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Transcript of Kpmg Outsourcing Report 2011
KPMG 2011 Real Estate & Facilities
Management Outsourcing
Pulse Survey
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 2
Introduction
KPMG LLP (US) and KPMG Holdings Limited (UK) are pleased
to release the findings from the inaugural 2011 global Real
Estate & Facilities Management (REFM) Outsourcing Pulse
survey. The REFM Outsourcing Pulse is the newest addition
to the KPMG Pulse family of surveys. These Pulse surveys
provide insights into trends and projections in end-user
organizations’ usage of shared services, outsourcing and
third-party business and IT services. The learnings from
the REFM Outsourcing Pulse are gleaned from end-user
organizations that are actively exploring or undertaking
REFM outsourcing efforts as well as from leading global REFM
business and IT service providers.
The Pulse survey research program was originally developed by
EquaTerra, a leading sourcing advisory consultancy that KPMG*
acquired in February 2011. They are now part of a broader
family of KPMG Pulse surveys that include the quarterly global
sourcing advisory Pulse, similar surveys focused on specific
geographies such as China, and studies focused on important
market topics such as cloud computing and HR transformation,
and broader business market trending.
Since their inception in 2004, the Pulse surveys have yielded
insightful analyses of current and ongoing market trends
in the use, deployment and delivery of business and IT
services. They capture changes in demand, usage levels,
future adoption plans and related key market indicators.
They highlight the changes, and the direction of change,
in the business and IT service markets as a whole. The surveys
focus on where the market is going and how that direction is
changing—or not—compared to prior quarters and years.
The global REFM Outsourcing Pulse survey will be conducted
on an annual basis. Topics explored in this first edition of the
REFM Outsourcing Pulse include:
Current REFM outsourcing market trends and conditions •
Deal drivers, challenges and service delivery models•
Global REFM sourcing trends•
REFM outsourcing deal attributes.•
Demographics
Over 200 respondents were surveyed in this market study.
One-third of respondents were from end-user buyer
organizations currently utilizing or in the active process of
undertaking REFM outsourcing. Two-thirds of respondents
were from third-party providers of outsourcing and related
REFM services. A small portion of the service provider sample
(less than five percent) was comprised of respondents from
law firms advising end-user organizations on REFM sourcing
efforts. The majority of both buyers and service providers
are focused on the U.S. market, with 30 percent each
operating globally and the balance operating in the EMEA
and Asia Pacific regions. Figure 1 illustrates the geographic
distribution of the buyer and service provider respondent
base. All major REFM service providers are represented in the
results, including CB Richard Ellis Group, Cushman & Wakefield,
Johnson Controls and Jones Lang LaSalle.
*KPMG LLP (US), KPMG Holdings Limited (UK) and KPMG
International have acquired the business and subsidiaries of
advisory firm EquaTerra, Inc.
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 3
3
5
53 9%
7
3
End-user organizations (1/3 total sample)
REFM service providers (2/3 total sample)
Global Americas EMEA AsiaPac
Figure 1
Questions or comments regarding this report and the KPMG
Pulse survey program should be directed to Stan Lepeak,
Director of KPMG Sourcing Advisory Global Research,
at [email protected] or +1 203-458-0677. The KPMG
executive sponsors of the REFM Outsourcing Pulse research
program are:
Ron Walker, Principal, KPMG REFM Sourcing Advisory Practice,
at [email protected] or +1 760-703-2076
Doug Burr, Senior Manager, KPMG REFM Sourcing Advisory
Practice, at [email protected] or +1 925-895-4747
Steve Silen, Senior Manager, KPMG REFM Sourcing Advisory
Practice, at [email protected] or +1 949-885-5431
Survey Respondent Demographics
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 4
Management Summary
framework to design, build, deploy and manage service
delivery globally. The traditional REFM model was to perform
all activities using internal resources. Over time, it has evolved
to include: out-tasking, outsourcing (bundling of services),
integrated facilities management and global integrated
facilities management, an REFM instantiation of the general
EGE framework. Outsourcing of REFM services is a journey,
and not all end-user organizations are in the same place.
Some end-user organizations are considering outsourcing
REFM services for the first time while others that have already
outsourced are looking for opportunities to outsource more
sites and services, to consolidate what has been outsourced
under fewer providers or to restructure the pricing of their
current contracts to deliver additional savings. Most end-
user organizations still prefer to outsource REFM tactical
services and have in-house staff perform most of the strategic
activities. However, a growing number of service providers
are demonstrating advanced capabilities that enable them to
move up the value chain in terms of services offered. They are
becoming better able to integrate into existing business
operations to provide more high-value, strategic services
(e.g., portfolio strategy planning).
The business climate in 2011 remains challenging, and end-
user organizations are under pressure to reduce real estate
and facilities management costs and improve their process
performance and their global delivery and operating models.
For many organizations, REFM costs are the second largest
cost behind personnel. So managing these costs and driving
continuous improvement is essential, particularly in today’s
environment of economic uncertainty. Thus, outsourcing of
REFM services has become a compelling solution for many
firms that can potentially reap annual savings of seven percent
to 20 percent off of preoutsourcing levels (based on EquaTerra
and KPMG member firm client engagement experiences).
The growth of REFM outsourcing is part of a larger trend
of how organizations deliver and manage core operating
functions (e.g., REFM, IT, F&A, HR, customer care) globally.
The means through which organizations deliver and manage
these services have changed significantly over the past
25 years. Leading enterprises employ a broad range of service
delivery models and techniques, including alternative delivery
models such as shared services centers (SSCs), offshore
captive operations and IT and business process outsourcing
(ITO/BPO). KPMG firms have developed a model labeled
the extended global enterprise (EGE) that provides a
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 5
Evolution of Facilities Management & Real Estate Sourcing
Pre-1980s ’80s to mid-’90s
Mid-’90s to 2000
Early 2000s to mid-2000s
Mid-2000s and onward
Most, if not all, activities are performed in-house.
Self-perform
Low-tech services such as cleaning, security, food services and landscaping are individually sourced by different locations to external providers.
Out-tasking
A combination of low-tech and high-tech services—such as electrical, mechanical and environmental—are outsourced in service bundles.
Outsourcing
Facilities management and real estate services are outsourced to a single service provider, which manages subcontractors.
Integrated facilities management
Facilities management and real estate services are organizationally aligned with other support services—such as finance, HR, procurement and IT—and outsourced in a global bundle across business units.Bundled business process outsourcing (BPO) across multiple functions is emerging as an option.
Global integrated business services
Most end-user organizations today, especially larger firms
in western markets, have already undertaken some level
of REFM outsourcing, even if it has been to outsource a
few services (e.g., janitorial, cafeteria and amenities services).
