a view from the front: assessing the landscape of refm outsourcing

A view from the front: Assessing the landscape of REFM outsourcing

2014 Global Real Estate and Facilities Management (REFM) Outsourcing Pulse Survey Results

KPMG’s Shared Services and Outsourcing Advisory

practice recently surveyed service providers and

buyers to get a pulse on the current state of REFM

outsourcing. What we learned can help differentiate

your organization from others.

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© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. 3

KPMG’s Shared Services and Outsourcing Advisory practiceWe’re about transformation

The Shared Services and Outsourcing Advisory practice brings a specialized global team of more than 800 professionals within KPMG’s global network of independent member firms operating in 155 countries. Our professionals help clients design, build, and manage information technology (IT) and business processes across the enterprise.

We help clients align their business strategy, organization, and execution to enable them to manage the entire IT and business process life cycle, improving business performance, and laying the groundwork for genuine business transformation.

We apply focused research, automating tools, proprietary data, clear business acumen, and a forward-thinking mind-set to provide timely, objective, actionable advice and practical approaches for clients. KPMG’s Building, Construction & Real Estate (BC&RE) practice serves our clients’ needs across a broad spectrum of issues and geographies.

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KPMG has the ability to help member firms’ clients transform enterprise services to help improve value, increase agility, and create sustainable business performance.

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KPMG REFM Pulse Surveys

Focus on performance, trends, and futures

The Global REFM Pulse Outsourcing SurveyAn annual review of real estate and facilities management outsourcing market trends and individual observations from the REFM “front lines.”

End users actively, “Buyers”, pursuing or undertaking REFM outsourcing

REFM third-party advisors and outsourcing service providers, “SPA”

More than 200 survey responses

All major industries and geographies covered globally

Current REFM outsourcing market trends and conditions

Deal drivers, challenges, and service delivery models

Global REFM sourcing trends

REFM outsourcing deal attributes

Facilities management

Facilities services

Workplace services

Portfolio strategy/planning

Transactions/brokerage

Lease administration

Space management

Project management

REFM IT systems

Input sources: Topics evaluated: Primary functional focus:


REFM outsourcing respondents by geography and industry*

30%6%8%10%12%22%28%

All OthersBusiness Services/Consulting,Construction/Engineering

CPG, Foodand Beverage,Retail, Wholesale

ManufacturingHigh-Tech Products/Services

Pharma/Biotech

Banking, Financial Services, Insurance

AsiaPacEMEAAmericasGlobal

25% 53% 16% 10%

Respondents by industry

Respondents by geography

Source: KPMG 2014 REFM Pulse Survey*Numbers might not add up to 100% due to rounding and multiple selections

As we heard from people in the field,

several macro trends came to the surface

along with insight into the current REFM

trends.



When we compared responses from previous surveys, here is what we found…

There are a few areas of similarity among respondents:

The standout areas, though, included:

Similar geographic distribution of respondents as prior years

Similar top demand by industry as prior years

Similar to prior years, expectations by buyers that outsourcing demand will fall 12+ months out

More interest by buyersin reducing costs

More interest among buyers in insourcing

4%

4%

More interest by SPAin reducing costs15%

Increase in interest by buyersfor business intelligence for REFM reporting systems10%

Increase in interest by SPAfor business intelligence forREFM reporting systems15%


Market overview: The top macro trends

There is a growing bifurcation between “leaders” and “laggards” in the service provider market based on industry and business process experience and diversity of services mix, including cloud and analytics.

Traditional generic and transactional outsourcing continues to commoditize. Cloud and client maturity are major drivers for this, especially in IT. Buyers are seeking more platform approaches tailored to specific industry, geographic, and regulatory needs.

Many organizations’ GBS remain fragmented across functions, geographies, and business units, complicating governance and detracting from potential business benefits. Defined efforts to drive GBS maturity are the norm among more experienced and sophisticated GBS users.

Global business services (GBS), combining onshore, nearshore, and offshore shared services and outsourcing, has become the predominant means through which organizations support global operations.

