The REFM outsourcing landscape: Insight from the front lines 2015 Global Real Estate and Facilities Management (REFM) Outsourcing Pulse Survey Results
REFM Pulse Survey team Stan Lepeak Patrice Gilles Director, Global Research, KPMG LLP (U.S.) Leads research efforts globally for KPMG s Management Consulting service line, focused on trends, issues, and futures. Managing Director, SSOA KPMG LLP (U.S.) Clients include organizations looking to assess service delivery across multiple areas and/or geographies of their support organizations. Doug Burr Clinton Fairbanks Director, REFM KPMG LLP (U.S.) Strong background across the life cycle of REFM sourcing, strategy, and improvement program management experience. Manager, REFM KPMG LLP (U.S.) Know-how covers go-to-market strategy development, internal training and solutions development, supplier identification, transition and implementation, ongoing supplier governance, and transformation. member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. NDPPS 527556 2
KPMG LLP s (KPMG) Shared Services and Outsourcing Advisory practice recently surveyed service providers and buyers to get a pulse on the current state of REFM outsourcing. What we learned can help differentiate your organization from others. 2016 KPMG International Cooperative ( KPMG International ), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 527556 3
KPMG s Shared Services and Outsourcing Advisory practice We re about transformation KPMG has the ability to help member firms clients transform enterprise services to help improve value, increase agility, and create sustainable business performance. Who we are The Shared Services and Outsourcing Advisory practice brings a specialized global team of more than 800 professionals within KPMG s global network of independent member firms operating in 155 countries. Our professionals help clients design, build, and manage information technology (IT) and business processes across the enterprise. What we do We help clients align their business strategy, organization, and execution to enable them to manage the entire IT and business process life cycle, improving business performance, and laying the groundwork for genuine business transformation. How we do it We apply focused research, automating tools, proprietary data, clear business acumen, and a forward-thinking mindset to provide timely, objective, actionable advice and practical approaches for clients. KPMG s Building, Construction & Real Estate (BC&RE) practice serves our clients needs across a broad spectrum of issues and geographies. member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. NDPPS 527556 4
KPMG REFM Pulse Surveys The Global REFM Pulse Outsourcing Survey An annual review of real estate and facilities management outsourcing market trends and individual observations from the REFM front lines. Input sources: Topics evaluated: Primary functional focus: End users actively pursuing or undertaking REFM outsourcing, Buyers REFM third-party advisors and outsourcing service providers, More than 200 survey responses All major industries and geographies covered globally Current REFM outsourcing market trends and conditions Deal drivers, challenges, and service delivery models Global REFM sourcing trends REFM outsourcing deal attributes Facilities management Facilities services Workplace services Portfolio strategy/planning Transactions/brokerage Lease administration Space management Project management REFM IT systems Focus on performance, trends, and futures member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. NDPPS 527556 5
Presentation content Overview Respondent demographics 2015 survey highlights and comparisons Market Trends REFM Marco and market trends Market characteristics Buyer / planned REFM outsourcing levels Future REFM outsourcing demand levels REFM demand by industry and process Why some processes have not been outsourced Market Conditions Service delivery model preferences Outsourcing deal pricing models and tenure Challenges to successful consummation of REFM outsourcing efforts Major drivers for REFM outsourcing Means to better prepare for REFM outsourcing Market and deal characteristics Current pipeline growth and new deal pricing pressure Provider focus Contract profitability member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. NDPPS 527556 6
REFM outsourcing respondents by geography and industry* Respondents by industry 17 % 14 % 12 % 11 % 7 % 4 % 3 % 32 % Banking, Financial Services, Insurance Pharma/ Biotech Healthcare Manufacturing High-tech Products/ Services CPG, Food and Beverage, Retail, Wholesale Business Services/ Consulting, Construction/ Engineering All Others Respondents by geography 24 % 59 % 21 % 11 % Global Americas EMEA AsiaPac *Numbers might not add up to 100% due to rounding and multiple selections. Source: KPMG 2015 REFM Pulse Survey member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. NDPPS 527556 7
As we heard from people in the field, several macro trends came to the surface along with insight into the current REFM trends. 2016 KPMG International Cooperative ( KPMG International ), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 527756 8