Self-performing REFM work remains more common in
emerging markets where the capabilities of the marketplace
may not be mature enough to outsource or at small offices
in all markets where most of the services are provided by the
landlord. While many end-user organizations are operating
today in the outsourcing model (bundling of services),
the most innovative firms are operating under an integrated
facilities management model or a global integrated business
services model. Although many end-user organizations aspire
to operate under a global outsourcing model, most of them
operate under a local or regional model because the global
provider market isn’t mature enough to meet their needs.
Similarly, leading practice is to perform governance across
the portfolio wherever possible. This drives more consistency,
shares leading practices, increases ability to leverage spend
and reduces management complexity.
Where an end-user organization should ideally be in its REFM
outsourcing continuum requires a careful evaluation of
the performance of its current operations, business needs/
challenges, the marketplace capabilities and the benefits
and risks of making a change. There is no right answer,
but status quo is not prudent. More sophisticated buyers
understand how their operating model compares to their
peer group and have developed an REFM sourcing strategy
to map the way forward and gain a competitive advantage.
They have engaged the right players from within and outside
their organization to create a credible strategy and have
implemented an appropriate change management program
to ensure a smooth transition. They have also evaluated their
current practices, benchmarked them, implemented process
improvements and driven consistency across their portfolio,
where appropriate. Bottom line – smart buyers are carefully
planning their ongoing REFM outsourcing journey and are
focused on executing on this strategy.
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 6
Here are the key findings from the KPMG 2011 Global REFM Pulse Survey:
Global demand for REFM outsourcing remains strong and •
continues to grow. Nearly all polled buyers undertaking
REFM outsourcing expect to maintain or increase
outsourcing usage in the short-to-medium term.
REFM service providers cite current growth in their
outsourcing business sales pipelines and expect that
growth to accelerate in 2012. The greatest growth
expectations came from REFM providers operating
globally and supporting global outsourcing efforts.
The primary focus areas for REFM outsourcing among •
buyers are workplace services, facilities services, and
transaction and brokerage services. Service providers
see near term increased growth opportunities in these
areas, as well as in facilities management, and even
in more strategic areas such as portfolio strategy and
planning. From an overall topical REFM perspective,
the top themes buyers will focus on over the coming
year are energy management, cost reduction efforts,
and addressing a sustainability and corporate social
responsibility agenda. The key is to determine how,
when and where REFM outsourcing can help address
these issues.
A dominant theme in the REFM outsourcing market today •
is consolidation. REFM outsourcing buyers are aggregating
existing outsourcing efforts spread across multiple service
providers, geographies, contracts and functional areas.
This plays to the strengths of the larger, more global and
diversified service providers. Buyers are striving to bundle
together more existing and new REFM deals and, while
typically they want to maintain overall management
control of these services bundles, they are increasingly
open to ceding more of that management control to the
providers performing the underlying services.
Reducing operating costs is the top driver for •
organizations undertaking REFM outsourcing, but buyers
also seek a variety of other benefits above and beyond
cutting costs. These include improved REFM process
performance, improved financial flexibility, creating
a more variable cost model, and supporting global
business growth and expansion agendas, especially
into emerging markets. As a result, a key challenge is
to balance cost cutting and process improvement and
related agendas and needs.
Buyers continue to face many challenges to successfully •
undertake new REFM outsourcing efforts and
consolidating efforts already in flight, especially when
pursued across multiple functional areas and on a global
scale. The top challenges cited include prioritizing
the broad range and number of REFM outsourcing
opportunities and related change programs, addressing
the economic uncertainly that makes short-to-medium
term planning difficult, and addressing challenges related
to retained organization, relationship management and
outsourcing governance issues.
The globalization of the REFM service market tends •
to follow the globalization of buyer organizations’
geographic footprint that these REFM services support.
As buyers expand into emerging markets, for example,
the demand for outsourced REFM support services
in those markets grows. So while in contrast to most
ITO and horizontal BPO efforts, REFM outsourcing is
not so much about shipping services back to the west
from lower-cost offshore markets. This being said,
REFM buyers still need to improve global sourcing
skills, especially as they relate to managing multiple
efforts across multiple providers and geographies,
consolidating efforts to gain economies of scale, and
better accounting for and dealing with regulatory, data
and intellectual property risks and challenges. The key
to buyer success in global sourcing is to define, deploy
and optimize the mix of global service delivery models
employed as part of the adoption of an extended global
enterprise model.
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 7
Please note: this PDF also includes embedded bookmarks to help better navigate through the document. For a list of bookmarks, please click on the “Bookmarks” tab to the left of this PDF.
Table of Contents
IntroductionI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2Survey Respondent DemographicsFigure 1 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
Management SummaryII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
REFM Outsourcing Pulse Highlights: Buyer OrganizationsIII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
REFM Outsourcing Pulse Highlights: Third-Party Service ProvidersIV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8
Current REFM Outsourcing Usage and Market Demand ConditionsV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Current and Planned REFM Outsourcing Usage Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Buyers: Current/Planned REFM Outsourcing LevelsFigure 2 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Buyers: Future REFM Usage PlansFigure 3 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10Service Providers: Pipeline GrowthFigure 4 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11Service Providers: Demand ProjectionsFigure 5 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11Service Providers: Demand by Process AreasFigure 6 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13Service Providers: Demand by IndustryFigure 7 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14Winter 2010 Global Business Outlook: Figure 8 – Outsourcing Plans 12 Months Forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15
Top REFM Outsourcing Drivers, Challenges, and Service Delivery Model Approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16Top REFM Outsourcing DriversFigure 9 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17Top REFM Outsourcing ChallengesFigure 10 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18Change in Service Delivery Model PreferencesFigure 11 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20Changes to Buyers Interests/Preferences Relative to Key REFM TopicsFigure 12 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21Future Space Utilization PlansFigure 13 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22REFM Figure 14 – Reporting Systems Needs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
Update on Global SourcingVI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24
Buyer Global Sourcing Preferences and Demand Levels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24Buyer Global Sourcing Interests/PreferencesFigure 15 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
Buyer Global Sourcing Maturity and Sophistication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25Buyer Global Sourcing CapabilitiesFigure 16 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26Management and Governance of Existing Global REFM EffortsFigure 17 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27Management and Governance of New Global REFM Efforts Figure 18 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
Current Market Deal Characteristics: Service Providers’ PerspectivesVII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29
Pricing Competitiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29Service Providers: Pricing CompetitivenessFigure 19 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
Contract Profitability and Ability to Increase Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30Service Providers: Contract Profitability, New and Existing DealsFigure 20 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31Service Providers: Ability to Increase Deal ScopeFigure 21 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32
Where to Learn More about Global Sourcing Market TrendsVIII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33
Service Provider Performance and Satisfaction Market Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33
ConclusionsIX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 8
REFM Outsourcing Pulse Highlights: Buyer Organizations
Top REFM Processes OutsourcedWorkplace services1. Facilities services2. Transaction/brokerage services3.
