Opale Management Services Ltd

The Relationship Equilibrium

Opale develops a new concept the relationship equilibrium see more information

In 3000 words one can only scratch the surface of a topic that debates the relationship between the FM supplier and the client. A subject that for both has implications, but for the supplier is such a dependency for their business that it warrants great attention.  We can only, therefore, outline the principles “The Relationship Equilibrium” and leave the application of these to the reader.

 

What is the equilibrium?

 The equilibrium is balance of capabilities that forms stability in a relationship between a client and a supplier. The strength of one supporting the weakness of the other and both contributors benefitting from the relationship, whilst creating “symmetry of delivery” for the business the contributors serve. 

 

An uninterrupted supply of services that satisfactorily delivers to the clients business demand, without any negativity is utopia for FM organisations everywhere. This “symmetry of delivery” is a difficult output to achieve especially when businesses are changing so regularly, nevertheless it should be the desire of the client to achieve this. A successful equilibrium facilitates a stable relationship between the supplier and client, the outcome of which is symmetry of delivery. It is the heart of success for both the client and the supplier.

 

Ownership is at the core of the equilibrium.  Not just in mechanical terms. i.e. IT or scope of service, but behaviourally. For us the definition of competency used by Health and Safety is a good definition to articulate this point. Technically qualified, experienced and knowledgeable (where knowledge is one of the operating environments of the client) identifies what characteristics are desired both in terms of the supplier engaged, but more so the resources that chosen supplier deploys to fulfil its role.  This is not only a technical distinction (in that you must be qualified), but one of culture, character and attitude that absolutely enables a clear and seamless interface between the client and the supplier.

 

The supplier delivers ownership to the equilibrium that supports the ownership delivered by the client and in doing so the combined FM entity can achieve “symmetry of delivery”. 

 

If we view the FM organisation as one entity with the client and supplier or suppliers as elements, or parts of that entity, the equilibrium is the point within that structure at which the ownership between the supplier and the client meet. This point is not just structural or service line specific, but also in terms of function, responsibilities, process and ownership and client/customer interface, it is a matrix  

 

To be clear, we are not referring to “partnership”, a term that is overused in the FM market and for which there is no single definition. The relationship between any supplier and client is based on a contract. The contract is to enable the equilibrium and should it fail, be used to facilitate the dismemberment of that relationship. Equally, relationship equilibrium does not suggest a particular, contract style, operating model or contractor as being right nor better than any other; neither does it suggest what contract is best for the client. It is “horses for courses”, but what is suggested is that no horse can win without it.

 

Whether it is in-house delivery, Silo contracting, Total Facilities Management, Single service contracting, Managing Agent, Principle Agent or any other approach to FM delivery makes no difference, the relationship equilibrium, albeit that it varies in characteristics, drives success for both the client and the supplier. Therefore the principles apply to all.

 

The contract outlines the parameters within which that equilibrium can be formed and the implications of not achieving these parameters. 

 

Developing the equilibrium 

 

A successful relationship is one that has reached equilibrium where the expectations of the contributors are fully achieved; and the longevity of any relationship is based on the ability of the contributors to flex these expectations to compensate for a change in this equilibrium driven by changes in the expectations of one or more of the contributors. The principle expectations of the participating client is that the supplier will deliver to the business demands placed upon it by the organisation it serves (quality and cost), and respond to any changes in that demand. For the supplier, the principle expectations are profit, “a fair days pay for a fair days work” perhaps. 

 

True relationship equilibrium will triumph against all things that may test it or seek its demise. This includes re-procurement. The deployment of a tender process adopted by a client in order to satisfy business governance does not dislodge a supplier where equilibrium exists. If anything it will reinforce the client comfort that the relationship is right. A change of supplier driven by a re-procurement process tells both the supplier and the client that they have not enjoyed a sustainable equilibrium even though they may feel differently. Equally, increasingly the “blunt re-procurement knife is being left in the kitchen drawer” where there is clear and demonstrable evidence that the right relationship exists between the client and the supplier and is in our view, a sensible approach to business and one which should be applauded.

 

“It takes two to Tango”, sums up the reality for both the client and supplier as an equilibrium is sought. Firstly, both must understand exactly what their expectations truly are, which can be a particular challenge for the client; the demand has to be articulated to the supplier with clarity so that the supplier has absolute clarity; and finally the supplier has to determine whether or not they are correctly positioned to satisfy that demand, and if not it should be mature enough to say so. Experience indicates that a failure of relationship occurs at the point of creation  (because of one or more of the 3 relationship forming principles not being honestly undertaken), or where a change in the business demand identifies that the supplier is no longer correctly positioned to satisfy that demand.

