Level part) and for the supplier to confirm that those standards can be delivered (that’s the Agreement part).  Measuring how well the SLA is achieved enables both parties to be clear about whether the service being provided is meeting expectations; this in turn helps the supplier to prioritise resources and actions to help ensure the customer gets what they wanted. That’s the theory anyway.

The trouble is; I don’t really buy into it. 

Stick to carrots

One of the big issues I have with SLAs is that they are often written into service agreements; effectively they become glorified “get out” clauses, to enable customers to terminate suppliers who fail to meet the mark.

Of course I’m not saying that having the flexibility to break of relations with a supplier who is seriously underperforming is a bad thing, but I wonder if the approach is a little short-sighted: human nature dictates that if you are going to give someone a stick to beat you with, you make that stick as small as possible. 

Does the use of SLAs actually encourage us to strive for mediocrity rather than success?  Remember that agreement part of the SLA?  Well it often seems to me that suppliers are reluctant to agree to SLAs that they couldn’t easily meet. For example, let’s go back to the 90% callout within 4-hours example cited at the beginning of this blog.  I work in Berkshire. I’d happily place a wager on the fact that in 4 hours, I could be in Swansea, Manchester, or maybe even France, but the SLA would have me believe that just getting to my office from their's (which probably isn't in Manchester by the way) in the same timeframe is some kind of indicator of successful service provision.........  So does that really drive performance in the way I’d like it to?

Not that suppliers get all the blame here.  Realistically, the service provider could probably manage 90% callout in 2-hours, but if the price of failure is losing the contract, you can’t really be suprised if they choose to play it safe. Perhaps the better approach is to prefer the carrot to the stick.  I suspect we prefered incentives to penalties, then service providers would be more willing to accept  challenging targets and this would drive better service.   

Sample size

One of the other concerns I have with SLAs is sample size.  SLA achievement data is supposed to be representative of the service performance, but for statistical data to be useful, it needs to come from a decent sized sample.

My career to date has always been in client-side (in-house) FM; I’m generally a buyer, rather than provider, of services. The supplier relationships I’ve had have been small in comparison to say, for example, large TFM relationships. The truth is, that in my area of operations, many of the standard issue SLAs fall down as a result of scale.

Let’s say, for example, my vending contractor offers me that 90% callout in 4-hours SLA.  Each month they report 100% success and everyone is happy because they get here so quickly?  Well not quite.

You see the reality is that the machines are quite new. The 100% success rate is actually telling me that they rarely break down, not that the supplier responds quickly. If the machines only break down once a month or so and the SLA is reported every month, there’s really only two ways it can go: 0% success or 100% success. Simply put, the volume of transactions is just too low for the SLA to be a useful indicator of success. Perhaps reporting it over a longer period (say a year) might be better, but I suspect that it would only really work over a much larger contract.

The other thing I really need to ask myself is, if they always get here in 4-hours anyway, should I really be focussing my energies on an element of the service that has room for improvement?

Choose wisely

Despite my opening statement, I’m not actually suggesting we all dispense with our SLAs, but I do think that both customers and suppliers need to give much more careful consideration to what their SLAs are doing for them if they want them to be effective.  Measure what is important to the relationship: use SLAs to drive positive success by measure the areas you want to improve. Don’t just measure what everyone else is measuring; don’t just be a SLAve to convention.

The Sophisticated Customer

One of the most frustrating challenges for anyone in a service industry is the customer who doesn’t really say what they want. How can you be expected to exceed their expectations, when they haven’t clearly articulated what those expectations are? Facilities people face this challenge all the time, but when the shoe is on the other foot, are we any better?

Facilities people are customers too. 

Procurement is a major function of Facilities Management. In small organisations a Facilities Manager might do all their purchasing by themselves. In larger organisation they may be able to draw upon the support of various experts; procurement managers, legal teams, etc.  These experts are a useful resource to the savvy FM, but at the end of the day, their expertise only extends to their subject matter: they can help you write a watertight contract, but they probably have no idea if it delivers the right level of service or not. Making sure that the service meets the requirements of the business is the FM’s job.