Future REFM Outsourcing PlansNext 1 – 2 quarters: 50% plan to increase outsourcing• Next 3 – 4 quarters: 36% plan to increase outsourcing• 12+ months out: 44% plan to increase outsourcing •
Top REFM Outsourcing DriversReduce operating costs1. Improve process performance2. Improve financial flexibility3.
Top REFM Outsourcing ChallengesPrioritizing opportunities1. Economic uncertainty 2. Retained organization, transition, and governance challenges3.
Top REFM Focus Areas Next 12 MonthsEnergy management1. Cost reduction 2. Sustainability3.
REFM Outsourcing Pulse Highlights: Third-Party Service Providers
Deal PipelineFifty-eight percent of providers cite pipeline growth over last 1 – 2 quarters; 41 percent cite no change
Future REFM Outsourcing DemandNext 1 – 2 quarters: 21% cite demand growth• Next 3 – 4 quarters: 52% cite demand growth• 12+ months out: 72% cite demand growth•
Top REFM Process Demand Growth AreasFacilities management 1. Portfolio strategy and planning2. Space management 3.
Top Industries for DemandBanking, Financial Services & Insurance (BFSI)1. Healthcare2. Pharma/Biotech3.
Top REFM Outsourcing DriversReduce operating costs1. Improve global delivery and operating models2. Redirect resources to more strategic activities3.
Top REFM Outsourcing ChallengesInadequate change management capabilities1. Inadequate management support2. Retained organization, transition, and governance challenges3.
Top REFM Focus Areas Next 12 MonthsEnergy management1. Cost reduction 2. Improving the workplace to attract/retain talent3.
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 9
Current REFM Outsourcing Usage and Market Demand Conditions
Current and Planned REFM Outsourcing Usage Trends
KPMG LLP (US) and KPMG Holdings Limited (UK) polled users of REFM outsourcing
on what REFM process areas they have already outsourced, plan to outsource or
have no plans to outsource in the foreseeable future (see Figure 2). It is important
to note that this study surveyed organizations that have already undertaken or are
actively planning to undertake REFM outsourcing, so the levels cited below are not
representative of the market as a whole, but rather of organizations that are already
actively engaged in REFM outsourcing.
The most commonly outsourced REFM process area by firms that have •
undertaken REFM outsourcing was workplace services. This includes activities
such as janitorial, cafeteria and amenities services. Sixty percent of respondent
organizations have already fully outsourced workplace services, 27 percent
have partially outsourced them and just seven percent have no plans to
outsource this type of work.
The second most frequently outsourced area of REFM services was facilities •
(e.g., HVAC, electrical, mechanical, building repair). These activities were fully or
partially outsourced by 85 percent of survey respondents with just 11 percent
having no plans to outsource these activities.
REFM portfolio strategy and planning was the area least often outsourced, •
with just 22 percent of respondents having partially outsourced this more
strategic work.
Buyers: Current/Planned REFM Outsourcing Levels
11%
16%
20%
24%
26%
33%
46%
48%
60%
22%
32%
43%
50%
47%
33%
28%
30%
37%
27%
4%
5%
2%
4%
2%7%
7%
4%
2%
2%
2%
5%
2%
2%
4%
2%
2%
2%
4%
72%
48%
36%
24%
22%
33%
30%
20%
11%
7%
0% 20% 40% 60% 80% 100%
Portfolio strategy/planning
Real estate and facilities IT
Space management
Project management (<$20M/project)
Facilities management
Major project management ($20M+/project)
Lease administration
Transactions/brokerage
Facilities services
Workplace services
Currently fully outsource Currently partially outsource
Planning to outsource in next 12 months Planning to outsource 12+ months out
No plans to outsource
Figure 2
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 10
Buyers were next asked about their near-term plans for additional usage of REFM
outsourcing (see Figure 3). One-half of respondents plan to increase REFM outsourcing
levels over the next one to two quarters, with just six percent planning to decrease
usage. The number of buyers planning to outsource more REFM services over the next
three to four quarters and 12 months out declined somewhat, to 36 and 44 percent,
respectively, though overall it is clear the market is in a growth mode. Interestingly,
REFM service providers were less bullish on short term market growth but more
positive on longer-term growth projections (see Figure 5 below).
Buyers: Future REFM Usage Plans
Q 4 - Buyers: Future RE M Outso rcing Us ge Pla
6%
7%
44%
64%
48%
50%
36%
44%
0% 20% 40% 60% 80% 100%
Next 1-2 quarters
Next 3-4 quarters
12+ months out
Decreased usage No change in usage Increased usage
Figure 3
The other dimension of the KPMG REFM Outsourcing Pulse survey is gathering
input from the sell-side of REFM services on market demand and deal trends,
characteristics and future expectations. To do this, KPMG polled leading global
REFM service providers on the current and expected growth levels in their pipelines
for services deals. Service providers polled in the inaugural REFM Pulse were bullish
regarding new outsourcing deal pipeline growth projections.
Fifty-eight percent of service providers cited pipeline growth over the past one to
two quarters, while just one percent of service providers polled indicated pipeline
growth had contracted (see Figure 4). It is important to note that the Pulse surveys
measure change in pipeline growth levels, not absolute pipeline size or revenue levels.
REFM service providers were next asked about their projections on buyer demand for
REFM outsourcing over the next 12 months (see Figure 5). Just 21 percent of service
providers expected demand levels to increase over the next one to two quarters,
while an equal number expected demand levels to decrease. This is in contrast
to much more aggressive numbers cited above by buyers. Part of the difference
is likely due to estimations of when new business will hit the market and go into
service provider pipelines (buyer projections) and when that business will actually
consummate into new deals (service provider projections). The number of service
providers expecting REFM outsourcing demand levels to grow increased for both
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 11
three to four quarters and 12+ months out. Higher longer-term demand projections
from service providers were also tied to expectations for an improving economy
in 2012 and less economic uncertainty among buyer organizations, a factor cited
as slowing deal flow. Market events occurring as we put this document together
(including the equity market crashes of early August 2011) br ng this into question.
Service Providers: Pipeline Growth
Q4 - Service Prov ders: ipeline Grow h
1%
41%
58%
Down relative to last 1-2 quarters
About the same
Up relative to last 1-2 quarters
Figure 4
Service Providers: Demand Projections
21%
11%
12%
59%
37%
16%
21%
52%
72%
Next 1-2 quarters
Next 3-4 quarters
12+ months out
Demand will decrease Demand will remain the same Demand will increase
Figure 5
2011 has been a very challenging year for the REFM service providers. While their
business continues to grow, the marketplace remains very competitive. Buyers are
being more aggressive with their pricing demands. Rather than renewing contracts,
satisfied buyers are increasingly going to the market for competitive bids. There is
more demand on service providers to reduce their pricing (e.g., management fee)
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 12
and to deliver additional cost savings. Also, some buyers are trying to shift more risk
to the service providers, have guaranteed savings or, at a minimum, create more
shared risk. Service providers are being increasingly asked to demonstrate more
value in the energy management and sustainability arena. Buyers want service
providers to have good site data, technology and systems to enhance their ability to
monitor performance (cost and service) and make data-driven decisions. Buyers with
large portfolios want service providers to have the flexibility, scope and scale to grow
or shrink geographically with them when their business needs change.
