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Productivity Paradox

15 October 2010

The success of a facility is judged by how well it supports business throughput. Prof Iffryn Price says inappropriate ‘mass’ indicators of performance can ‘hide’ large stocks of low quality facilities, and he calls ‘productivity’ measurement in FM to change.

THE LAST TIME we had an economy struggling out of recession and a new government intent on reducing expenditure facilities management, as we know it today, was effectively born. The nascent movement for more productive workplaces was swamped in the rush. Tom Peters wrote in 1992 that, "In fact, space management may well be the most ignored — and most powerful — tool for inducing culture change, speeding up innovation projects, and enhancing the learning process in far-flung organizations. While we fret ceaselessly about facilities issues such as office square footage allotted to various ranks, we all but ignore the key strategic issue — the parameters of intermingling."
Much of FM is still fretting. In the process we have seen the rise of complicated, and frequently mandated, so-called benchmarking systems that seek the holy grail of accurately determining cost per unit area. That was an elaborate, costly, mistake. First, as Bernard Williams has pointed out, many costs vary with volume not area. Secondly - and more importantly – FM the easiest way to reduce cost per unit area is to have too much low quality estate. As one student from a large national organisation confessed to me we used to buy a spare warehouse to inflate the apparent size of the estate just before the audit deadline.
General Motors and other mass manufacturers lost huge amounts of money because they clung for too long to cost-based measures for assessing manufacturing performance. According to the conventional ‘cost-world’ wisdom, productivity could be measured by optimising efficiencies: - the unit cost of each step in the manufacturing process. If quality suffered there was a lot of rework and revision to do and the unit cost of the quality department seemed low. There was a lot of inventory to store so the unit cost of storage was low.Businesses became so seemingly efficient they went bust, as illustrated in Eliyahu Goldratt’s classic 1985 book The Goal.
Some service businesses in general, and FM, in particular, did not get it. I remember in the early 1990s being asked for help by the customer complaints centre of a newly privatised utility company. They were puzzled by the fact that customer satisfaction was low despite their being best in class for meeting the regulators' target for the percentage of complaints responded to in two days. Every unresolved complaint that resulted in further contact from an aggrieved customer was recorded as a new incident. The target said‘responded to’, not ‘resolved’. Paramedical vehicles racing to 999 calls to meet a response target suffer the same problem. They may have to be there in nine minutes. They don’t have to be able to do anything until the proper ambulance arrives.Maintenance engineers operating to cost based targets don’t have to fix anything not on the charge sheet.
The fallacies here are the same as those exposed when lean manufacturers concentrated on maximising output (sales) from a given area.
Large supermarkets can now forecast sales volumes per unit area of shelf in four dimensions. They know the optimum height at which to place high margin products. They know how to lay out stores to encourage grazing customers. They know which products will sell at different times of the year. Shopping centre operators are not far behind. I remember an MBA student researching business outsourcing decisions in the late 1990s. The reply from Meadowhall, a giant shopping complex to the east of Sheffield, was simple: "running a facility is our core business." Output is rented space and rent is driven by footfall.
Hospitality businesses are similarly smart. They lease space to customers who want to have conversations and they manage their buildings according to customer segments.
Some link the building management systems to sales data so that the lighting gets changed when the after work market starts to be replaced by the early evening dining market. There is a common theme. The success of a facility is judged by how well it supports business throughput.
Earlier this year PFM reported on the launch of a new Index supposedly offering the first ‘independent’ Employee Workplace Satisfaction Rating to measure workplace productivity and effectiveness. My reaction was a yawn and a short email to the editor. At Sheffield Business School, our Centre for Facilities Management Development has been offering that for years.
Barry Haynes and I described a survey to assessthe success or otherwise of the “parameters of critical intermingling” six years ago. At about the same time we started benchmarking occupant satisfaction in offices managed by our government network clients. James Pinder and I outlined the method in 2005 and more recently with Liz Clark I showed how it can be applied to portfolios.
The results can be seen in Diagram 1. Each data point is one government building. The vertical axis plots satisfaction derived from a composite, tested and repeatable survey. The horizontal axis plots effective occupation density. Building A achieves high satisfaction at about average density. Building B is achieving something approaching 6 sq m per FTE in a high desk sharing environment with average satisfaction. Building C is well above average on both indicators as are, to a lesser extent, the other buildings in the ABC triangle. The statistical method used weights each building in the best relative light and allows relative efficiencies to be scaled on a line from the origin to the envelope. Hence building D, which its occupants dislike also has about 40 percent more space than it needs for that number of staff. It is a typical cost-world building, too much poor quality space. The overall plot shows the large waste of space in the overall sample.
