Most people in the sourcing business have been exposed to the cheeky grin and affable sense of humor of EquaTerra's Ron Walker. He's always been at the front end of wheeling and dealing big deals - so most of us were left scratching our heads a couple of years' ago, when he informed us he was going to focus his energies on developing an advisory practice around Real Estate and Facilities Management Outsourcing (REFMO).
"People outsource that stuff?" We all asked. Apparently, managing and maintaining global real-estate infrastructure is a big deal and a major overhead for businesses, and they can save a boat-load of money integrating and sourcing the management of these services (Click here to dowload an overview of the market) . So we grabbed some time with Ron to have him explain more to us about REFMO...
HfS Research: Ron, What is REFMO all about, and why should today’s sourcing professionals be interested in it?
Ron Walker: Sourcing professionals should be very interested in REFMO because it is the second or third largest spend category of any company. Only recently has there been an opportunity to integrate the function. Most strategic sourcing organizations have focused on cost reduction via standard procurement techniques. New tools, processes and service provider capabilities have come to the market over the last 2-3 years that have dramatically changed the opportunity to improve service and reduce costs.
The REFM opportunity is similar to where supply chain was 15-20 years ago when executives realized that if you can integrate the entire supply chain, the cost and service improvements are exponential.
HfS Research: Which are the main service providers operating in this market, and typically, who are the main executives on the buy-side which deal with managing these functions?
Ron Walker: The service provider market has changed dramatically over the last several years with many organizations adding both capability and an expanded geographic delivery footprint. Much of the improvement in capabilities and footprint was accomplished via M&A activity. I would say the three providers with the largest capability or geographic footprint are CB Richard Ellis, Johnson Controls and Jones Lang LaSalle. Although there are many regional and/or geographic service providers who are equally qualified for the right circumstances-- for example, Sodexo, Veolia, Cushman & Wakefield).
One of the challenges with integrating the REFM function is that the leadership can be fragmented. There is seldom one person responsible for end-to-end REFM. The executive(s) we typically work with include VP/director of facilities, VP/director or real estate (sometimes combined) and often the strategic sourcing executive is involved and/or leading the initiative. We have seen great results when the CFO, COO or CAO have been directly involved because they understand that silos are usually less efficient.
HfS Research: Why has it become increasingly adopted over the last couple of years? What are the main drivers or inhibitors for enterprises?
Ron Walker: There are a number of reasons why organizations are evaluating REFMO. First, REFM is a large spend category that has been under-managed but offers a large opportunity, which means large savings with low capital investment. Second, service provider capabilities have significantly improved. Third, regulatory and risk management requirements have changed, which requires accelerated implementation. Fourth, space optimization requirements have changed through M&A, rationalization and consolidation. Finally, there are added service capabilities like green/sustainability energy programs.
HfS Research: From your hands-on experience of these delivery models for REFMO, what are the typical cost-savings / ROI?
Ron Walker: Typical savings can be anywhere from 7-20% with some organizations exceeding 20% when they include strategic space optimization. If you consider that REFM represents 20-30% of an organization’s cost base, the savings potential is enormous. (Note to readers - you can access some excellent research and information on the REFM market by clicking here)
HfS Research: What are the main hurdles enterprises need to overcome, from your experience, to move into an ideal REFMO end state?
Ron Walker: Many of the hurdles are the same for REMFO as they are with ITO or BPO. However, because this has been a low profile area, we experience additional challenges. The challenges include local/business unit ownership requirements. For example, local plants and campuses like to manage their own space. Then prioritization conflicts with internal strategic sourcing organizations--they get credit for reducing cost by tower while the REFM executive tries to improve service and reduce cost across the entire process. Of course, there's always the general lack of understanding of sound outsourcing practices, and service providers need to continue down the path of expanding capabilities and footprint while improving overall operational delivery, including governance.
HfS Research: And finally, Ron, what inspired you to lead this practice for EquaTerra?
Ron Walker: Since the beginning of EquaTerra, one of my specialties has been to identify and launch new service offerings. With double-digit growth in a fragmented marketplace, we decided it was a great opportunity for me to build the team. There is nothing more exciting than being a part of a rapidly expanding service line!
HfS Research: Ron, thanks for enlightning the HfS community on this market - best of luck devleoping the practice.
When he's not leading the Real Estate & Facilities Management Advisory, EquaTerra's Managing Director Ron Walker (pictured here) can usually be found watching his kids on the various sports fields of the Houston area. And when he's not doing that, you just might find him playing a round of golf or trying to snag a yellow fin tuna off the Pacific Coast. You can contact ron at ron dot walker at equaterra dot com.