 

What is not well known is the cost of failure. The emotional and financial cost of failure is with both parties and whilst the emotional cost is difficult to quantify, it tends to be greater for the supplier if the failure is due to a change in business demand and greater for the client if it is at the point of creation of the relationship. Opinions vary as to the amount of management time and cost associated with supplier change but from our experience it is a shared cost of around 3-5% of the contract value (shared between the client and supplier) when such a contract value is in excess of £5m per annum. The cost of management associated with the period between the demise of a relationship and the point of change cannot be calculated, but nevertheless, it is a real cost to both parties. 

 

The cost of failure at point of creation rests principally with the supplier. The period of mobilisation, transition and transformation is extended and can increase the costs of these by in excess of 70%. Perhaps more to the point, the supplier profit expectations for the overall contract are not met.

 

The point is that there is a real and tangible cost to both the supplier and client when a relationship fails and therefore to achieve a Relationship Equilibrium must be a common objective for the client and supplier.

 

One size fits all

 

Not one of our clients is the same and not one supplier is the same albeit that in either case, there can be similarities. If we accept that this is the case, then we have to draw the conclusion that no Relationship Equilibrium is the same. The equilibrium exists when the right client and the right supplier forms a relationship. It is the client, however, that ultimately selects the supplier with whom they wish to forge a relationship, although the supplier decides whether or not they wish to be considered for that relationship.

 

The suppliers’ wares vary and each of their shop windows show a variety of elements such as capabilities toolsets, experience and people that when moulded together create an offering to the client. That said, there are models of delivery that are common threads through the suppliers’ offerings. Dependent on the business demand, depends which thread is quantifiably appropriate to tune to the clients’ requirements and therefore which of the suppliers should be considered by the client.

 

For a supplier not to be considered does not mean that the supplier’s offering is wrong per say, but given the business demand for that client their offering is not appropriate. One size does not fit all and each of the suppliers’ shop windows will attract those customers that wish to purchase the products displayed. For the client, it is a clear understanding what product they wish to buy that is important if they are to be scientific about where they choose to shop.

 

The risk to any equilibrium, therefore, is where the wrong product is sold by a supplier or bought by a client, and in FM there is no sale or return without significant pain.

 

Principles of the Equilibrium

 

The first principle is the most crucial in forming equilibrium and rests solely with the client and is the determination of “What good looks like” for them. Easy to say, perhaps but not to achieve as it requires the client to fully understand what its business needs really are, the translation of these business needs into a clear FM strategy. Most FM strategies are a subset of a wider real-estate and workplace strategy or indeed are supportive of such a strategy.

 

The internal FM organisation design then needs to be considered within the context of the strategy. Not in terms of which individuals, but in terms of what functions need to be housed within the organisation and what could be housed within the supply chain. Governance is a particular factor to be considered here, in ensuring that the supply chain is surrounded by an organisation strong enough to enable and to assure the wider business that its legal obligations, working environment and business needs will be met. The shape of this will always be unique to the client albeit common approaches can be applied.

 

Every other function and requirement should then be translated into a requirement which can be articulated to the market clearly. This principle again is a responsibility of the client. The common vehicle for this is a specification, but the process of communicating with the supplier market should ensure that no supplier is in any doubt as to the strategy, business demand and behaviours necessary to achieve success.

 

How the client presents itself to the market informs the suppliers of the business demand but also whether or not the client expectations are understood and supported by those that express them. An open relationship will never be formed without “believability”. The belief of the client, and the business they serve, that what they seek from the market is what they need, and the belief of the supplier that they as a company can achieve the wants of the client. 

 

The latter principle rests with the supplier. Any supplier that does not have the capabilities or characteristics to meet the expectations of the client should be mature enough to declare that openly and immediately. 

 

Accepting the client requirement, with no intension of delivering the requirement or in the vain belief that the client will change its mind once the relationship is initiated is not a sound strategy. 

 

Failure at point of creation 

 

Failure at point of creation can be attributed, in the main, to either the client failing to understand  what it wants or poorly articulating these needs to the market place, or the supplier doing what it wants, but not what it’s sold.

 

Failure of change

 

Economic factors suggest that the one certainty is that business demand will change altering the equilibrium and therefore the relationship. In the main, this demand is for the same quality but at a lower price. To remain in such a relationship, therefore, the supplier has to reposition itself, or it’s offering to the client in a manner that enables it to satisfy the business demand whilst maintaining profit. 

 

There are differing opinions, but our view is that the most common repositioning by suppliers tend to follow two differing routes, one being the operating model (Managing Agent, Principle, Self Perform and similar) it chooses to deploy within the existing scope, and the other being to seek to widen the scope (Real-Estate Transactions, Print, IT) and similar. Suppliers tend to deploy both tactics to varying degrees.

 

The scope increase tactic for many is a diversion and is camouflage. It delays the inevitable relationship breakdown. If FM can be delivered in manner that better suits the client, by a supplier other than the current incumbent, increasing the scope with that incumbent makes no difference whatsoever to the fundamental miss match.