When we compared responses from previous surveys, here is what we found There are a few areas of similarity among respondents: Similar geographic distribution of respondents as in prior years Similar top demand by industry as in prior years Similar to prior years, reduction in operational costs (OpEx) remains the top outsourcing driver The standout areas, though, included: 5% Increase in interest by buyers for outsourcing workplace services in the next 12 months 9% 8% Increase in interest by for reporting system needs for performance reporting and service levels Increase in interest by for business intelligence for REFM reporting systems 18% Increase in interest by buyers to gain economies of scale as an outsourcing driver 22% More interest by buyers in outsourcing routine ops and maintenance 10% Lower expectations by on growing business in existing accounts. member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. NDPPS 527556 9
Market overview: The top macro trends Negative global economic conditions continue to weigh heavily on organizations decisions on how, where, and why they source services globally, though few firms are pulling back from global sourcing of services globalization. Global business services (GBS), combining onshore, nearshore, and offshore shared services and outsourcing, has become the predominant means through which organizations support global operations. Many organizations GBS remain fragmented across functions, geographies, and business units, complicating governance and detracting from potential business benefits. Defined efforts to drive GBS maturity are the norm among more experienced and sophisticated GBS users. Traditional generic and transactional outsourcing continues to commoditize. Cloud and client maturity are major drivers for this, especially in IT. Buyers are seeking more platform approaches tailored to specific industry, geographic, and regulatory needs. There is a growing bifurcation between leaders and laggards in the service provider market based on industry and business process experience and diversity of services mix, including cloud and analytics. Source: KPMG 2015 REFM Pulse Survey member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. NDPPS 527556 10
Market overview: Current REFM outsourcing market trends The REFM outsourcing market remains very healthy and continues to grow. Firms are bundling REFM services under a smaller number of service providers, to operate under a coordinated model to further reduce costs, drive consistency, and improve governance, controls, and performance reporting. Reducing costs continues to be the most common reason why organizations outsource REFM services. While service providers capabilities and service offerings continue to improve, most of the REFM services outsourced are tactical as opposed to strategic. Typical end-user organization expectations are that REFM outsourcing will improve their operational model, introduce leading practices, and drive continuous improvement. These expectations are often met, but when they are not, it is often because of the quality of the onsite service delivery team or not working effectively together with the client as one team. Leading end-user organizations have increased their focus on REFM IT systems, reporting, and business intelligence, leveraging their IT systems to coordinate globally and using their data to support the organizations overall business goals. Source: KPMG 2015 REFM Pulse Survey member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. NDPPS 527556 11
One of the more interesting observations was the discrepancy between REFM buyers and service providers when asked about near future outsourcing plans with buyers being much more optimistic than service providers. 2016 KPMG International Cooperative ( KPMG International ), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 527556 12
REFM market characteristics There is a continuing trend among organizations outsourcing REFM services to bundle the management of these efforts and associated service provider relationships; buyers are continuing to cede control of higher-level service management functions to third-party providers in the form of more turnkey outsourcing efforts. There are a variety of topics high on organizations REFM agendas, including reducing cost, improving process performance, improving the workplace to attract talent, and improving sustainability. Buyers are continuing to push sourcing and coordinating new major REFM outsourcing efforts globally, though many buyers continue to manage and coordinate both new and existing outsourcing efforts around geography, business unit, or functional area. Many buyers are including technology in REFM outsourcing deals. Buyers value lower cost, ease of administration and reporting functions. s value efficiency brought by using systems they are familiar with. Both groups value having a single source of data. Source: KPMG 2015 REFM Pulse Survey member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. NDPPS 527556 13
