Made-for-India FM Model

India’s facilities management (FM) market is less matured in India compared to the western economies. Realty Plus brings forth the views of the leading professionals on the strengths, weaknesses, and opportunities of the FM industry. In India, FM companies were perceived to be manpower providers, rather than service providers. This perception is gradually changing as more professional companies are entering the space. The smart cities project too may create ample of opportunities for the FM industry. Moreover, the growing cognizance of the link between the efficiency of an organisation with the built environment is driving the inclusion of facility management as a function within an organization, either in-house or outsourced. But the relatively lower labour cost and unorganized character of the segment in India entails local adaptation of global FM model. But, facility management, an evolving business line in the country, requires logistics precision of a high degree to meet the requirements of customers. Currently, FM is largely manpower intensive and operates on low margins. Consolidation and economies of scale are gaining momentum as bigger players are growing their business by acquiring smaller players. Besides this, another challenge in front of FM companies is their ability to demonstrate their own strategic importance. As per the Facility Management Market Industry Analysis and Forecast, 2017-2023 - The market size of facilities management globally is predicted to reach $79 Billion by 2023, rising at a market growth of 15%. Most of the FM services in India so far have been primarily centred around the metros with a minor extension to few Tier II and Tier III cities, the reason behind this being that majority of offices are located in these areas. The forecasted CAGR over the next 3 years in the FM Industry in India is estimated to be 17.19% according to a Technavio Report. FM business has been subject to continuous innovation and development over the past 10 years and is continuously under pressure to reduce costs and to add value to the core business of client organizations. Deepak Shanbhag, Chief Operating Officer, Property Solutions (India) Pvt. Ltd. (Kalpataru Group), one of India’s largest indigenous companies in the Integrated Facility Management Services and KunalLala, Vice-President, SILA, the real estate Services platform with expertise in Facility Management, Real Estate Advisory, Project Management & Interior Contracting describe the specific considerations and challenges of the FM sector. The causes of FM industry largely remaining unorganized Shanbhag:The FM industry is highly fragmented and is dominated by the unorganized players consisting of local service providers. These unorganized service providers are often preferred over the organized players, as they work on very thin margins. Although, in the short term, this might seem a better option from a price perspective, it does often lead to an inadequate statutory compliances, service inconsistencies and deficiencies in implementation of standards and best practices. However, FM services market in India has been growing steadily over the years and is set to witness significant momentum over the next five years. Businesses are increasingly using outsourcing of facilities management to achieve strategic advantages: to improve their competitive advantage and to achieve market preservation. Lala:Currently, there are large numbers of players in the country who give only 1 or 2 services for e.g. pest control or housekeeping and the market is still more than willing to accept these services as they come at a lower cost as compared to a professional and organized one. These small players do not even comply with the statutory regulations hence they are able to offer their services at a lesser price. This has been a huge obstacle for the organized players so far. Now we are witnessing a major change as the industry has started moving towards a more professional approach considering that everything here is getting streamlined, leading to long-term benefits. Also many of these small players have started merging with the large ones. The commercial sector does offer more opportunities for FM today as compared to the residential one, the reason behind this being the presence of many global and domestic FM companies in the country that keep working towards creating an understanding of the benefits that FM services offer. The criteria for adopting in-house FM or outsourcing FM Shanbhag: Outsourcing often comes with lower cost, provided the service is of the required quality.Focus on profitability alongwith a growing preference to concentrate on core activities has been another key driver for organisations to outsource their non-core activities like Integrated Facilities Management Services (IFMS) to other service providers. In addition, the use of technology to manage and maintain service excellence is increasingly becoming crucial for all stakeholders in the industry, be it in terms of training, operational efficiency, performance monitoring and reporting. Facility management providers, by virtue of their specialized capability, can deliver better in this regard. Most outsourcing initiatives provide more upside capabilities with fewer aches and pains. Outsourcing also gives room for short term Contract to use vendor’s competence. Lala: Established FMs in India implement one of two operating models. One is a model where all services, e.g., Housekeeping, Security, Horticulture, Engineering, AMC management are outsourced. The second model is one where all (or most) employees are on the payroll of the company. We would recommend employing the second operating model. Tenants must know that they are treated as the Principle Employers, by law, of all staff that are employed or contracted at their property. The FM Company that they hire is the contractor and has to adhere to all statutory obligations & obtains the necessary licenses for the contractual staff that it employs - e.g., labour