Buildotech Magazine - Magazine on Building Technology & Sustainability- December,2011

Over the last 15 years, FM has progressed from mere cleaning services to managing yearly budgets to appointing vendors across all services like IT, equipment maintenance, stationery and so on. “FM in India today is a much organised and largely outsourced model. The organised outsourcing could be worth over `3000 crores. These figures are growing at 20-25% annually over the last three years, with a potential to double in the coming three to four years,” said Naushad Panjwani, Executive Director, Knight Frank India (Pvt) Ltd.

  In fact, the very outlook of service providers is changing. “Those who were once called vendors or contractors are now being called Vendor Partners or Business partners and in future that is bound to change to Integrated Facility Managers. FM is no longer just FM business, it is now IFM business and the client has to engage with the FM partner and forms strategic relationship,” added Raghupathy Vaidyanathan, Director-Administration, Cognizant Technology Solutions India (P) Ltd. Given this scenario some of the main issues before this sector are:

Client Education

  From the clients perspective, the understanding of Facility Management, is one of the major challenges being faced today, stressed Naushad Panjwani. One of the reasons large companies outsource is to put the risk management model in place. “Any activity that has a low risk of occurrence, but the high impact in the event of occurrence is an activity which should ideally be outsourced. Outsourcing, as an activity does not act as an insurance policy wherein the service provider can be held accountable in the event of a disaster. Outsourcing can only act as an AMC, wherein the service provider ensures that things don’t go wrong and if they do then the service provider knows how to rectify them,” clarified Panjwani.

Manpower & Attrition Issues

  In spite of large business opportunities, many a time the service providers decline business requests primarily because of the dearth of skilled & trained manpower. “Procuring manpower in the metro areas is much easier compared to procurement in the Tier II and Tier III cities, primarily because of the National Rural Employment Guarantee Act (NREG) where individuals can collect their salaries for a year without actually having to work,” stated Panjwani.

  “There is also a shift from manual processing to mechanised or automated processing. This could be the answer to the challenge of lack of manpower in the industry. However, this is possible only if the client understands and appreciates the fact that the initial cost of automation is going to be high. This is an investment which has to be made so that the future expenses are scalable and the client is not dependent on the availability of manpower,” added Panjwani.

  “Attrition is another major issue,” said Ravi Manchandani, Country Head, Aramark Patman Services Pvt Ltd. “We are eroding our skill base through attrition at a rate of 40% on an average. We are spending money sourcing new people, recruiting them, training them and then the depleted margins that we work with there is additional pressure on our system. It is not about losing people, but losing the skill sets. Moving forward skill sets are going to play a key role.

  “We need to start focusing on our asset base – our employees. We need to provide better benefits, better social stability, health and medical benefits. We need to match up to the more mature segments that we are dealing with. With the growth in the other industries, skilled labour from the hospitality and FM companies are the first to be poached. We need to change our pricing models, move away from minimum wage models and headcounts. While it is important to increase the welfare benefits and salary base, we need to question if we can match up with the pricing structure which is based close to a minimum wage level? We need to impress upon the client that quality is a common objective,” explained Manchandani.

  Supporting Manchandani’s contention, Vaidyanathan said, “As a client, we have to move away from the short term 11-month contracts and towards a long term partnership like a three year or five year contract. This gives the FM service provider/Business Partner/Strategic partner the reason to invest in the business, bring in necessary mechanisation and automation.”

  About 80% of the business, especially in the soft service area is headcount- driven – mainly because most service providers work on the SLA (Service Level Agreement) model. This is done mostly to take care of the attrition driven issues. “There is a need to upgrade our programmes, process and people creating internal efficiencies and sharing those with our customers and clients.

  “As Service providers we should not let the clients take advantage of the nascent nature of our industry. Services should not be a mode of cost savings. Administration users should be in line with procurement. It’s a vicious cycle, if we are not paid on time; we are unable to pay our vendors our manpower which in turn affects the services they give. Sticking to compliances is very important in this business,” said Manchandani.

Payment terms

  Finding a sustainable model of business is also an equally challenge issue, said Ravi Manchandani. “FM is mostly a client driven environment. We are working at Days Sales Outstanding (DSO) of 90-95, days with smaller companies being at 115 days+. You cannot have this mismatch between AP (Accounts Payable) and AR (Accounts Receivable).