Negative global economic conditions continue to weigh heavily on organizations’ decisions on how, where, and why they source services globally, though few firms are pulling back from global sourcing of services’ globalization.

Source: KPMG 2014 REFM Pulse Survey


Market overview: Current REFM outsourcing market trends

Leading end-user organizations have increased their focus on REFM IT systems, reporting, and business intelligence, leveraging their IT systems to coordinate globally and using their data to support the organizations’ overall business goals.

Typical end-user organization expectations are that REFM outsourcing will improve their operational model, introduce leading practices, and drive continuous improvement. These expectations are often met, but when they are not, it is often because of the quality of the on-site service delivery team or not working effectively together with the client as one team.

Reducing costs continues to be the most common reason why organizations outsource REFM services. While service providers’ capabilities and service offerings continue to improve, most of the REFM services outsourced are tactical as opposed to strategic.

The REFM outsourcing market remains very healthy and continues to grow. Firms are bundling REFM services under a smaller number of service providers, to operate under a coordinated model to further reduce costs, drive consistency, and improve governance, controls, and performance reporting.

Source: KPMG 2014 REFM Pulse Survey

One of the more interesting observations was

the discrepancy between REFM buyers and

service providers when asked about future

outsourcing plans–with buyers being much

more optimistic than service providers.



Future REFM outsourcing plans: REFM buyers

Next 1-2 quarters Next 3-4 quarters

12+ months out

55%45%

68%

23%

9%

33%

50%

17%

Decreased usage

No change in usage

Increased usage



Next 1-2 quarters Next 3-4 quarters

12+ months out

Future REFM outsourcing plans: Advisors/Service providers

28%

67%

5%

53%33%

14%

61%22%

17%

Decreased usage

No change in usage

Increased usage


In a business landscape where

organizations seek to differentiate

themselves, there were several

processes and industries that led in

demand for REFM outsourcing.



Buyers: Current and planned REFM outsourcing levels

Workplace servicesFacilities servicesTransactions/brokerage Lease administration

Major project management ($20M+/project)

Project management (<$20M/project)

Space Management

Facilities Management

Real estate and facilities IT

Portfolio strategy/planning


58%

29%

18%

40%

20%

29%

35%

20%

6%

2%

6%

6%

4%

4%

2%

2%

2%

4%

2%

8%

10%

2%

6%

2%

2%

2%

4%

2%

28%

49%

60%

26%

45%

39%

27%

42%

39%

27%

4%

6%

14%

24%

29%

29%

33%

34%

47%

69%

No plans to outsourcePlanning to outsource 12+ months outPlanning to outsource in next 12 monthsCurrently partially outsourceCurrently fully outsource


When we look at areas of increasing demand by REFM process,three processes lead

Space managementFacilities managementFacilities services+66% Real estate and facilities IT

+64% Portfolio strategy/planning

+61% Workplace services

+59% Project management (<$20M/project)

+50% Transactions/brokerage

+46% Lease administration

+43% Major project management ($20M+/project)+69%

+74%

+74%



So why have some REFM processes not been outsourced?Strategy, cost, and change.


SPA

SPA

SPA

SPA

SPA

BUYE

RS

BUYE

RS

BUYE

RS

BUYE

RS

BUYE

RS

54%

29%

44%

24%

41%

49%

37% 38%35%

47%

Activities aretoo strategic

in nature

Costs wouldbe higher

No compelling business case

to change

Risks aretoo high

Satisfied with current service delivery model


Service delivery model preferences are changing: Data shows us that buyers are moving toward a portfolio-based approach to manage their outsourcing efforts


SPA

SPA

SPA

SPA

SPA

BUYE

RS

BUYE

RS

BUYE

RS

BUYE

RS

BUYE

RS

3.15 3.33 3.133.81

3.083.72

2.63 2.63 2.622.20

1.00 = Significant decrease in preference/demand, 5.00 = Significant increase in preference/demand

Bundle individually contracted services, but retain high-level management functions of services

