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So is TFM really the choice of the future?

Author : Neil Longley, Opale

24 June 2013

Operationally, TFM provided through any operating model, such as managing agent, integrator, principle or integrated self performance, offers significant client benefits when effectively deployed.

The different operating models vary the level of value that can be released, but all should pass the core fundamentals of services and financial risk, service ownership and tactical management to the supplier. It's very much an outsourcing approach, whereas bundled services or silo services are tuned to an 'out-tasking' environment where the core fundamentals aren't expected to be passed to the supplier.

Where TFM - and therefore outsourcing - is deployed without the core fundamentals passing to the supplier is the crux of the matter. Perhaps of more interest is whether there are symptoms to suggest this situation is now overtly evident and to a level that may impact the viability of TFM. It raises the question of whether TFM, especially integrated self-performance, is no longer the future economic or operational model of choice.

Fundamentally, outsourcing in FM through TFM requires 'assurance of service delivery governance' delivered through the supplier as a basic necessity for success (self-assurance). Economically, where self-assurance doesn't occur, the true benefits of outsourcing through TFM aren't realised, and it's more viable to move to an 'out-tasked' operating model. This is a point pertinent to clients and suppliers. Clients need to appreciate over-governance is as damaging to the cost effectiveness of TFM as a supplier's failure to self-assure.

Interestingly the dividend to the client for moving from a TFM model to a silo model, for assurance reasons, is between 3-5 % of the contract value. For the client this may increase internal headcount. However the cost and number of such an increase doesn't appear to be a limitation. Effectively, the client takes back the management functions from the supplier and exercises assurance directly.

This enables them to develop a new organisation, contract structure, approach to specifications and supply chain that doesn't need all the resources that exist at the time of change. Operationally, the discontent between supplier and client (which exists to some extent in most relationships) is magnified when the level of self-assurance isn't appropriate for the operating model deployed, or isn't thoroughly undertaken.

Where this occurs the client, at further cost, is compelled to apply a level of assurance or to recover assurance from the supplier. In extreme situations, however, this inappropriate level of self-assurance permits significant service failures which lead to a total, immediate breakdown of the supplier and client relationship, an increasingly common situation.

The client's argument is difficult to dispute: if the supplier doesn't or can't prove they can 'do FM' more cost effectively than the client himself, why shouldn't he do it himself? There are many examples of the assurance imbalance across contracting within FM, whether it be managing agent, integrator, principle, self-performer any other style of contracting, but the self-perform and integrated approach are perhaps more negatively impacted.

Trust in the supplier is the most commonly used term - however subjective - to describe the reason for clients preventing self-assurance or taking assurance away from a supplier. Perhaps this can be measured by:

* Client confidence in supplier capabilities (competent, well-governed, controlled and reliable resources equipped with effective systems, procedures and processes).
* Supplier loyalty to the client (a profound understanding of the client's business as a whole and a profound desire from the client to retain that client relationship).
* Client respect for the supplier (the supplier is focused towards the best interests of the client and is motivated accordingly).

Without trust, effective outsourcing isn't possible, which given the complex relationship between the client and supplier might lead us to question why ensuring trust is so challenging. Right or wrong, the burden of proof necessary to satisfy self-assurance sits with the supplier and the greater the number of services offered and the greater the area these services are delivered increases this burden of proof.

There are all sorts of reasons why a supplier "can't or won't" achieve the burden of proof. Those suppliers that won't are those that understand the importance and significance of these observations and yet fail to establish appropriate governance, control and procedures for whatever reason;those that can't are those suppliers that don't understand the TFM relationship.

Broadly, however, there is strong centrally mandated supplier governance and control, around Profit and Loss, Legislative Compliance and Accreditations for which the supplier is obliged to establish certain obligatory procedures. However, procedures, controls and processes that enable the supplier to monitor the conditions (respect, loyalty and confidence) are necessary to engender client trust or to prevent significant service failures seem less mature. Indeed, there are very few suppliers that have an identifiable and centrally mandated client retention policy that could balance their behaviours between the profit and the wellbeing of that relationship.

Perhaps it is an opportune time for suppliers to appreciate that with the size and complexities of TFM models and outsourcing, the reputational and financial implications associated with the unexpected loss of client accounts does have negative impact on their profit.

It is right to point out, however, that there are suppliers that offer services and operating models within which they can deliver the "burden of proof" necessary; and others have restricted their offering to clients with the right scale of geographic foot print to do likewise. Yet there are some that continue to sell approaches for which they cannot or won't achieve the necessary burden of proof.

Suppliers that reside within the TFM range of operating models are most challenged by these observations. The environment is changing and it is these suppliers who are likely to lose contracts, be more heavily scrutinised during procurement selection processes and required to accept a greater liability for potential failure of the relationship, as the discomfort amongst clients gathers momentum.

In our opinion it will be the self-perform TFM suppliers that are most impacted. Suppliers that recognise the need for self-assurance will continue to add value and grow in a challenging economy.

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