  “There is a need to set better terms and move away from the 30 days post invoicing payment cycle to a seven days cycle. Thankfully, clients are now stepping forward as they understand cash flows affect services. There are examples of payment cycles moving away from the 30 days cycle to seven day or 15 days cycle invoices. In mature environments we can also see cases of advance payments. In mature economies and mature environment like in Europe, at an average any DSO is between ranges of 40 days to a maximum of 60 days,” he added.

Skills and Training

  Currently, the middle management of a service provider is very weak, lamented Vaidyanathan. “They do not have the required skills to manage the business. This lack of skills in turn results in the client hand-holding the service provider through a contract leading to dissatisfaction at both ends. Any business can achieve sustainability only if it goes through proper monitoring and review process. One has to move away from the manpower based business and towards a KPI (Key Performance Indicator) based model, agree on KRAs (Key Result Area) and KPIs and a contract that is driven.

  “If as clients we talk about penalising the business partner for non-compliance, then we should also talk about giving incentives to the business partner when deliverables are met. When Cognizant went on the “Go Green” programme, our business partners were engaged in our journey and when they received awards from the Cognizant MD, they were proud of the fact that they were able to display true partnership. The biggest gap identified so far is the lack of involvement of the top management from the service provider’s side. Once the business is procured, they are not available on scene to interact with the client. “Training is also a major challenge. The FM industry does not invest sufficient funds in training its workforce,” he added.

  Panjwani said, “Sadly, there is a huge vacuum in terms of a training body. There is no formal training agency to train anyone–right from the managerial staff to the janitor or housekeeper at the client site.”

Regulation

  There is an urgent need to have a regulatory body for the industry that would set norms, standards, benchmarks that would be accessible to everybody. “Such a body would propel the industry’s growth in the next four to five years. Process like setting down the per sqft costs for maintaining a BPO Facility as opposed to maintaining a Corporate office or a hospital or an airport would help service providers. Such benchmarks should be suited by a regulator or some central nodal body and made available for everybody. This knowledge is currently available only with the top service providers, who have the advantage of having international offices and access to training and a wide database,” said Panjwani.

Value added business

  “From a client’s perspective,” said Raghupathy, “business is now moving towards an SME module where Subject Matter Experts are being roped in for specialised tasks in each field. For instance, if there is an issue with air-conditioning or heating/ cooling in your facility, you would be assured if your service provider had a HVAC SME in his team.

  “The EHS (Environment Health and Safety) is now the key word in most organisations. OHSMS (Occupational, Health and Safety Management System) and EMS (Environmental management system), ISO1801 and ISO1401 are now mandatory and driving the business. A service provider is expected to bring in some value added service to the business.”

  Adding to SME factor, Atul Tendulkar, Assistant Vice President - Corporate Real Estate & Services Nomura Services India Private Limited, said, “FM also entitles managing the cost centres. A SME handling his core activity would eliminate the risk of running into errors thus amount to money saving. Secondly, an FM company would know all the statutory requirements for a certain function. This is also part of the risk management gambit which ensures that the operations do not get effected because of non-compliance. Sustainability is another value adds of the FM function in recent times.

  “It is important to get the FM partner into the discussion right from the start of the project. The FM partner is in a better position of advising and helping in cutting down the AMC cost right then and there. In addition, a long term contract of three to five years ensures greater responsibility, better partnerships and quality service. Such a relationship will evolve over a time,” added Tendulkar.

Compliance

  “An issue of concern from a client perspective is that compliance is not transparent in most cases resulting in huge liability to both sides. Another missing element from the FM service provider’s side is the analytical ability. Their ability to forewarn clients on the possible risks, or update them on the latest trends is an important function. The client also gets caught between the OEM (original equipment manufacturer) and the Service provider. The ideal scenario would be when the OEM and the FM service provider bring value to the client’s table,” said Vaidyanathan.

  “As a client, transition from the project to operations is a big challenge today. Losing out on the DLP (Defect Liability Period) can cost a fortune. To ensure that the loss is curtailed or done away with, clients should have the option of using the PPC PM approach, where instead of appointing one vendor, the client can chose a group of vendors (each specialised in their own function) and bring them together under one transparent group,” he added.

  Rounding up the session Panjwani emphasised that the industry was evolving and with proper SLAS, KPIs and KRAs there is much scope for improvement. The panellists and delegates agreed on the urgent need to establish an academy to train and improve the current manpower that would also ensure a steady bank of skilled professionals.