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Outsourcing management cut costs, adds value.

Quality property management can add significant value to a corporate bottom line.

This "significant value" may mean tens of millions of dollars added to corporate profits per site.

Largely in recognition of this fact, there has been a steady increase in outsourcing, or third party management of properties.

For example, our research shows that 70 percent of the downtown property owners in Philadelphia outsource their facilities/property management today. In 1959 - 33 years ago -only 16 percent of the entire market was managed by third party firms.

This is a trend that we see being repeated throughout the country. In fact, the 90's has seen the momentum towards outsourcing increasing as corporations tend to downsize and seek to reduce costs.

When companies maintain their own facilities staff size tends to grow. Through the 80's when revenues and profits seemed to be on a steady upward curve, corporations anticipated a continued demand for "service" in the property management, and increased their staffs. In most corporate organizations the belief was that "no one could do the job as well as a company employee." Service was measured primarily by response time to, a demand. Excellent service meant speedy response.

This build-up of facility staff size brought with it significant costs. It was estimated earlier by Peter Drucker (as quoted in the Wall St. Journal) that back-of-the-house support costs reached from 10 percent to 40 percent of a company's total cost.

The majority of companies have come to understand these facts today. Corporations are no longer asking if outsourcing will work for them.

Instead they are approaching management firms such as Axiom and asking:

"We may be able to save money, but what happens to the quality of service in our buildings? Will it decrease?"

Then they add: "These are |unique' facilities and require very high-quality service, and What happens to our employees if we outsource - if you manage our property?"

Experience has shown that:

In answer to the first question, the quality of service in virtually any facility can be maintained by an outside property management firm. In fact, outsourcing can be shown to dramatically improve the efficiency and service in most facilities and lower operating costs.

In regard to employees, when assuming the management of a facility, we look at the people on board by function, skill and location. ThiS information is then compared to our staffing models for the building size, with appropriate adjustments made for its function, a corporate headquarters or an R&D facility, for example.

In our operation, a number of the employees are then transferred to different departments, outplaced, or when possible, absorbed by our company. The people who managed the facility before the third-party manager was hired, most often undergo a change in responsibilities.

Facility managers become asset managers. They have new responsibilities, such as acting on behalf of the owners, directing asset performance, budgeting, establishing or maintaining company visibility, and overseeing capital expenditures.

It is important to understand that there is a less obvious, but very real benefit for all companies when they outsource. The companies are able to concentrate on their core competency. They get back to basics and focus their full energy on running their core business lines, those that add value and profit to their bottom line.

The support functions, such as managing their facilities, do not fall into the "core" or profit potential category. But on the other hand, property management is a core competency at Axiom. As professional facility managers we are able to add value to the corporation. For every $1 per square foot in operating/occupancy cost we save, we add $10 per square foot to the investment value of the facility. If we are able to cut operating costs by $1 per square foot then a company that outsourced the services of a million square foot facility, would realize $10 million in increased value.

Furthermore, competent third-party property management will provide new technological advances and innovations to the company's facility operations.

In the Axiom organization, for example, we offer advanced systems to coordinate work for our clients. Work order requests are started and completed by a single customer service representative, rather than having it processed by multi-staff/line positions.

Where managers of in-house support staffs are likely to respond to criticism of job performance by hiring more people, a property management firm must respond by improving the quality of service without increasing costs.

Among the primary ways Axiom helps companies operate more efficiently is by our staff modeling. For example, our staffing model for an 800,000-square-foot facility would include 16 people who report to the facility manager. We have seen as many as 90 people in corporate managed facilities of that size.

It is common for a company to have a gross surplus of in-house people handling facility management. When you compare a staff of 16 to one of 90 people, the economic benefits of outsourcing become very clear.

For the '90s, companies have a choice. They can continue their old practice of building up corporate staffs, or take the advice of Tom Peters:

'Outsource or subcontract everything but your soul."
COPYRIGHT 1992 Hagedorn Publication
No portion of this article can be reproduced without the express written permission from the copyright holder.
Copyright 1992, Gale Group. All rights reserved. Gale Group is a Thomson Corporation Company.

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Author:Rogers, Philip B.
Publication:Real Estate Weekly
Date:Oct 28, 1992
Previous Article:Alexander Summer Co. expands.
Next Article:Quality building management key to success.

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