FM’s addiction to cost per unit area is not the only cause of the inefficiency. The poorly performing buildings also have the usual problems of inertia, excess and redundant
storage, and a managerial attachment to traditional offices. They also show the massive potential for cost and carbon savings that still remain. The current economic and political climate might provide the opportunity to realise those savings. Authorities who don’t take the chance present a business opportunity to outsourced providers who spot the efficiency improvements on offer.
In government offices more tangible measures of true outputs are elusive. No one has succeeded in creating really tangible indicators of the productivity of say, social services or trading standards departments, let alone comparing the two.
What is clear is that the authorities in the upper right of the diagram spend a smaller percentage of their total budget on back office accommodation and usually less per staff
member supported. In the commercial world E C Harris, whose 2006 redevelopment of its HQ building set new guidelines of asset efficiency, do claim returns such as increased margins and greater availability of billable fee earner hours by eliminating much of the waste associated with traditional, ‘mass’ offices.
Higher Education is another sector where cuts in funding and other changes have been newsworthy under both the previous government and the coalition. Their estates actually share elements in common with destination industries. We proved some years ago that the quality of the estate was, for some but not all universities, a factor in students choosing where to apply. What is more it is possible to compare income per unit area.
Universities effectively earn income either from research (and allied consulting) or from teaching and other educational activity. Diagram 2 shows the 1999/ 2000 research income per sq m (vertical axis) and teaching income per sq m (horizontal) for a selection of UK institutions. Residential space is excluded.
The separation into the more research intensive universities and the newer ones is clear. The pair that are arrowed were next door to each other but the one with too much estate for its income has since been taken over. It too used to pride itself on an excellent cost per sq m performance.
More recent data, which I cannot publish, shows the same pattern. A lot of institutions have more estate than their income justifies: a risky position in straightened times. We are in the process of applying further benchmarks at the building level using the same approach as for government offices. The inefficient use of space arising from an attachment to single offices and corridors is very stark.
You might argue that the income measure does not reflect true outputs such as research impact or the educational value of a degree from a particular institution. This is true, however there is a least a general correlation between the more efficient universities in a particular sector and their general reputation and standing in such indicators as numbers of applicants. It is in schools, where applications are obviously local, that the question of links between educational attainment and the facility arises more starkly.
We have published initial research that points to a correlation, and a downside to the closure of the BSF programme. What is needed is a reliable index of condition as seen by, especially, pupils. ‘Condition matters: pupil voices on the design and condition of secondary schools’ (available to download at http://shura.shu.ac.uk/1006/)
describes the development of such an Index: the first in the Country to survey actual pupils.
The NHS has had an environmental quality assessment system, PEAT, in place for 10 years. The 2010 results do not list any site in the country as less than acceptable. One has to wonder. My local acute hospital where I was accommodated briefly last year is listed as excellent for environment, food and dignity of care. I would have thought it was substandard on all three counts. I have also lost count of the number of initiatives described as "the most fundamental reform of the service since 1948".
As Private Eye put it on 21 July: "The NHS was reeling today after the most wide ranging reforms to hit the service since last Tuesday." In 2007 Daryl May and I examined the ERIC data for output measures. We could find two - the total Trust income and the proportion of the overall estate given over to patient care (Diagram 3). The inefficiencies are again large.
On conservative estimates the service could apparently do with at least 20 percent less space. Where we have followed these figures up with individual Trusts the excess has not been hard to find. Excessive office space and large amounts of unnecessary storage are among the main culprits. The Facilities Director of one trust which appeared particularly inefficient admitted to holding a large stock of unused buildings as a potential asset in any future downturn. He did acknowledge that this stock helped to achieve upper quartile cost per sq m performance in the league tables.
There are notable exceptions in all the sectors reviewed above but there is a common theme of inappropriate ‘mass’ indicators of performance hiding a large stock of low quality facilities. The prevailing conventional wisdom of productivity measurement in FM needs to change.
● Professor Ilfryn Price teaches at the Centre for Facilities Management Development, Sheffield Business School. Peer reviewed research evidenced supporting all the examples given above is available from its research
archive at http://shura.shu.ac.uk/view/divisions/fmgc.date.html



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