the refm outsourcing landscape: insight from the front lines

The REFM outsourcing landscape: Insight from the front lines

2015 Global Real Estate and Facilities Management (REFM) Outsourcing Pulse Survey Results

2016 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. NDPPS 527556 2

REFM Pulse Survey team

Stan Lepeak Patrice Gilles

Doug Burr Clinton Fairbanks

Director, Global Research, KPMG LLP (U.S.)

Leads research efforts globally for KPMGs Management Consulting service line, focused on trends, issues, and futures.

Managing Director, SSOAKPMG LLP (U.S.)

Clients include organizations looking to assess service delivery across multiple areas and/or geographies of their support organizations.

Director, REFM KPMG LLP (U.S.)

Strong background across the life cycle of REFM sourcing, strategy, and improvement program management experience.

Manager, REFMKPMG LLP (U.S.)

Know-how covers go-to-market strategy development, internal training and solutions development, supplier identification, transition and implementation, ongoing supplier governance, and transformation.

mailto:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]:[email protected]

KPMG LLPs (KPMG) 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.

2016 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services.No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 527556 3


KPMGs Shared Services and Outsourcing Advisory practiceWere about transformation

The Shared Services and Outsourcing Advisory practice brings a specialized global team of more than 800 professionals within KPMGs 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 mindset to provide timely, objective, actionable advice and practical approaches for clients. KPMGs Building, Construction & Real Estate (BC&RE) practice serves our clients needs across a broad spectrum of issues and geographies.

Who we are

What we do

How we do it

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

http://www.kpmg.com/US/en/industry/building-construction-real-estate/Pages/Default.aspx


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 pursuing or undertaking REFM outsourcing, Buyers

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:


Current pipeline growth and new deal pricing pressure Provider focus Contract profitability

Service delivery model preferences Outsourcing deal pricing models and tenure Challenges to successful consummation of REFM outsourcing efforts Major drivers for REFM outsourcing Means to better prepare for REFM outsourcing

REFM Marco and market trends Market characteristics Buyer / SPA planned REFM outsourcing levels Future REFM outsourcing demand levels REFM demand by industry and process Why some processes have not been outsourced

Respondent demographics 2015 survey highlights and comparisons

Presentation content

Overview

Market Trends

Market Conditions

Market and deal characteristics


REFM outsourcing respondents by geography and industry*

32%3%4%11% 7%14%17%

All Others

Business Services/Consulting,Construction/Engineering

CPG, Foodand Beverage,Retail, Wholesale

Manufacturing High-tech Products/Services

Pharma/Biotech

Banking, Financial Services, Insurance

AsiaPacEMEAAmericasGlobal

24% 59% 21% 11%

Respondents by industry

Respondents by geography

Source: KPMG 2015 REFM Pulse Survey*Numbers might not add up to 100% due to rounding and multiple selections.

12%

Healthcare

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 in prior years

Similar top demand by industry as in prior years

Similar to prior years, reduction in operational costs (OpEx) remains the top outsourcing driver

Increase in interest by SPAfor business intelligence for REFM reporting systems

Increase in interest by buyersfor outsourcing workplace services in the next 12 months

8%

5%

More interest by buyers in outsourcing routine ops and maintenance22%

Increase in interest by SPAfor reporting system needs for performance reporting and service levels

9%

Increase in interest by buyersto gain economies of scale as an outsourcing driver18%

10% Lower expectations by SPA on growing business in existing accounts.


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 2015 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.


One of the more interesting observations was

the discrepancy between REFM buyers and

service providers when asked about near

future outsourcing planswith buyers being

much more optimistic than service providers.



REFM market characteristics

Many buyers are including technology in REFM outsourcing deals. Buyers value lower cost, ease of administration and reporting functions. SPAs value efficiency brought by using systems they are familiar with. Both groups value having a single source of data.

Buyers are continuing to push sourcing and coordinating new major REFM outsourcing efforts globally, though many buyers continue to manage and coordinate both new and existing outsourcing efforts around geography, business unit, or functional area.

There are a variety of topics high on organizations REFM agendas, including reducing cost, improving process performance, improving the workplace to attract talent, and improving sustainability.

There is a continuing trend among organizations outsourcing REFM services to bundle the management of these efforts and associated service provider relationships; buyers are continuing to cede control of higher-level service management functions to third-party providers in the form of more turnkey outsourcing efforts.