To some degree, buyers are asking their existing service providers to continually
demonstrate the value they can add today and tomorrow as opposed to giving
them a free pass based on what they have done before. It has been KPMG’s
experience that service providers with the right talent, combined with strong
innovation, leading practices and continuous improvement programs, are the most
successful in meeting this need.
There are many players in the REFM marketplace and careful consideration of each
service provider’s strengths and weaknesses is essential. A good approach is for
buyers to assess their situation, consider the solutions that the market can offer,
and then determine what level of integration makes the most sense for their firm.
Don’t force fit a solution that the marketplace cannot support (e.g., having a provider
be responsible for a service that is not a core competency or operate in a region
where it does not have an appropriate presence). A formal business process should
be established and followed to ensure that the buyer’s requirements are clearly
defined and understood, and the right service provider/s are chosen. Buyers that do
this well will achieve the best results.
Digging into the service provider expectations for increased REFM outsourcing
demand going forward, providers were next polled on what they see are the REFM
process areas where the demand for outsourcing is increasing (see Figure 6).
Seventy-five percent of service providers cited increased demand for •
facilities management services (e.g., management of facilities services,
workplace services, property management), with no providers expecting
demand for these services to decline going forward.
In contrast to buyers polled, service providers identified portfolio strategy and •
planning services as the next largest area of increased demand. While some
of the difference is attributable to the different assumption on the degree of
outsourcing of these activities (e.g., full, partial, minimal), it is likely that service
providers are overstating how much actual outsourcing work is available related
to these services, and providers often highlight their movement into these more
strategic activities even if the volume of work outsourced is not significant.
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 13
The process area cited with the greatest potential for declines in demand, •
or at least the slowest growth, was for major project management services,
defined as projects over $20 million in service fees. This is not surprising given
the slow growth of major REFM projects by buyers in the market today due to
current economic conditions and uncertainties.
Service Providers: Demand by Process AreasQ5 - Service Pro iders: Deman
20%
2%8%
7%
7%
4%
2%
3%
45%
51%
42%
42%
41%
39%
35%
33%
31%
25%
36%
47%
50%
51%
52%
57%
65%
65%
66%
75%
Major project management ($20M+/project)
Workplace services
Transactions/brokerage
Real estate and facilities IT
Project management (<$20M/project)
Lease administration
Facilities services
Space management
Portfolio strategy/planning
Facilities management
Declining Flat Increasing
Figure 6
Service providers were next polled on demand levels by vertical industry and industry
group. Banking, financial services and insurance (BFSI) was clearly the top industry
group, cited by 65 percent of service providers (see Figure 7). Healthcare was second,
cited by 45 percent of service providers, while pharmaceuticals/biotech ranked third,
selected by 39 percent of service providers. Across all geographies represented,
BFSI was the strongest market segment, and there were also consistent demand
levels cited for pharmaceuticals/biotech. Healthcare ranked higher in the Americas,
and manufacturing higher in EMEA. Among buyer organizations participating in this
study, BFSI, manufacturing, and pharmaceuticals/biotech were the top three industry
groups represented. This distribution is a direction indicator of market demand but
less authoritative than the direct service provider demand assessments.
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 14
Service Providers: Demand by Industry
7%8%9%10%11%12%13%13%
20%24%24%25%
28%39%
45%65%
0% 20% 40% 60% 80% 100%
Aerospace/DefenseAutomotive
Entertainment/Media, Hospitality/TravelChemicals, Minerals/Nat. Res.
Transportation & LogisticsTelco
Bus Svcs/Consulting, Construction/Eng.Real Estate
CPG, Food & Bev., Retail, WholesaleGov't, Education/Non-Profit
High Tech Products/SvcsManufacturing
Energy/Utilities, Oil & GasPharma/Biotech
HealthcareBFSI
Figure 7
While overall market demand growth for outsourcing remains positive, trends in REFM
outsourcing are somewhat different from those in other areas of outsourcing, such as
with ITO or back-office business processes (e.g., HR, F&A). KPMG research and client
experience finds that buyers are not as aggressive at pursuing ITO and horizontal BPO
deals as in the past, nor has the pace or size of new outsourcing deals picked up as
much in 2011 as was predicted by some service providers and market pundits.
Growth patterns have not followed the path they did when the global economy
was coming out of the last recession in the 2003–2004 time frame, a period when
both BPO and offshore outsourcing growth was significant. Specific to the REFM
outsourcing market, buyers continue to add to often already significant outsourcing
portfolios, but are also focused on consolidating portfolios that are frequently
fragmented geographically, across many providers and many separate contracts.
Results from the Winter 2010 edition of the KPMG Global Business Outlook
Survey illustrate the trending in overall outsourcing demand. The Global Business
Outlook Survey is a broad-based study of key global business indicators and another
member of the KPMG Pulse family of market research studies. Figure 8 shows buyer
sentiment on outsourcing trending among the 6,000+ survey respondents.
Sixty-four percent of respondents indicate that their organizations will be doing
the same level of outsourcing 12 months forward as at the time of survey,
while 13 percent indicate outsourcing levels will increase. These totals are roughly in
line with results from the past four quarters, which indicate that while the market is
still growing, the pace is more measured than it has been in the past.
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 15
Winter 2010 Global Business Outlook: Outsourcing Plans 12 Months Forward
4
% 65
8
% 7 4
0%
10%
20%
30%
40%
50%
60%
70%
80%
90%
100%
Oct 09 Feb 10 Jun 10 Oct 10 Feb 11
% Don't know
% Lower
% Same
% Higher
Figure 8
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 16
Top REFM Outsourcing Drivers, Challenges, and Service Delivery Model Approaches
There are a variety of factors that drive organizations to undertake REFM outsourcing
just as there are an increasingly broad array of benefits they seek to gain from their
efforts. While outsourcing has always been about reducing costs, this goal is not
as monolithic as is often perceived in the market. As outsourcing buyers become
more sophisticated, so do the benefits they seek from outsourcing. Reducing costs
is a base level goal for buyers and a base prerequisite deliverable for providers
competing for the business. But the ultimate benefits from outsourcing and
differentiators for service providers are the benefits derived or provided above
and beyond cost reduction. The key for buyers defining outsourcing goals is to
ensure that their scope and level are practical and achievable given the nature of
the outsourcing effort and in the context of buyers’ own outsourcing skills and
capabilities.
KPMG polled both buyers and service providers on what they see as the top drivers
for REFM outsourcing in the market today. While reducing operating costs is clearly
the top driver, results highlight the broad mix of goals organizations have for their
REFM outsourcing efforts.
Both buyers and service providers identified • reduce operating costs as the top
driver (see Figure 9). There was consensus among service providers across all
major geographies on the prevalence of cost reduction as a driver.
