Most organisations still see facilities management (FM) as a simple business cost. The industry does little to dissuade that view. Our public and private sector clients are either resigned to this, or desperate to see a stagnant service leap forwards to deliver cost reductions with service quality improvements. Can clients help providers to help themselves? An interesting new trial in the railway industry points to a possible approach.
Innovate? We haven’t even got a consistent service yet!
Innovation, the process of developing new ideas and converting them into tangible improvements that create value, is certainly fashionable. This process is distinct from conventional continuous improvement, which seeks only to eliminate waste and inefficiency from existing processes.
The extent to which even the more basic goals of continuous improvement and lean operations have yet been achieved in FM is certainly questionable. Our clients report extremely uneven service quality across providers and between different contracts with the same provider. This suggests that basic operational improvements are needed.
But businesses that fail to innovate tend to get left behind. Examples spring to mind of photography companies who failed to embrace the digital shift, supermarkets who were late to get online, and the music business’ apathy towards new business models of online streaming.
Industries that don’t innovate stop being viewed by their clients as value-adding, and are instead seen only as a cost. Costs must be reduced. These industries have become commoditised, with cost-cutting creating a race to the bottom, and destroyed margins leaving little room for business development. All of these issues are well rehearsed in FM. We have reported before that FM is struggling to be seen as strategic in the boardroom.
Industries that don’t innovate stop being viewed by their clients as value-adding, and are instead seen only as a cost.
Continuous improvement is no longer sufficient. To increase its value to clients, FM needs to position itself as a strategic partner – not only in reducing the cost of its own service, but in increasing the quality of the service provided and the benefits for the client. It may be that innovative business models or technologies are what is needed to break the existing paradigm.
Barriers to innovation – parallels between FM and railways
This pursuit of cheaper alongside, and not at the expense of better, is an objective the UK railway industry has been struggling with. Barriers to innovation are systemic in UK rail, and have been highlighted in industry studies such as the 2011 Realising the Potential of GB rail (PDF,1MB), aka the McNulty report.
These barriers to innovation are summarised as:
- Misaligned incentives and business drivers for the many parties involved in the rail industry create fragmentation. Different planning and budget cycles for train operators, Network Rail and Government hinders connected thinking and prevents effective cooperation.
- Franchise periods are considered too short for the benefits of innovative approaches to pay-back against the investment, so operators often fail to invest throughout a franchise.
- Supply chains, staff, and Trade Unions also find themselves operating in a culture of contradictory incentives and a complex legal framework, reducing their engagement though fatigue and risk-aversion.
These challenges are all recognisable to those working in FM. Financial disincentives to innovation are often contractually anchored. For example, fixed price contracts, short contracts and inappropriate risk transfer all remove the benefits of developing new ideas from suppliers. A lack of client and supplier resource focused on innovation is also usually noted as a primary barrier – no people, no time, and no budget.
A possible approach – innovation funding schemes
The Department for Transport are trialling an approach to overcome these various barriers. The Innovation in Franchising Funding Scheme is being tested on three new franchises, East Coast, TransPennine express, and Northern. The scheme mandates in the franchise agreement that for three years, the contractor (train operator) allocates 1% of annual turnover to fund trials of innovative new technologies or processes.
The money is placed into an account by the operator at the start of the year, who must then create business cases for innovation projects to request access to those funds. An industry innovation body provides governance, defining what is eligible as innovation, and approving the funding allocations. Operators are encouraged to partner and innovate to create improvements across the whole railway – not just of direct benefit to them. Money that is not spent within the trial period will be lost by the operator. The trial will create an estimated £50m innovation fund from 2016 to 2020.
New FM contracts could mandate that contractors create a fund to trial innovative ideas.
Public sector procurement bodies could choose to implement similar measures for FM. In the private sector, this process would have to be client-led. New FM contracts could mandate that contractors create a fund to trial innovative ideas.
The application process of creating a business case is the key lever in this process, whereby the client can ensure the contractor innovates in a way that is acceptable. The client may define what counts as innovative. As the funds have already been accounted for as a cost – with no guarantee that any direct benefit might be returned from them, there is all the more incentive for the contractor to work with the client to test innovative solutions to business challenges.
A revolutionary approach – one worth considering?
The trial of innovation in franchising will indicate whether this approach will work, or if barriers still stand in the way of innovation. We will have to wait until 2020 for a full review.
Reading this, you may think – nice idea, but let’s get basic service provision up to a consistent level before we look at innovation, let’s not run before we can walk!
But what if this is as good as walking gets? What if we need to invent some roller-skates?