 

To be frank, the 3 principles of the equilibrium apply even in the event of a business demand change, but the challenge is to understand that a change has occurred. Many changes are very subtle, but have significant consequences for the supplier and the client. Understand that a change has occurred, quantifying that change and enabling the supplier to reposition to accommodate that change is the process that should be adopted.

 

A recent example for us is a business that had both a retail and main office infrastructure. The equilibrium was developed based on a single internal client that owned FM delivery of both elements of the business. The business decided to create two separate structures internally for which the supplier’s model was not suited or configured. The implications were not recognised, considered and planned for in a manner that would enable the supplier to affect a sensible response. The equilibrium has now been lost.

 

Maintaining the equilibrium

 

Whilst equilibrium evolves with change, it requires developing and maintaining. Both the supplier and the client have equal responsibility for this. The weakness of one is not opportunity for the other to exploit, but an opportunity to help, the strength of the other is not an opportunity for complacency but one of learning.

 

The reality is that every organisation be they a client or a supplier is not perfect in all aspects of FM and the processes that surround it.  FM is a very complex business with a great deal of product and service procurement, contractor relationship management, people management, business processes client demand management and change management.

 

Once a relationship has been established with a viable equilibrium, polish can be added by infusing strength into those areas that may be lacking.  The level of these activities that truly supports the equilibrium varies on scale and complexity of relationship, but as points of principle, for that client to provide intellect into the supplier to help the supplier improve an area of their capability and by doing so improve their delivery to the client makes business sense but also feeds the equilibrium. For the supplier to offer the client capability, as a part of the delivery process, even if that capability is not within the scope of the supplier’s remit supports the stability of the equilibrium. Joint investment in initiatives that enhance the “symmetry of delivery” such as behavioural training and mentoring solidifies the relationship and therefore the equilibrium.

 

The mutual and intelligent nurturing of a stable relationship at the very least will maintain that stability, but it will also enable the contributors to indentify symptoms of the need for change, plan for that change and respond effectively to the change by altering the equilibrium in a manner that sustains the relationship. 

 

Nothing is more damaging than unplanned or unexpected change. 

 

Measurement of the equilibrium

 

Most models of measurement are confused. Is the need to measure FM delivery into the business or to measure whether or not the supplier is performing? If it is the latter, is it to drive value and improvement or to penalise for failure?

 

There is no doubt that the client needs to be assured that the “symmetry of delivery” is achieved and measures to achieve that should be deployed. It is through this process that business demand can be gauged and change anticipated.

 

However, if the equilibrium is at the heart of a relationship and determines the strength of that relationship then measuring the equilibrium and the maintenance of that equilibrium is in the interests of both the client and the supplier. 

 

To an extent it is a “chicken and egg” argument, by measuring the symmetry of delivery a failure of the equilibrium will be known, but equally if we measure the equilibrium, the symmetry of delivery is assured.

 

The reality is less confusing but more complicated. Equilibrium has more than one contributor and therefore to measure the viability of that equilibrium each contributor has to measure itself and these measures need then to be aligned in a manner that can monitor the success of that equilibrium.

 

 

Value of the equilibrium

 

The return on the investment of achieving and maintaining  equilibrium is compelling. Quite apart from the “symmetry of delivery” there are real and tangible outcomes for both the client and supplier.

 

For the client this manifests itself as year on year value release, continual improvement, and ease of change. The first two of which, given our experience, can be quantified with some thinking and is very much dependent on the equilibrium that exists. The latter value release is more difficult to quantify even though we can determine the cost associated with a failure of the equilibrium (3-5%), however, a painless life has some attractions.

 

For the supplier the value is greater. There is a substantial increase in Profit which is assured for a greater tenure of contract. On those that have gone to market, retention is high albeit that there are strong market indicators that suggest suppliers are currently focused on contract retention and this does alter the dynamics.

 

Understandably so, as the cost of bidding is high and the loss of revenue on significant contract values can be damaging to business.

 

Challenge to the market

 

If the suppliers’ market is to grow its need to retain existing clients whilst winning new is paramount. Retention is arguably more critical than ever to this on the basis that the value they enjoy per client is increasing as the client continues down the road of vendor rationalisation. Looking forward, the trend indicates that there will be fewer opportunities to win business, but the value of these opportunities will increase.

 

Multi service contracts across geographical boundaries is a significant purchasing trend that we see, and on that basis the challenge for suppliers is to develop real capabilities and offerings (including all the infrastructure and business processes) that will allow them to take advantage from these trends. 

 

Not only will this enable them to win new business but to be able to respond to the change in business demand and by doing so retain the client relationship by adjusting the equilibrium accordingly.   

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