Next 1-2 quarters Next 3-4 quarters 12+ months out

Future REFM outsourcing plans

33%

56%

11%

44%

41%

15%

50%

23%

27%

Decreased usage of outsourcing

No change in usage of outsourcing

Increased usage of outsourcing

*Numbers might not add up to 100% due to rounding and multiple selections

47%

41%

12%

53%47% 46%

46%

8%

Buyers

SPA


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 (


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

Banking, financial services, insurance

Pharma/biotech

Healthcare

40% Manufacturing

26% Energy/utilities, oil and gas

25% High-tech products and services

22% Govt (fed, state, local) education/nonprofit

14% Real estate

14% CPG, food and beverage, retail, wholesale

14% Aerospace/defense

Other**53%

65%

44%


*Numbers might not add up to 100% due to rounding and multiple selections** Other includes: 11% Telecommunications, 11% Bus Svcs/consulting, construction/engineering10% Automotive, 8% Transportation & Logistics, 8% Entertainment/media, hospitality/travel6% Chemicals, minerals/natural resources


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

REFM IT Systems and Reporting

Space Management

Portfolio Strategy/Planning

+70% Facilities Management

+66% Project Management $20M+/project)

+48% Transactions/Brokerage+72%

+76%+74%



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


Activities aretoo strategic

in nature

Costs wouldbe higher

No compelling business case

to change

Risks aretoo high

Satisfied with current service delivery model

60%

45%43%

36%

BU

YE

RS

60%

SPA

36%

22%

SPA

22%

49%

SPA

49%

39%

SPA

39%

28%

SPA

28%36%

BU

YE

RS

36%41%

BU

YE

RS

41%

BU

YE

RS

43%

BU

YE

RS

45%


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


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

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

SPA

1.89

SPA

3.25

SPA

3.67

SPA

3.62

BU

YE

RS

3.61

BU

YE

RS

3.24B

UY

ER

S3.29

BU

YE

RS

2.23

SPA

2.44

BU

YE

RS

2.35


Outsourcing deal pricing models and tenure: We see that deal lengths tend to be shorter in the 3-5 year range in the REFM space compared to other functional areas of outsourcing.

Deal Tenure

3-5 years

SPA

83%

BU

YE

RS

77%

SPA

10%

BU

YE

RS

16%

SPA

8%

BU

YE

RS

8%

1-2 years 5+ years



Fixed price contract

Shared savings Cost-plus contract

Guaranteedsavings

Management fee at risk

Performance based contract

Management fee incentives (bonuses)

SPA

3.39

BU

YE

RS

3.02

SPA

3.05

BU

YE

RS

3.00

SPA

3.02

BU

YE

RS

2.64

Outsourcing deal pricing models and tenure (continued)

*Numbers might not add up to 100% due to rounding and multiple selections.

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

SPA

3.71

SPA

3.19

BU

YE

RS

3.60

BU

YE

RS

3.36B

UY

ER

S3.16

SPA

3.27

BU

YE

RS

3.04

Pricing Models

No

resp

onse

fro

m B

uyer

s


Discrepancies between buyers and

providers were 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.


67%

45%

41%

41%

39%

83%

29%

24%

23%

30%

Reduce operating costs (OpEx)

Redirect resources to more strategic activities

Gain economics of scale

Support business growth/expansion agendas

Improve process performance

SPABUYERS


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


Retained organization/transition/governance 51%

14%

21%

29%

53%

SPA

43%

41%

41%

33%

31% Inadequate executive/management support

Accounting for/managing the complexity of change efforts

Prioritizing opportunities and different change programs

Quality/fit of supporting service providers

BUYERSn

ota

ble

dis

crep

ancy


How to better prepare for REFM outsourcing

*Numbers might not add up to 100% due to rounding and multiple selections.

SPABUYERS

43% 48%Better baseline costs

35% 47%Better alignment of strategies/plans

37% 30%Better governance structure

41% 15%Improved service level agreements

41% 45%Clarification of roles/responsibilities in-scope, out-of-scope

33% 48%Working together as one team


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 with the results in 2014 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 remains the same as 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 continued 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.

30 2016 KPMG International Cooperative (KPMG International), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services.No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 527556

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The REFM outsourcing landscape: Insight from the front lines2015 Global Real Estate and Facilities Management (REFM) Outsourcing Pulse Survey ResultsREFM Pulse Survey team Slide Number 3KPMGs Shared Services and Outsourcing Advisory practiceWere about transformationKPMG REFM Pulse SurveysPresentation contentREFM outsourcing respondents by geography and industry*Slide Number 8When we compared responses from previous surveys, here is what we foundMarket overview: The top macro trendsMarket overview: Current REFM outsourcing market trendsSlide Number 12REFM market characteristicsFuture REFM outsourcing plansSlide Number 15Buyers: Current and planned REFM outsourcing levelsThe top industries for REFM demand? Banking, pharma, and healthcareWhen we look at areas of increasing demand by REFM process,three processes leadSo why have some REFM processes not been outsourced?Strategy, cost, and change. Service delivery model preferences are changing: Data shows us that buyers are moving toward a portfolio-based approach to manage their outsourcing efforts. Outsourcing deal pricing models and tenure: We see that deal lengths tend to be shorter in the 3-5 year range in the REFM space compared to other functional areas of outsourcing.Outsourcing deal pricing models and tenure (continued)Slide Number 23As always, there are drivers and challenges to REFM outsourcing effortsREFM drivers: While reducing operating expenses remains the top driver, being strategic requires firms to go beyond cost alone.REFM challenges: Buyers and service providers are not on the same page.How to better prepare for REFM outsourcingSlide Number 28Advisors/service providers perspective on market deal characteristicsSlide Number 30Want to know more? Access KPMGs sourcing advisory researchSlide Number 32