Insourcing vs outsourcing debate: What’s best for business?

The insourcing of FM services is growing in popularity. The report ‘Rebuilding Capacity: The case for insourcing public contracts’ from the University of Liverpool, recommends it for providing service flexibility and the ability to allocate resources where they are needed. There are also many good examples of successful outsourced contracts, so is bringing FM services back in-house the best option for businesses and organisations?

THE FM CONSULTANT’S VIEW
NIGEL FORBES,
MANAGING PARTNER AT LITMUS PARTNERSHIP

In the past two years, there have been some big changes within the facilities management sector; no more so than in January 2018 which saw Carillion collapse and go into compulsory liquidation. The effects of this resonated with many of us and served as a stark reminder to the FM industry around the importance of contract terms and proper assessment of the financial risks they are willing to take. Since Carillion, there has been an increased sense of cautiousness within the public sector; and understandably so.

There have also been reports of some organisations and businesses choosing to bring services in-house; not simply as a result of the Carillion collapse but for various reasons. For some, moving to an in-house provision model could be the right decision and many do consider this option now, rather than automatically re-tendering.

However, there are also many where outsourcing is the more suitable model. Indeed, there are plenty of organisations that would benefit from outsourcing but perhaps they are hesitant due to previous experiences. In some cases, providers may have over-promised and under-delivered or costs could have gradually increased from what was originally proposed when the contract was agreed.

The problem isn’t in outsourcing itself; it’s in how the outsourcing relationship is set up. It seems, in some cases, there is disconnect between the client and contractor’s concept of what success looks like. It’s about aligning both sides to be ‘one team’. Given the changing landscape, adapting the relationship between client and contractor to reflect these changing times will help navigate conceived ideas of cautiousness and concern. But how can this new set-up be put in place? Where do you start, and more importantly, what does it actually look like?

Currently, a typical contract is set-up to focus on ‘contractor delivering against a set of KPIs and if they aren’t delivered the contractor is penalised’ – usually in the form of a financial penalty. It’s very much ‘us vs them’. Wouldn’t a more collaborative style of working make more sense?

I came across a more collaborative business model – Vested – which is gaining traction across Europe and the US, and is helping to transform high-performing, strategic client and contractor relationships. Unlike traditional business relationships, which are focused on win-lose arrangements, the mindset behind Vested is not ‘what’s in it for me’ but ‘what’s in it for we?’

We believe elements of this Vested approach could revolutionise the way that clients and FM providers work together. It brings benefits to both parties; benefits that include:

• Mutual success for both: more than simply focusing on the success of the contractual relationship, Vested commits both the client and the service provider to the success of each other’s overall business.
• Stronger partnerships: a more lasting relationship is developed between the client and provider, through a strengthened sense of partnership.
• Aligning on goals: by sharing their expertise and aligning their goals, both parties are able to drive innovation, adapt to changing needs and mitigate risk while working towards mutual success.

Vested challenges the usual way of working. It creates an environment where new thinking is welcomed. Moreover, it paves the way for both businesses to be striving towards mutually aligned success. Instead of having 10 people working for the provider and 10 people working for the client, you suddenly find yourself with 20 people all working towards the same end-goals. You’ve doubled your team. You’ve doubled your brain power. You’ve doubled the outputs. 

THE FM INTEGRATOR’S VIEW
MARK SUTCLIFFE, 
MANAGING DIRECTOR OF THE FM INTEGRATOR AT KBR

A quick search on Google will bring up a plethora of articles for and against insourcing and outsourcing, with many authors playing it up as a one or the other scenario. In reality it’s a much more nuanced decision and often involves a combination of the two.

Insourcing certainly has its advantages. It can help with cultural alignment across an organisation and creating more of a community feel. Managers may be able to have more control over a team and can build up a skilled set of staff. The collapse of Carillion and troubles with other large suppliers has rocked consumer confidence and has been a big factor in the shift towards insourcing.

Of course, outsourcing brings its own unique set of benefits. It can allow managers to focus on the core business and control the costs of service delivery. It can also increase efficiency to work with a highly-specialised provider, with a side-benefit being that existing staff can learn from that supplier.

Those highly-specialised providers are often SMEs that work in one area of service delivery. For business leaders worried about the risk of outsourcing multiple services to one large company the SME option is a great alternative and the use of SME’s represents a clear commitment to Social Value.

The one sticking point for many companies when considering working with multiple SMEs is the concern of how to manage many contracts and relationships. Even just a handful of suppliers can feel overwhelming and convinces many managers that the answer is to bring services back in-house.

So how can a company reap the benefits of both insourcing and outsourcing, maintain high standards across all services and control all FM processes in a cohesive way?

Modern FM models have been designed to respond to this set of criteria. Now in its second-generation, the Integrator provides the flexibility that businesses have been desperate for. Acting as an independent and impartial service, the Integrator works for clients whatever their ratio of insourcing to outsourcing happens to be.

Crucially, because the model is independent it adapts seamlessly to changes in service delivery, whether that be a new supplier or tweaking a contract with an existing supplier.

The optimisation of data and consistency in reporting means the clients will always have their finger on the pulse of FM without the need to micro-manage or spend vast quantities of time managing processes. Problems and opportunities are easy to identify and quick to act on.

Rather than taking an either/or approach to FM, businesses are best advised to adopt an open mind as the best option for service delivery will change on a case-by-case basis.

The most effective businesses are those that are innovative, flexible and adaptable. FM is an area that has such a big impact on the workforce, and therefore the company as a whole, that these characteristics are vital for long-term success.