Bundle and outsource increasing number of individually contracted services, and outsource key management functions of services

Bundle individually contracted services and outsource key management functions of services

Continue to manage multiple services with individual contracts

Insource services currently provided by service providers


The top industries for REFM demand? Banking, healthcare, and pharma

Banking, financial services, insuranceHealthcarePharma/biotech34% Energy/utilities, oil and gas

32% Manufacturing

29% High-tech products and services

28% Gov’t (fed, state, local) education/nonprofit

16% Real estate

15% Telecommunications

15% Entertainment/media, hospitality/travel36%

49%

39%


Discrepancies between buyers and

providers was not just limited to future

plans. When we asked both sides about

drivers and challenges, we saw

differences, sometimes notable, in

buyers’ and providers’ perceptions of

challenges.



As always, there are drivers and challenges to REFM outsourcing efforts

Cost savings from outsourcing have become “table stakes” for most buyers, a minimum standard to justify outsourcing.

Once that standard is satisfied, end users are looking for more strategic benefits like improving global delivery capabilities and improving process performance.

Buyers will use an outsourcing event to improve their operating model by centralizing management of REFM services, consolidating the number of service providers, and accessing process knowledge from those who can bring “off the shelf” playbooks to manage the work.

Buyers cite the quality and fit of service providers, enabling successful governance and transition efforts, and prioritizing competing agenda items as the top challenges to the successful consummation of REFM outsourcing efforts.

Providers have different styles and approaches to service delivery and buyers are looking for a provider that “fits” their culture.

Costs savings and improvements in facilities management service levels are competing with improved space usage and portfolio strategy as top priorities.

Service providers highlight inadequate management support and weak change management as top challenges.

Drivers Challenges


REFM drivers: While reducing operating expenses remains the top driver, being strategic requires firms to go beyond cost alone


69%

48%

44%

40%

35%

79%

44%

38%

39%

24%

Reduce operating costs (OpEx)

Support business growth/expansion agendas

Redirect resources to more strategic activities

Improve global delivery and operating models

Improve process performance

SPABUYERS


REFM challenges: Buyers and service providers are not on the same page


Retained organization/transition/governance 35%

17%

30%

46%

48%

SPA

44%

38%

34%

29%

24% Inadequate change management capabilities

Inadequate executive/management support

Prioritizing opportunities and different change programs

Quality/fit of supporting service providers

BUYERSno

tabl

e disc

repa

ncy

So where are we today when we look at pipeline

growth, pricing pressure, and focus?



Advisors/service providers’ perspective on market deal characteristics

Pipeline growth expectations remain the same as in 2013 with the majority expecting growth, and with a substantial reduction in the number of providers seeing a reduced pipeline.

Pricing pressure from buyers on these deals is still high, but there has been a drop over the past year. Pressure is still tempered, to a degree, by buyer risk aversion to failed efforts and provider focus on maintaining their margins.

Pipeline growth Pricing pressure

Providers continue to focus on growing business and expanding scope in existing accounts as a means to gain higher margin business. This reflects increasing consolidation occurring in the REFM market.

Overall, slight improvements in profitability and pricing pressure and continued substantial growth expectations indicate a generally good market for service providers.

Provider focus

KPMG can help

Take advantage of our knowledge and resources and join the conversation

For more information,contact Patrice Gilles at 214-498-1553 or e-mail [email protected]

Access the recent REFM Outsourcing Pulse Survey Webcast replay here.


mailto:[email protected]

https://www.kpmg-institutes.com/institutes/shared-services-outsourcing-institute/events/2015/03/refm-outsourcing-pulse-survey-webcast.html


Want to know more? Access KPMG’s sourcing advisory research

KPMG Shared Services & Outsourcing Institute

KPMG Shared Services & Outsourcing Advisory Pulse Surveys

KPMG Commercial Real Estate Survey and Real Estate Industry

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© 2015 KPMG LLP, a Delaware limited liability partnership and the U.S. member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

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a view from the front: assessing the landscape of refm outsourcing

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