The second most common driver cited by buyers (41 percent) was • improve the
performance of REFM processes. This benefit was identified by a lower number
of service providers at 32 percent. The benefit ranked second by service
providers (45 percent) was improve global delivery and operating models.
Thirty-three percent of buyers cited this goal. There was general consensus on
most responses from service providers across geographies, though providers
in Asia Pacific were much more likely to cite support business growth and
expansion agendas as an REFM outsourcing driver, and those operating in the
Americas were more likely to cite gain economies of scale.
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 17
Top REFM Outsourcing Drivers
0% 20% 40% 60% 80% 100%
No specific reasons/many competing reasons
Gain access to external skills/talent/resources
Gain economies of scale
Reduce future investment costs (CapEx)
Redirect resources to more strategic activities
Improve global delivery & operating models
Support business growth/expansion agendas
Improve financial flexibility/create more variable cost model
Improve process performance
Reduce operating costs (OpEx)
Service Providers Buyers
Figure 9
A variety of confluent factors can combine to complicate, slow, and, in some cases,
stop an organization’s outsourcing efforts. Whether or not it can overcome these
challenges depends on a variety of factors including its ability to identify and address
them as early in the process as possible. As outsourcing efforts become more
complex, far-reaching and global in nature, the challenges to deal consummation
grow. The key point is for buyers to identify challenges early, and then work to
address and overcome them, if possible, after determining they are legitimate
impediments to going forward with a major change effort.
KPMG polled buyers and third-party REFM service providers to identify the
current most common challenges to successful REFM outsourcing efforts
(see Figure 10). There were some differences of opinion between buyers and
service providers on these challenges, and no one challenge was viewed as
predominant among buyer respondents.
Prioritizing opportunities and different change programs and economic •
uncertainty and inability to plan medium/long term were the top challenges
cited equally by 33 percent of buyer organizations. These were followed
closely by several other challenges including retained organization, transition
and governance challenges (31 percent of buyers) and inadequate change
management capabilities (27 percent). Highlighting a general market
consensus on the value of REFM outsourcing, fewer than 10 percent of buyers
identified inadequate business case as a challenge.
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 18
Service providers exhibited different opinions on the most common challenges •
to REFM outsourcing. While a similar percentage of providers as buyers
indentified prioritizing opportunities as a challenge, the top challenge cited by
over 40 percent of providers was inadequate change management capabilities.
This was followed by inadequate executive and management support for REFM
outsourcing, selected by 38 percent of service providers. Service providers
were more likely (20 percent) to cite inadequate business case as a challenge.
Service providers operating in Asia Pacific were the most likely to cite retained
organization, transition and governance as a challenge, but interestingly,
were less likely to cite inadequate change management, while providers
operating globally and supporting larger, more global deals were the most
likely to identify this challenge.
Top REFM Outsourcing Challenges
0% 20% 40% 60%
Inadequate business case
Costs to do the deal
Inadequate executive/mgmt support
Compliance and reg. challenges/restrictions
External bus. event (e.g., new management, M&A)
Accounting for/managing complexity of change efforts
Inadequate change mgmt capabilities
Quality/fit of supporting service providers
Retained org./transition/gov. challenges
Econ. uncertainty/inability to plan med /long term
Prioritizing opportunities & dif. change programs
Service Providers Buyers
Figure 10
Overall, challenges with change management, conducting a successful transition,
interfacing with the retained organization and ongoing outsourcing governance
are the areas and activities that are often identified as the weak links in outsourcing
efforts and the root causes of many outsourcing problems. The 3Q10 EquaTerra
Global Pulse survey did a deeper dive into issues and challenges related to
outsourcing transitions in particular. In those research findings, there was consensus
that a good transition effort is key to the long-term success of an outsourcing
engagement. The key to a successful transition is adequate, skilled staff and
resources to undertake it. While the need for these resources is typically recognized
by outsourcing buyers, getting them into the field can prove difficult, especially in
tight economic times. For example, some providers are expressing concerns over an
increasing number of buyers reticent to adequately fund and budget for transition,
demanding a low-cost approach up-front, but then being disappointed
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 19
with receiving a low-cost deliverable. This is an important challenge that buyers and
service providers must reconcile.
There are different approaches buyers can use to address the challenges associated
with successfully consummating outsourcing efforts. The most important is to
identify up-front where they exist, and prioritize working through them. In some cases
this involves employing more resources, in a more structured approach, to address a
challenge such as outsourcing governance concerns or lack of management support.
In other situations it may involve modifying the scope of an outsourcing effort,
for example, by scaling back the aggressiveness or timing of an effort to make change
management challenges more manageable. Regardless, a rigorous and proactive
approach to overcoming these challenges is the key.
Often the delivery and governance models employed by a user of REFM outsourcing
contribute to the success or lack thereof in achieving the benefits sought from
the effort. The models that worked best, or at least worked when organizations’
outsourcing efforts and ambitions were more modest and regional in nature,
for example, will often break down and prove inadequate as outsourcing efforts
expand in terms of process and geographic scope. This is especially the case with REFM
outsourcing.
KPMG polled REFM outsourcing buyers and providers on changes to demand and
preferences for a range of outsourcing delivery and management model options.
The emphasis was on to what degree were buyers moving toward a more holistic
and integrated management model across the totality of their REFM outsourcing
efforts. The supposition tested is that as buyers become more sophisticated and
their outsourcing efforts more complex, they will move toward a more portfolio-
based approach to managing their outsourcing efforts. Respondents ranked changes
in service delivery model preference on a one to five scale, where one represents
significant decrease in preference or demand and five represents significant increase
in preference or demand. (see Figure 11).
There was general consensus between buyers and service providers on •
the direction of change in demand for various REFM sourcing models.
Scored highest by buyers at 3.27 on the one to five scale was bundle increasing
number of individually contracted services, but retain internal control over
high-level management functions of services. Service providers scored this
approach even higher at 3.57. Ranked a close second by buyers at 3.23 was
bundle and outsource increasing number of individually contracted services,
and outsource key management functions of services in a model such as
Integrated Facilities Management (IFM), including transfer of personnel to
provider. Providers ranked this approach at 3.87. These results support the
trend toward more bundling of REFM deals, as well as the growing acceptance
among buyers to have service providers perform key management functions
over those outsourced activities.
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 20
Ranking on the lower end of the scale were trends of • continuing to manage
multiple services with individual contracts and reversing REFM outsourcing
investments by insourcing services currently provided by service providers.