Future REFM outsourcing plans Next 1-2 quarters Next 3-4 quarters 12+ months out 12% 8% Buyers 41% 47% 47% 46% 53% 46% 56% 11% 33% 41% 15% 44% 27% 23% 50% Increased usage of outsourcing No change in usage of outsourcing Decreased usage of outsourcing *Numbers might not add up to 100% due to rounding and multiple selections Source: KPMG 2015 REFM Pulse Survey member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. NDPPS 527556 14
In a business landscape where organizations seek to differentiate themselves, there were several processes and industries that led in demand for REFM outsourcing. 2016 KPMG International Cooperative ( KPMG International ), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 527556 15
Buyers: Current and planned REFM outsourcing levels Workplace services 2% 6% 18% 74% Facilities services 2%8% 27% 63% Transactions/brokerage 10% 2% 4% 54% 29% Lease administration 14% 4% 2% 50% 30% Major project management ($20M+/project) 21% 4% 40% 35% Project management (<$20M/project) 27% 2% 40% 31% Space management 37% 6% 20% 37% Facilities management 45% 4% 27% 24% Real estate and facilities IT 49% 31% 20% Portfolio strategy/planning 63% 63% 2% 31% 31% No plans to outsource Planning to outsource 12+ months out Planning to outsource in next 12 months Currently partially outsource Currently fully outsource 4% *Numbers might not add up to 100% due to rounding and multiple selections. Source: KPMG 2015 REFM Pulse Survey member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. NDPPS 527556 16
The top industries for REFM demand? Banking, pharma, and healthcare 65 % 53 % 44 % Banking, financial services, insurance Pharma/biotech Healthcare 40 % Manufacturing 26 % Energy/utilities, oil and gas 25 % High-tech products and services 22 % Gov t (fed, state, local) education/nonprofit 14 % Real estate 14 % CPG, food and beverage, retail, wholesale 14 % Aerospace/defense Other** *Numbers might not add up to 100% due to rounding and multiple selections ** Other includes: 11% Telecommunications, 11% Bus Svcs/consulting, construction/engineering 10% Automotive, 8% Transportation & Logistics, 8% Entertainment/media, hospitality/travel 6% Chemicals, minerals/natural resources Source: KPMG 2015 REFM Pulse Survey member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. NDPPS 527556 17
When we look at areas of increasing demand by REFM process, three processes lead +76 % +74 % +72 % REFM IT Systems and Reporting Space Management Portfolio Strategy/Planning +70 % Facilities Management +66 % Project Management <$20M+/project) +65 % Workplace Services +61 % Facilities Services +55 % Lease Administration +52 % Major Project Management (>$20M+/project) +48 % Transactions/Brokerage *Numbers might not add up to 100% due to rounding and multiple selections. Source: KPMG 2015 REFM Pulse Survey member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. NDPPS 527556 18
So why have some REFM processes not been outsourced? Strategy, cost, and change. Activities are too strategic in nature Costs would be higher No compelling business case to change Risks are too high Satisfied with current service delivery model 60% 60 % 36% 36 % 41 % 36 % 41% 36% 22 % 22% 49 % 49% 45% 45 % 28 % 28% 43% 43 % 39 % 39% *Numbers might not add up to 100% due to rounding and multiple selections. Source: KPMG 2015 REFM Pulse Survey member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. NDPPS 527556 19
Service delivery model preferences are changing: Data shows us that buyers are moving toward a portfolio-based approach to manage their outsourcing efforts. Bundle individually contracted services, but retain high-level management functions of services Bundle and outsource increasing number of individually contracted services Bundle individually contracted services and outsource key management functions of services Continue to manage multiple services with individual contracts Insource services currently provided by service providers 3.61 3.67 3.62 3.25 3.24 3.29 2.35 2.44 2.23 1.89 1.00 = Significant decrease in preference/demand, 5.00 = Significant increase in preference/demand *Numbers might not add up to 100% due to rounding and multiple selections. Source: KPMG 2015 REFM Pulse Survey member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. NDPPS 527556 20
Deal Tenure Outsourcing deal pricing models and tenure: We see that deal lengths tend to be shorter in the 3-5 year range in the REFM space compared to other functional areas of outsourcing. 3-5 years 1-2 years 5+ years 77% 83% 16% 10% 8% 8% Source: KPMG 2015 REFM Pulse Survey member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. NDPPS 527556 21
Outsourcing deal pricing models and tenure (continued) Pricing Models Performance based contract No response from Buyers 3.60 Management fee at risk 3.36 3.71 Management fee incentives (bonuses) 3.16 3.19 Shared savings 3.27 3.04 Cost-plus contract 3.02 3.39 Fixed price contract 3.00 3.05 Guaranteed savings 2.64 3.02 1.00 = Significant decrease in preference/demand, 5.00 = Significant increase in preference/demand *Numbers might not add up to 100% due to rounding and multiple selections. Source: KPMG 2015 REFM Pulse Survey member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. NDPPS 527556 22