licenses, Provident Fund, ESI, Welfare Funds etc. The FM Company’s prior experience in dealing with a particular type of asset (residential, commercial, industrial, hospitality, etc.) has a bearing on the decision of outsourcing of FM. It is important that the FM that one hires is up to date with the latest technology & processes and has stringent review mechanisms for the performance of their on-site teams & service vendors. Partnership model between the Clients, FM providers and the Vendors Shanbhag:Labour or manpower based contracts are more prominent in India and are deemed to be more profitable as compared to square-feet or fixed price contracts. Lately, there has been a change in the culture of outsourcing as clients or building owners prefer to outsource the entire bundle of services to a single service provider instead of looking for individual service providers. Along with Integrated facility management, the demand for services, such as energy management, QHSE compliances and property management strategies, is driving the market towards consolidation. Which is why, the role of the Facility Manager has become extremely crucial and pivotal in this ever-changing, volatile and dynamic environment. As the maturity of outsourced FM customers grows, the nature of contracts in this industry is also expected to grow in sophistication. In general, contracts are expected to have remuneration frequently tied into performance based metrics. Lala: Very few FM service providers offer a partnership model that fulfils this requirement. Most FM companies enter into manpower plus management fee model with the client and then outsource services to various vendors. In this scenario, the higher the costs, the more money the FM service provider makes, without having much skin in the game.A lump sum SLA based model is in the interest of the client as well as that of the FM company. The FM Company should work towards keeping as many people on their payroll, rather than outsource services to other vendors. This increases the FM service provider’s stake in the efficient functioning of the service model as well as reduces unnecessary layers of accountability with vendors involved. FM benchmark systems and standard payment models Shanbhag: While benchmarking is looked at as about being the ‘magic bullet’, this is not the case. The first issue is that benchmarking is wholly retrospective: it looks back at what we did and most of the times we are unable to show conclusively that the performance will be not only replicated in the future, but it will improve relative to the benchmark comparative data we used for comparison. Another concern is that we too often assume that the data used for the benchmark are accurate or relevant to the organisation and which is why we often benchmark data that is easy to capture rather than what is relevant. This is all compounded by the various ways in which facility services are packaged and the convoluted pricing and cost-allocation methodologies used by building occupiers and service providers, which in the long-term raises serious questions regarding the reliability of data and dilutes the efforts put into assessment studies. Lala: The FM industry is a relatively unorganised industry, leading to a lack of benchmark systems and varied payment models. Local players undercut professional FM companies by accepting a lower management fee model along with longer payment credit terms. This leads to the local FM service provider trying to cut corners by evading compliance norms, leading to flawed systems and processes. Indian FM sector inadequate use of advanced technologies Shanbhag:The reason is unorganized players are more dominant and industry lacks technology implementation infrastructure. The market is overall price sensitive and the negotiations are based on the low price floating around the industry. I feel organizations should start investing on technology and give room to innovations rather than going just for players which can only provide cost efficiency. Lala: We believe that technology is already playing a massive role in the way the FM clients are serviced & businesses are running in India.Facilities Management in the country only requires innovation in Specialized Engineering Services, covering areas such as energy efficiency audits, and Green Building concepts; this is already in process and it will be only a matter of time till we are at par with the technology incorporated internationally in the services given. Role of Supply Chain Management, in FM Shanbhag: Supply chain is impacted by various evolving macro-factors. Volatility in supply and demand will continue making risk management critical. Also, business pressure to deliver ‘more-with-less’ will continue driving the supply chains to further increase efficiency and balance customization with consolidation. Lala: Supply chain management is already a crucial part of the FM service function and is critical to ensure a seamless FM service delivery in the future. As the industry functionality changes and client expectations get altered, the flow of information and services becomes crucial in this cycle. With the increasing use of technology in the sector, clients will receive data driven FM service deliveries, optimising the client’s budgets and enhancing expectations. The need for a regulatory body for FM sector Shanbhag:Several industry associations actively monitor legislative actions, industry codes, and standards. They periodically publish guidelines around standards and measurements, allowing the exchange of professional expertise, relationship-building, sharing knowledge of industrial information, and industry trends. Lala:The FM sector is in dire need of a regulatory body, that will further help and fast track organization of the sector, align FM service providers towards service delivery benchmarks, set certain structures to compete for contracts, etc. This regulatory body will also help in creating more awareness for the industry and help attracting better talent to this sector.