So how do we as Facilities professionals ensure that the deal we are being offered is going to deliver exactly what we want it to?  Well personally, I’ve always thought the best way to get exactly what you want, is to start by telling people exactly what you want.

Buying Smart

I first heard the phrase "Sophisticated Customer" from a supplier and I immediately took a liking to it. I think it's the perfect way to describe someone who approaches procurement in a precise and detailed way: someone who buys smart.  Let me explain.

Imagine you want to buy a car.

If you just stroll into the nearest car dealership and announce that you want to buy a car, you could be driving home in anything from a clapped-out ford Fiesta to a shiny new Porsche.  If you don’t have some idea what you’re looking for, the range of options could be confusing to say the least. 

Of course if you’re smart, you’ll think it through before hand; you’ll work out what you need this car to do, what sort of mileage you plan to do, etc, and the friendly salesman will be able to show you some options that don’t leave you having to stick one of the kids in the boot when you're doing the school run. 

However, the sophisticated customer will work out exactly what they want before they step out of the door.  If you’re buying smart, you’ll know what make and model of car you are looking for. You’ll have decided already if it’s got to have alloy wheels and a sunroof and you’ve probably picked out a fetching shade of metallic green.  Basically, you’ve got a specification.
The reason for using a specification is that it enables you to give the details of your dream car to a number of garages and then buy it from the one offering the best deal.  You get exactly what you want and you get it at the best price.

Getting Specific

Many Facilities professionals use specifications as part of the formal tender process, but there's nothing to stop them being used anytime you buy something and they can be used when buying almost anything. I’m surprised they don't get used more often.

So we've established you can use a specification for virtually anything, the question now is what you put in it. The answer quite simply is: as much as you can. In my time I've occasionally come across people trying to procure services using a generic specification. Maybe they've missed the point, but the clue should be in the name; the idea is to be specific.

As a customer, the more detailed your specification is, the more chance you’ll stand of getting what you want. There’s an old saying about what happens when you assume – I won’t repeat it here, but let me say instead: assume nothing. When I look to bring in a service or product, my specifications tend to cover anything and everything I can think of that might be relevant.

The most important aspect of course, is to include details about what you are looking to buy; what it is, how many, how big, what colour, etc.  But you don’t have to stop there.
You can choose to specify the process for proposal submission; you can include contact information, dates for submissions and procedures for preliminary visits and queries. You may wish to define terms about ownership of equipment (like keys, phones, IT equipment), security, intellectual property, qualifications of personnel, environmental standards, Service Level Agreements, etc, etc. The list is virtually endless.

If you’ve ever struggled to get the right paperwork after the job has been completed, you might think it’s worth stating up front, exactly what you expect to be delivered before the invoice gets paid. Talking of payment; maybe you don’t want to pay invoices on the supplier’s standard 14 day terms, maybe 30 day terms suit you better. As a general rule of thumb, if you’re very specific about what want, you can usually get it, albeit, at a premium.

Finding The Right People

A detailed specification can help you to identify good suppliers.

The extent to which a supplier takes the time to read and understand your brief (and it’s easy to spot those who haven’t) and is prepared to tailor their service to meet your requirements, demonstrates the value they place on your business. 

You might think that many suppliers would react quite negatively to such a dictatorial approach, but if you’ve never tried it before, you might just be surprised. In my experience, good suppliers like doing business with sophisticated customers. It’s fair; they know that they will be quoting like-for-like against other suppliers. If they don’t win your business, it’s either because they weren’t right for it or they weren’t competitive, not because they were undercut by someone offering a substandard service at a reduced rate. 

Any supplier signing up to a detailed specification starts out with a clear and detailed understanding of what the service expectations are. This knowledge can be used by them to meet and exceed those expectations, to develop a successful partnership and ultimately retain the business on a long-term basis.

If this sounds like the kind of supplier relationships you want to have, my advice to you, is be sophisticated and start asking for what you want.