Discrepancies between buyers and providers were not just limited to future plans. When we asked both sides about drivers and challenges, we saw differences, sometimes notable, in buyers and providers perceptions of challenges. 2016 KPMG International Cooperative ( KPMG International ), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 527556 23
As always, there are drivers and challenges to REFM outsourcing efforts Drivers Challenges Cost savings from outsourcing have become table stakes for most buyers, a minimum standard to justify outsourcing. Once that standard is satisfied, end users are looking for more strategic benefits like improving global delivery capabilities and improving process performance. Buyers will use an outsourcing event to improve their operating model by centralizing management of REFM services, consolidating the number of service providers, and accessing process knowledge from those who can bring off the shelf playbooks to manage the work. Buyers cite the quality and fit of service providers, enabling successful governance and transition efforts, and prioritizing competing agenda items as the top challenges to the successful consummation of REFM outsourcing efforts. Providers have different styles and approaches to service delivery, and buyers are looking for a provider that fits their culture. Costs savings and improvements in facilities management service levels are competing with improved space usage and portfolio strategy as top priorities. Service providers highlight inadequate management support and weak change management as top challenges. member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. NDPPS 527556 24
REFM drivers: While reducing operating expenses remains the top driver, being strategic requires firms to go beyond cost alone. 67 % Reduce operating costs (OpEx) 83 % 45 % Improve process performance 29 % 41 % Support business growth/expansion agendas 24 % 41 % Gain economics of scale 23 % 39 % Redirect resources to more strategic activities 30 % *Numbers might not add up to 100% due to rounding and multiple selections. Source: KPMG 2015 REFM Pulse Survey member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. NDPPS 527556 25
REFM challenges: Buyers and service providers are not on the same page. 43 % Retained organization/transition/governance 51 % notable discrepancy 41 % 41 % 33 % Quality/fit of supporting service providers Prioritizing opportunities and different change programs Accounting for/managing the complexity of change efforts 14 % 21 % 29 % 31 % Inadequate executive/management support 53 % *Numbers might not add up to 100% due to rounding and multiple selections. Source: KPMG 2015 REFM Pulse Survey member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. NDPPS 527556 26
How to better prepare for REFM outsourcing 43 % 48 % Better baseline costs 41 % Clarification of roles/responsibilities in-scope, out-of-scope 45 % 41 % Improved service level agreements 15 % 37 % Better governance structure 30 % 35 % Better alignment of strategies/plans 47 % 33 % Working together as one team 48 % *Numbers might not add up to 100% due to rounding and multiple selections. Source: KPMG 2015 REFM Pulse Survey member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. NDPPS 527556 27
So where are we today when we look at pipeline growth, pricing pressure, and focus? 2016 KPMG International Cooperative ( KPMG International ), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 527556 28
Advisors/service providers perspective on market deal characteristics Pipeline growth Pipeline growth expectations remain the same as with the results in 2014 with the majority expecting growth, and with a substantial reduction in the number of providers seeing a reduced pipeline. Pricing pressure Pricing pressure from buyers on these deals is still high, but remains the same as the past year. Pressure is still tempered, to a degree, by buyer risk aversion to failed efforts and provider focus on maintaining their margins. Provider focus Providers continue to focus on growing business and expanding scope in existing accounts as a means to gain higher margin business. This reflects continued consolidation occurring in the REFM market. Overall, slight improvements in profitability and pricing pressure and continued substantial growth expectations indicate a generally good market for service providers. Source: KPMG 2015 REFM Pulse Survey member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved. NDPPS 527556 29
KPMG can help Take advantage of our knowledge and resources and join the conversation For more information, contact Patrice Gilles at 214-498-1553 or e-mail pgilles@kpmg.com Access the recent REFM Outsourcing Pulse Survey Webcast replay here. 2016 KPMG International Cooperative ( KPMG International ), a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm third parties, nor does KPMG International have any such authority to obligate or bind any member firm. All rights reserved. NDPPS 527556 30
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