Change in Service Delivery Model Preferences e
1.00 2.00 3.00 4.00 5.00
Continue to manage multiple services with individual contracts
Insource services currently provided by service providers
Bundle individually contracted svcs & outsource key mgmt functions of svcs
Bundle & outsource increasing number of individually contracted svcs, and outsource key
mgmt functions of svcs
Bundle individually contracted svcs, but retain high-level mgmt functions of svcs
1=Significant decrease in preference/demand, 5=Significant increase in preference/demand
Service Providers Buyers
Figure 11
Additional REFM Market Trending
The Pulse survey assessed market trends in several other areas of the REFM
marketplace. The first focus was on how buyers’ interest levels or preferences toward
six dimensions of REFM are expected to change over the coming year (see Figure 12).
Responses were given using a one to five scale, where one represents significant
decrease in preference or demand and five represents significant increase in
preference or demand.
The top ranked theme according to buyers scoring a 4.0 on the five point scale •
was energy management. This topic also received top ranking by REFM service
providers. Overall, there was consensus between buyers and service providers
across most of the six topical areas.
The • cost reduction theme came in a close second and the highly visible trend
and theme of sustainability and corporate responsibility was ranked third by
buyers and fourth by service providers. Overall, there was a close clustering of
scores for all themes and topics highlighting the collective importance of all
of the topics to REFM services buyers. There were no major differences in
scores from providers from different geographies, though providers in Asia
Pacific tended to rank all themes a bit higher than peers in other regions.
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 21
Changes to Buyers Interests/Preferences Relative to Key REFM Topics
Rela ive to Key REFM Topic
1.00 2.00 3.00 4.00 5.00
Space reduction
Partnering/supporting internal customers
Improving the workplace to attract/retain talent
Sustainability and corp. social responsibility
Cost reduction
Energy management
1=Significant decrease in preference/demand, 5=Significant increase in preference/demand
Service Providers Buyers
Figure 12
The survey next assessed buyer organizations’ future plans relative to the use of office
space. This topic was addressed straightforwardly by asking respondents if they or their
clients increase space utilized over the coming year, decrease space utilized, or make
little change to the amount of space utilized. There was a marked difference of opinion
between buyers and service providers on expected space usage plans (see Figure 13).
Forty-eight percent of buyers surveyed indicated their organizations would increase
space utilized over the coming year, compared to just 14 percent of service providers
that felt their clients would expand space usage. Thirty-five percent of buyers and
49 percent of service providers expected decreases in space usage. This difference of
thought is a good example of the difficulty in projecting future needs in the current
business climate. However, one thing is certain: buyers and service providers will
need to be able to respond to the unexpected in a timely and responsible manner,
whether it results in footprint changes, changes in floor density or changes in
service levels.
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 22
Future Space Utilization Plans
0% 10% 20% 30% 40% 50%
Unsure
We will decrease space utilized
There will be little change in total space utilized
We will increase space utilized
Service Providers Buyers
Figure 13
The next topic explored was an assessment of what buyer organizations feel are the
most critical needs in an REFM reporting system. A well-designed reporting system
provides buyers and the service providers with site information, as well as cost and
performance information, including service level data. Having accurate, timely,
complete and useful information is an important element of a successful REFM
outsourcing program. It ensures operational and performance data is appropriately
reported and monitored. Buyers’ data and systems prior to outsourcing REFM
have not always been adequate. Thus, service providers have not always inherited
good data or well-managed systems. The key needs cited in these systems are in
alignment with some of the key priorities identified and with the key drivers and
benefits sought from REFM outsourcing (see Figure 14).
Cost data• was the top cited need identified by over 70 percent of both buyers and
service providers polled. Ranked second by both constituencies was performance
reporting and service level data and information. Business intelligence, as an
extension of both cost and performance data, was explicitly identified as a key
need by 40 percent of both buyers and service providers.
There was consensus among providers across geographies on the importance •
of cost data, but providers operating in EMEA were more likely to cite the
importance of performance and service levels reporting. Similarly, providers in
EMEA and Asia Pacific were more likely to cite the importance of building,
asset and real estate information than those in the Americas or supporting
global deals.
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 23
REFM Reporting Systems Needs
0% 20% 40% 60% 80% 100%
Business process and work-flow management
Space planning
Project management
Transaction management
Building, asset and real estate information
Lease administration
Business intelligence
Performance reporting and service levels
Cost data
Service Providers Buyers
Figure 14
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 24
Update on Global Sourcing
Buyer Global Sourcing Preferences and Demand Levels
KPMG polled REFM buyers and third-party service providers on various trends related
to global sourcing of REFM services. While global or offshore outsourcing is a major
dimension and occasionally controversial aspect of ITO and horizontal BPO, it is
somewhat less a factor in REFM outsourcing given many REFM services in scope for
outsourcing must be performed on-site at client locations. This being said, global
sourcing is an important dimension of REFM outsourcing and enabling an EGE
service delivery model and framework, even if on a less impactful scale than in other
outsourcing categories.
Buyers ranked their own preferences and demand levels, and service providers
ranked the same for their clients, for six different types of global sourcing models.
Demand was ranked on a one-to-five scale, where one represents significant decrease
in preference or demand, three represents no change, and five represents significant
increase in preference or demand (see Figure 15). Both buyers and service providers
polled scored domestic outsourcing the highest at 3.36 and 3.58, respectively.
All other models were scored similarly. These results illustrate growth in buyer demand
for global sourcing, though preferences and demand levels for all service delivery
models are similar with services growth typically following the geographic footprint
expansion of its users. Hence, as more western firms set up operations in China, for
example, demand for REFM services in that market will grow, but to serve the local
markets.
Buyer Global Sourcing Interests/Preferences
Q32 C t B ' i I
1.00 2.00 3.00 4.00 5.00
Nearshore outsourcing
Domestic shared services centers
Offshore captive shared services centers
Offshore outsourcing
Nearshore captive shared services centers
Domestic outsourcing
1=Significant decrease in preference/demand 5=Significant decrease in preference/demand
Service Providers Buyers
Figure 15
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 25
Buyer Global Sourcing Maturity and Sophistication
More critical than where services are sourced from globally is the maturity level
of buyer organizations to conduct global sourcing well, regardless of location.
Buyers undertaking global REFM sourcing efforts exert much focus on selecting
which service provider to employ and from what locations to source services.
This assessment process should include a clear and realistic evaluation of a buyer’s
own maturity and sophistication relative to sourcing and managing global sourcing
efforts. A common root cause of problematic or underachieving global sourcing
efforts is a disconnect between what a buyer is trying to accomplish and the skills,
experience and resources it possesses to support these efforts. These skills involve
selecting providers and locations, accounting for and managing risk, and governing a
growing number of sourcing efforts spread across multiple providers and locations.
KPMG polled REFM buyers and service providers to assess buyers’ self-assessed maturity
and sophistication relative to various global sourcing skills and how skilled service
providers felt their clients were when it comes to global sourcing. Respondents were
asked to rank their perception of buyer skills on a one-to-five scale, where one
represents very immature or unsophisticated and five represents very mature or
sophisticated (see Figure 16). Results show that overall there is room for improvement
across all of these global sourcing capability sets though buyers are more positive on
their skill levels than are their service providers.
