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Turning Point

15 October 2006

Satisfied customers tend to be more loyal, and this has a proven impact on revenue growth and profitability. Now a two year research partnership between IPD Occupiers and the Bartlett School at UCL, into the service-profit chain in FM has started, as Paul Carder explains

THERE IS NOTHING WRONG WITH CUTTING COST, providing that this does not have a detrimental effect on an organization elsewhere. Often cost reduction is essential tomarket survival as Sir Digby Jones said at the recent IPD/CBI Conference; "... the first, the fundamental objective on the business radar still remains, and rightly so,the need to make a profit, the essential need to generate wealth. And in a world where increasingly China wants your lunch and India wants your dinner we have to constantly change to deliver that key issue."

Cost reduction in business support functions such as facilities management does not always add value. The company purchasing department may feel pleased with their success in getting the lowest price from an FM supplier, but in a sector largely driven by the quality of people employed, the corporate FM will get what the purchasing manager pays for. Months later it is the FM who will get the complaints from executives that they are not getting the support that they need for their core business department. Meanwhile the purchasing department has moved on to beating up its car fleet provider or some other supplier.

Do you really want to employ a supplier on low profit margins? In FM, that tends to lead to low-cost people, and quality suffers as a result. IPD Occupiers believes that there are essentially two ways for the FM industry to go:
... Continue to focus on cost reduction, eating into service quality, reducing customer satisfaction and suppliers' profit OR,
... Focus on research and the implementation of real value-add to occupiers' businesses, improving service quality and satisfaction, increasing customer loyalty and generating greater supplier profit.

IPD has created the Turning Point Programme, to promote the second way, and will continue until the turning point is reached, when both occupier, clients and the FM industry consider, at least equally, cost and business value-add. IPD has launched a major multi-sponsor research-led programme earlier this summer in a drive to identify, document (through case studies) and measure 'value-add' when assessing the impact and contribution of FM to business success. It is initially backing a two-year research project in partnership with the Bartlett School of Graduate Studies at University College London (UCL), focusing on the 'service-profit chain' in FM.

The Turning Point Programme also has the support of the BIFM. "The Turning Point Programme promotes the investment that we must all make in researching and implementing real added value to occupiers' businesses" Only, by working together, customer and suppliers side by side, can we learn through case studies, as well as group work and discussion,¡± endorsed BIFM Chief Executive, Ian Fielder.

Service-profit chain
The theory that underpins the first phase of the Turning Point Programme is well established in business school literature. James Heskett of Harvard University has become the leading proponent of the 'service profit chain', with several books providing both theory and case study evidence to support the linkages in the chain (see diagram below). The key elements are that internal service quality has a positive effect on an organization's employees, which drives them to produce better results for their customers. Highly satisfied customers tend to be more loyal, and customer loyalty has a proven impact on revenue growth and profitability.

Customers (occupiers) benefits
... Improved employee satisfaction with their working environment, leading to staff loyalty
... Loyalty drives productivity, leading to value
... Value drives external customer satisfaction
... Very high satisfaction drives customer loyalty
... Customer loyalty drives profitability and growth. Suppliers (FM management and service delivery companies) benefits:
... Recognition of the value of 'quality of service', leading to occupier employee satisfaction and loyalty;
... Less cost-focus, more 'customer value' in FM contracts;
... Longer-term relationships, with aligned interests

The diagram above outlines this in the context of the ‘supplier’ and ‘consumer’ (or customer) Suppliers’ customer satisfaction is the occupier client’s employee satisfaction – clearly, they are two sides of the same coin. What is perhaps new, and not usually considered in the context of FM, is the knock-on effect down the line to mutual profitability and growth. It may be difficult to measure but if we can positively affect the satisfaction of core business employees with their general working environment, then FM is really starting to add value. The remainder of the ‘chain’ has been tested and documented in many academic and practice papers and to some extent we can simply accept that improved employee satisfaction will lead to improved profitability.

In addition to the main two-year research project with UCL, the Turning Point Programme will offer participating organisations the opportunity to share learning. Corporate occupiers and FM suppliers will be able to share and discuss best practice through case studies. Ultimately, once a robust body of knowledge starts to be amassed, it will be possible to consider benchmarking FM services between leading organisations, and to implement value-adding business improvements as a result.

The Turning Point Programme was launched at a workshop conference held in May sponsored by Carillion, Johnson Controls, EMCOR and Advanced Workplace Associates (AWA) attended by representatives from over 30 bluechip companies, and a few public sector organizations. The second workshop is to be held later this month at the offices of GSK Stockley Park.

The Programme is managed by IPD Occupiers, but is reliant on the sponsorship and input of clients and the FM market. The project will be delivered by leading researchers - Project 1 (’06 to ’08): the Bartlett School, University College London (UCL) and leveraged via the DTI KTP (Knowledge Transfer Partnership). Sponsorship support from leading suppliers and consultants includes the founding sponsors Carillion, Johnson Controls, EMCOR and AWA but other sponsors are welcome to expand the work of the programme. It is planned that involvement through case studies will be available to leading occupiers via the IPD Occupiers FM Group comprising about 25-30 companies, but others occupiers are invited to participate. In fact, no organization or individual will be excluded from the Turning Point Programme. Anyone, or any organization, that has something to contribute should become involved. From major organizations, we hope for some sponsorship. From small niche consultants we make take a contribution in kind.

The routes to involvement in the programme are:
● Customers (occupiers): provide case studies, possibly with your key suppliers; ideally, small financial contribution, spread across many occupiers;
● Suppliers (FM companies) & Consultants: sponsor the programme on behalf of your clients, look for case studies to develop the service-profit chain in FM Institutions, support the programme through industry networks, publicise support for the programme, to members and the industry more widely. Sponsors will have full access to the programme, its events and outputs, over a 2-year period, and sponsors logos will be
incorporated into all IPD Turning Point materials and outputs. Subject to content and time available, sponsors will also be able to present their case studies at Turning Point meetings, and gain feedback.

● Paul Carder is Director, Turning Point Programme & Head of Business Development, IPD Occupiers.; tel: +44(0)7970 40647.

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