Survival of the Fittest
By Jeremy Waud, Chairman at Incentive FM Group
It has been suggested that ‘the only thing that is constant is change’ – which perhaps is a fair observation for the wider facilities management and contract service industry in 2019. So what are the main influencers and disruptors of the moment?
Stability of Competitors
It cannot have escaped the attention of many that big names in our sector have got themselves into trouble over the last year. These include: Carillon’s collapse into the warm and friendly arms of its bankers; Mitie’s long spell of enforced restructuring; Interserve’s ‘Pre-Pack’ to a new owning company to avoid a complete collapse; and Kier are in the news and under the microscope. A number of smaller single service companies have also gone out of business as a result of a tough market which we consider to be largely driven by the factors below:
Politics and the Economy
The majority of our politicians have clearly never run a business and may not have ever even run for a bus! Yet, they are empowered to decide on the health and direction of our nation, whether in Europe or out and it seems to make little difference which party, or which Prime Minister is at the helm. It has been a shambolic year which has not helped businesses one iota. The lack of clarity or certainty for our clients across a wide spectrum of sectors has been an unhelpful side effect of Brexit, and is reflected in the incredulity with which we are viewed from overseas. Our customers are understandably nervous, uncertain and risk averse at every turn, which is not a healthy backdrop to try and operate in front of and to make investment decisions within.
Friend or Foe?
Another major change of the past year has been the effect of some of the major global surveying organisations diversifying into service delivery. For example, CBRE acquired skills and capability in the mechanical and electrical maintenance sector for the buildings it manages through the acquisitions of Norland and Johnson Controls GWS. These skills, now wrapped under the parent branding, are changing the way it chooses to deliver services to its managed properties and it is not clear where this will this end up.
Similarly, JLL made the significant M&E acquisition last year of Integral. These businesses are indeed friends of ours and big customers as are other major surveyors, notably Savills, who this year acquired the property management business of Broadgate Estates from British Land. All the while these organisations buy from us in sensible volumes, we will not be entering the property management market – hence we are all friends and not foes.
Procurement Trends
We are of course a big service delivery organisation, employing more than 3,200 staff in the process. We therefore spend a large part of our time on the receiving end of procurement departments and specialists with differing levels of appreciation of what we do and what needs to be done. Buyers are largely charged with the responsibility of delivering even better value for their ultimate clients. Longer term viability and operational reality can often be a secondary consideration. This drive comes from economic pressure, opportunism and of course good practice, as defined by corporate governance and the likes of the RICS in the challenging retail sector. Our consultancy business, along with other specialists in this sector, helps many high-profile companies with their procurement strategies and processes. Having specialist FM procurement, such as Incentive Consultancy, can help to understand and bridge the gap from ‘generic’ buying practices to a 360-degree view of the challenges from all sides.
Commercial Sanity
None of the above drivers or disruptors make for higher contractor margins, in fact quite the opposite. The result is too much risk exposure and cash management pressure being levelled on the contractors in the sector, so much so that you can almost hear the pips squeaking!
The challenge for the market going forward is to not be backed into the corner at every turn, but to deliver attractive, creative and mould breaking service delivery solutions that share risk with the clients and intermediaries.
So a final message to all those who think contractors can operate within the 5-10% gross margin space, take high risks, be paid at 60 days, employ all of the semi and lower skilled staff that are needed in their operation and then invest in all manner of skills, experts and technological advances – please get real and think again. Thank you.
IFM News – https://www.i-fm.net/comment/survival-of-the-fittest