REFM service providers overall did not score buyers above the midpoint on •
any of the five skill sets assessed. The highest score given was 3.00 for service
provider selection and assessing service providers’ global delivery capabilities
and assessing and accounting for data, data privacy, and intellectual property risk.
Service providers scored buyers the lowest at assessing/accounting for geopolitical
and service provider risk, though the range from the top to bottom scores is small.
Buyers also ranked themselves the highest at service provider selection skills as •
well as managing and governing multiple engagements and service providers
across multiple functions, geographies, etc. The positive score on multisourcing
and governance is interesting given that it is in this area where KPMG most
often sees organizations struggle with global sourcing efforts. Again, the top to
bottom range of scores was relatively small.
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 26
Buyer Global Sourcing Capabilities
1.00 2.00 3.00 4.00 5.00
Service delivery geographic location assessment
Assessing/accounting for geopolitical & service provider risk
Assessing/accounting for data, data privacy & IP risk
Managing/governing multiple engagements & providers across multiple functions, geos, etc.
Service provider selection/assessing service provider's global delivery capabilities
1=Very immature/unsophisticated, 5=Very mature/sophisticated
Service Providers Buyers
Figure 16
As buyers’ appetites to source more services globally continue to grow, so too should
their capabilities to source and manage these efforts. This is at the heart of the
EGE model and maturity framework. Similar to REFM outsourcing deal challenges
discussed above, the first step is to recognize the challenge and apply adequate
and skilled resources against it. This is a multidisciplinary effort that extends leading
practices related to sourcing, selection, transition, outsourcing governance and
multiprovider management to account for additional challenges and nuances
introduced from increased globalization of service efforts. As the scope and
complexity of buyer global sourcing efforts continue to grow, this will remain an
ongoing challenge, with the bar for leading practices continually being raised.
One means to improve global REFM sourcing capabilities is to take more of a
portfolio approach to managing global efforts, similar to taking a portfolio approach
and bundling more REFM outsourcing deals overall, as addressed above. This need
grows as global sourcing becomes more pervasive and accounts for more of an
organization’s global services footprint. However, tightly coordinating and managing
sourcing efforts globally is still a goal to which most organizations aspire. Buyers were
polled on both how they manage existing global REFM sourcing efforts and how they
plan to manage new efforts going forward.
Among buyers polled that are utilizing global sourcing as part of their REFM •
outsourcing effort, 23 percent are taking a portfolio approach to managing
existing deals in the field (see Figure 17), with 13 percent employing an
enterprise sourcing center of excellence (CoE) and 10 percent utilizing a less
sophisticated enterprise sourcing council. The majority are managing efforts
organized around geography, business unit or functional area.
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 27
Buyers undertaking new REFM outsourcing efforts are much more focused on •
managing them globally (see Figure 18). Here, 34 percent are taking a global
model using either a sourcing CoE or council while 49 percent will continue
to manage and organize efforts around geography, business unit or function.
Service providers polled cited similar results for how their clients manage both
existing and new REFM outsourcing efforts.
Management and Governance of Existing Global REFM Efforts
G
%
0%
Most existing efforts are managed & governed independently
Most existing efforts are grouped, managed and governed by geo, bus. unit, function, etc.
Most existing efforts are managed & governed by an enterprise sourcing council
Most existing efforts are managed & governed by an enterprise sourcing CofE
Figure 17
Management and Governance of New Global REFM Efforts
%
4 %
Most new efforts sourced are handled independently
New efforts sourced are coordinated by geo., bus. unit, function, etc.
New efforts sourced are coordinated globally
Figure 18
Many buyers today still view global sourcing as a series of discrete options and
capabilities (e.g., internal services, shared services, offshore captives, ITO, BPO)
rather than a continuum of integrated service models. This is similar to the
legacy perspective of viewing offshore outsourcing as a point-to-point initiative
(for example, from the United States to India) instead of an integrated suite of global
service delivery capabilities.
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 28
The reality today is that organizations should develop a holistic strategy and
operational model to support the totality of their businesses and IT services
operations. This includes how to source and manage these capabilities, as well as
how to continually improve their overall efficiency and effectiveness. While leading
organizations have made progress, for example, in governing their outsourcing
efforts as a portfolio via a portfolio model as cited in the above Pulse survey
responses, often these efforts are disconnected from the management of internal
retained operational systems and functions as well as the strategy and execution
of sourcing of new investments. In short, buyers’ capabilities to source and manage
a diverse services delivery portfolio have often not kept up with their sourcing
ambition’s scale and scope.
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 29
Current Market Deal Characteristics: Service Providers’ PerspectivesThe final section of the 2011 global REFM outsourcing Pulse survey assessed the
characteristics of current REFM outsourcing deals in the market from the perspective
of the REFM service providers polled.
Pricing Competitiveness
Increased pricing competitiveness implies the buyer has the upper hand and
is getting a better priced REFM outsourcing deal. As pricing is one element of
determining profitability, the alternative of less competitive pricing generally is
favorable to the service provider. The consensus for the past three years among
most types of outsourcing service providers has been that buyers are getting more
aggressive with their pricing demands. Fifty-seven percent of REFM service providers
polled agreed with this sentiment and indicated that pricing pressure is increasing
for new deals in the pipeline, while just three percent felt that pricing pressure was
lessening (see Figure 19).
Service Providers: Pricing Competitiveness
1 S i e P i er : P i i m et tiv s
57%
40%
3%
More competitive/aggressive
About the same as last quarter
Less competitive/aggressive
Figure 19
While there is a strong desire among buyers today to get more aggressive with
pricing, a number of factors ultimately can temper final pricing level demands.
More experienced buyers generally recognize that the lowest price may not lead to
the best deal. Buyers today also are averse to risky deals and deal failures that could
occur from bad pricing levels. Buyers can reduce overall spend—the ultimate goal—
by lowering consumption levels, but still pay an equitable unit price for services that
help ensure they get the provider’s top resources. The need to access quality skills via
third-party providers can also temper low pricing demands if it means limiting access
to top provider talent and resources.
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 30
Service providers influence pricing competitiveness by the extent of their own
aggressiveness in pursuing deals. More service providers in the market today are
increasingly selective about the clients and deals they pursue. Service providers
are more closely assessing the risk profiles of clients they are pursuing, and adjusting
their pricing accordingly. Providers continue to look for ways to reduce operating
costs and overhead to meet their current contract commitments, pushing
price-competitive policies regardless of the economic downturn. The net result
is more aggressive pricing in the market, but not routinely egregious pricing terms,
at least for top-tier service providers or less desirable buyers.
Contract Profitability and Ability to Increase Scope
A variety of factors affect service provider profitability, including deal scope,
transition costs and time frames, exchange rates, wage inflation and buyer pricing
sophistication. Service providers with a higher mix of remote/low-cost resources put
pressure on the profitability of competitive peers with fewer lower-cost resources,
though this differentiator is not as great in the REFM space as, for example, it is with
ITO.
The biggest factors impacting contract profitability today are buyer pressure on pricing
and aggressive competitiveness between providers, along with some buyer pull-back
on more profitable discretionary services and an increased focus on cost-cutting
over process improvement work. REFM service providers are generally pessimistic on
profitability trending on both new deals they are pursuing and existing deals in flight
(see Figure 20). This level of pessimism is greater in the REFM market segment than in
the back-office BPO and ITO market as registered in other KPMG Pulse surveys.
Just 12 percent of REFM service providers polled indicated that contract •
profitability is improving in new deals signed, while 44 percent indicated that
profitability is declining in new contracts.
Nineteen percent of service providers expected to improve contract •
profitability in existing deals in flight for more than one year, while 22 percent
indicated existing deal profitability is declining.
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 31
Service Providers: Contract Profitability, New and Existing Deals
44%
44%
12%
Contract profitability is declining
Contract profitability is about the same
Contract profitability is improving
22%
59%
19%
Contract profitability is declining
Contract profitability is about the same
Contract profitability is improving
Figure 20
Figure 21 illustrates REFM service provider expectations about their ability to increase
scope, ideally in a profitable manner, in current accounts. Providers today are focused
on growing business in existing accounts not only because pursuit costs are lower
than competing for new business but also because it protects their base as buyers
rationalize suppliers and cut back on spend levels. Seventy-eight percent of providers
polled expected to increase scope in existing deals while just two percent expected
contract scope to decline.
The positive opinion on the ability to increase scope in existing accounts indicates
that while buyer demand for outsourcing remains strong, service providers need to
push hard to expand business, particularly at a time when buyers are rationalizing
and consolidating their service supplier base. Consolidation trends are tending to
benefit larger and more established global REFM service providers.
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 32
Service Providers: Ability to Increase Deal Scope
2%
20%
78%
Contract scope will decline
Current contract scope will remain about the same
Contract scope will increase
Figure 21
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 33
Where to Learn More about Global Sourcing Market TrendsThe legacy EquaTerra website and research library was rebranded after the KPMG*
acquisition, and is being maintained as a central hub and resource for data, research
and thought leadership on global sourcing trends, issues and leading practices.
Information in the research library is organized by function (e.g., REFM), industry,
topic and phase of the sourcing lifecycle. The EquaTerra blog, Advice Worth
Keeping, is another source of relevant news, research and opinion on the global
sourcing market. There is also extensive information available on global sourcing
trends, issues and futures available on regional and KPMG member firm websites.
Service Provider Performance and Satisfaction Market Studies
On an ongoing basis, KPMG International and KPMG member firms conduct broad-
ranging market studies on Service Provider Performance and Satisfaction in
both ITO and Finance and Accounting Outsourcing (FAO). The ITO studies cover all
major European markets, and the FAO program is global in nature. These studies
survey and interview buyers actively engaged in outsourcing efforts with a named
set of leading market-specific providers. The research unveils direct insights into
buyer opinions on service provider performance levels, and also assesses and
interprets general outsourcing demand and activity trends in the markets covered.
Market coverage and due dates for the next editions of these studies are as follows:
U.K. (next release 4Q11)•
Netherlands (released 2Q11)•
BeLux (released 2Q11)•
Nordics (released 2Q11)•
Germany (next release 4Q11)•
Pan-European ITO (next release 4Q11)•
Global FAO (next release 4Q11)•
Executive summary reports for all of the completed research efforts are available
free of charge, and complete results are available for a fee by contacting Stan Lepeak
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 34
ConclusionsWe offer the following conclusions from the inaugural global REFM outsourcing
Pulse survey:
Global demand for REFM outsourcing remains strong and continues to grow. •
Nearly all polled buyers undertaking REFM outsourcing expect to maintain
or increase outsourcing usage in the short-to-medium term. REFM service
providers cite current growth in their outsourcing business sales pipelines and
expect that growth to accelerate in 2012. The greatest growth expectations
came from REFM providers operating globally and supporting global
outsourcing efforts.
The biggest focus areas for REFM outsourcing among buyers are workplace •
services, facilities services and transaction and brokerage services.
Service providers see near term increased growth opportunities in these areas
as well as in facilities management, and even in more strategic areas such as
portfolio strategy and planning. From an overall topical REFM perspective,
the top themes buyers will focus on over the coming year are energy
management, cost reduction efforts and addressing sustainability and a
corporate social responsibility agenda. The key is to determine how, when and
where REFM outsourcing can help address these issues.
A dominant theme in the REFM outsourcing market today is consolidation. •
REFM outsourcing buyers are aggregating existing outsourcing efforts spread
across multiple service providers, geographies, contracts and functional areas.
This plays to the strengths of the larger, more global and diversified service
providers. Buyers are striving to bundle together more existing and new REFM
deals and, while typically they want to maintain overall management control
of these services bundles, they are increasingly open to ceding more of that
management control to the providers performing the underlying services.
Reducing operating costs is the top driver for organizations undertaking •
REFM outsourcing, but buyers also seek a variety of other benefits above and
beyond cutting costs. These include improved REFM process performance,
improved financial flexibility, creating a more variable cost model and
supporting global business growth and expansion agendas, especially into
emerging markets. As a result, a key challenge is to balance cost cutting and
process improvement and related agendas and needs.
Buyers continue to face many challenges to successfully undertake •
new REFM outsourcing efforts and consolidate efforts already in flight,
especially when pursued across multiple functional areas and on a global
scale. The top challenges cited include prioritizing the broad range and
number of REFM outsourcing opportunities and related change programs,
addressing the economic uncertainly that makes short-to-medium term
planning difficult, and addressing challenges related to retained organization,
relationship management and outsourcing governance issues.
KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 35
The globalization of the REFM service market tends to follow the globalization •
of buyer organizations’ geographic footprint that these REFM services support.
As buyers expand into emerging markets, for example, the demand for
outsourced REFM support services in those markets grows. So while in contrast
to most ITO and horizontal BPO efforts, REFM outsourcing is not so much about
shipping services back to the west from lower-cost offshore markets. This being
said, REFM buyers still need to improve global sourcing skills, especially as they
relate to managing multiple efforts across multiple providers and geographies,
consolidating efforts to gain economies of scale, and better accounting for and
dealing with regulatory, data and intellectual property risks and challenges.
The key to buyer success in global sourcing is to define, deploy and optimize
the mix of global service delivery models employed as part of the adoption of
an extended global enterprise model.
Remember, REFM outsourcing is a journey and it needs to be clearly understood
and mapped out. What is right for one company may or may not be right
for another firm. Buyers should not take the easy path by just copying what
another end-user organization is doing. There is much work that needs to be
done to be an informed buyer. Before outsourcing, buyers should perform a
careful evaluation of their company’s business needs, the capabilities of the
marketplace, and the solutions available.
24656NSS_3165_Sept2011
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