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Outsourcing of Facilities Management Case Study

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Introduction

All businesses manage their facilities as a way of supporting the business processes. Facilities include offices and commercial premises. Facility management is the process of streamlining efforts to maintain business premises to support and aid a business’s operations. Maintenance of the premises involves the effort of technical and administration staff to keep assets in good physical conditions for better performance.

In today’s business, managers strive to avoid wide error margins that could jeopardize their businesses in the increasingly competitive environments. In an effort to achieve effectiveness and efficiency, they take appropriate strategies that will help minimize costs and still offer good services. The strategies adopted by different businesses differ depending on the nature of competition and services required.

Outsourcing is one such widely adopted strategy in today’s hospitality sector due to the many benefits accrued to the practice. This paper studies use of practice in Hong Kong’s hospitality industry with a deeper analysis of benefits and challenges incurred in adopting the practice. This strategy is intended to increase productivity and returns, while lowering costs and operational risks that can be quite costly.

Background

By outsourcing, the business employs a strategy whereby it gets more for less. A number of countries have become involved in practice with a large number of industry players in the hospitality industry adopting this method in their businesses. It is critical that we understand hoteliers’ motivation for outsourcing as a determinant of business success.

The wide adoption of the practice has not failed to catch researcher’s attention, calling for a number of studies on the trends and viability of the practice. Studies on the practice in the hotel industry have, however, not been intensified. In this study, we shall look at the issue of outsourcing from a corporate perspective.

This is because empirical assessment on the viability of the practice is often done at industrial levels. This will, therefore, provide us with good information for dissemination and analysis, enabling us to draw accurate conclusions.

Outsourcing in the Hotel Industry

There are many ways by which management can outsource services in the hotel industry. Some firms attempt to lower operational costs by laying off employees. This reduces costs in terms of salaries and wages for employees. Some partner with external expertise companies in particular areas of interest. The external companies then perform the services by franchise, contacts, or simple agreements [1]

Another common strategy used in the industry is employing workers in part time. This way, employees with specialized skills are engaged on a temporary basis as they continue to work in their parent companies. Besides, this way the business avoids having to pay fringe benefits to employees as a measure of reducing labour costs [1]

At times, outsourcing is done for maintenance purposes. In such cases, strategies for sourcing include in-sourcing, out-tasking, outsourcing in order to save cost, and outsourcing due to lack of capability. All these options have their strengths and weaknesses and before selecting an option, a clearly established and researched framework has to be instituted to aid selection [2].

Types of Outsourcing

Studies have shown that bigger hotels tend to outsource more than smaller hotels in Hong Kong. This stands at 42% in-house services compared to 52% out-sourced services. Some hotels outsource services fully, partially, or selectively. Partial outsourcing means that specific services are outsourced for specific needs such as cleaning upholstery which is done occasionally.

This method is beneficial as it allows for greater monitoring of quality, at the same time reducing safety risks. It, however brings about confusion among workers, raises security risks due to the short time that the contactors spend at the firm. Besides, the short periods increase dishonesty among workers and lack of consistency in performance [3].

Although not popular this days, selective outsourcing requires that the sourcing firm engages more than one firm in the provision of services. This method is advantageous as the sourcing firm has a choice over the contractors chosen for the job. If one fails or offers poor quality services, he can disqualify the contractor and work will go on by other contractors.

The problem with this kind of outsourcing, however, is that it increases confusion between contractors and in-house staff and among the contactors. In some cases, services and jurisdiction may overlap so that each firm claims or shuns responsibility over some area [4].

Complete or full outsourcing occurs when a firm is contracted for entire provision of services at full time basis. This method saves time for the business, eliminates training costs for in-house staff, and specialized attention to tasks that require such. This method can, on the other hand pose security concerns, poor worker skills, management has less control over services and product, and in-house staff motivation is reduced.

This is because they tend to feel that the contracted staff are infringing into their rightful space. Employees also confuse their loyalties as it is divided up between the sourcing firm and their parent firm. Employees tend to be loyal to whoever pays them, and in this it is the sourcing firm, but their employer is then contractor firm. [5]

Complete sourcing reduces flexibility of operations in the hotel. This is because all services and their details are spelt out in the contract signed. A task that may be related but falls outside the specified tasks will not be performed by the contractors. Such will require adjustment of contract details before performing the task [4]

Need to Outsource

Maintenance of complicated machinery and works are better outsourced. This is because these tasks are too complicated for in-house staff and it would be costly to hire maintenance personnel in the areas. Such maintenance needs are not frequent to deserve a full time employee. Hiring such an employee would, therefore be too costly for the business. In such a case, outsourcing becomes the best option [6]

Cases of licensing also require outsourcing of services, but these have to be done by respective registered experts. These include areas such as escalator installations and fire protection systems. Registered contractors should be contracted on an occasional basis like annually to carry out inventory and upgrade the services. Once again, it would not be feasible to employ such services on a full time basis; they are better outsourced [7]

Other factors to consider includes associated risk of the tasks. If risk is too high, the tasks are better outsourced so that it is passed on to contractors who are experts in the area and are likely to manage and mitigate the risks. Some tasks require use of special tools and equipment. These may be too expensive for the business to purchase. It is, therefore advisable to outsource such tasks to firms that possess the tools and who have specialized knowledge on handling them [7]

Commonly outsourced services in the hotel industry include technical areas such as marble and granite flooring, cleaning of upholstery, chandelier, and glass, and in managing pests [5]

Changes in the Industry

The initial trend was that firms offered their workforce contracts to perform these tasks. However, with the institution of labor friendly laws and legal measures, firms were forced to change the way facilities were managed in their organizations.

They had to stop burdening the employees with loads of maintenance work, which most of them were not trained in. They focused on ways of achieving quality without having to stress their workforce with labour hassles. The quality services are now provided by external parties on a contractual basis [8]

Advantages of Outsourcing

By outsourcing some aspects of business, a business is able to employ extensively its scarce resources in areas it wishes to specialize on, thereby increasing its competence in these areas. A global trend now dictates that organizations come up and stick to concrete and distinct mission, vision, and core values. Because of this, organizations find it necessary to accumulate the few resources available in achieving their core goals in the perfect manner possible.

In-house workers are able to concentrate on other areas such as house keeping, concentrating their energies and resources on them. Services that are secondary to these goals are, therefore, outsourced so that quality is maintained without the organization having to use its resources which are used elsewhere within the organization [6]

In many cases, it has been proven that outsource contractors posses more specialized knowledge and skills in the particular matters than in-house staff. Outsourcing, therefore, enables a business to get quality services more efficiently without putting pressure on the employees.

Contactors are premised to be more efficient in providing technical knowledge and skills, posses appropriate equipment, fast in executing tasks, flexible in carrying out operations, and have sufficient manpower. Provision of these services by employees will require that the business employees a big number of specialized employees who will demand more in terms of salaries, and this is likely to increase the business labour cost in the long run [9]

By outsourcing, associated risk is also transferred to contractors. Some maintenance and repair procedures may be quite risky and expensive to the business. Because most employees lack the specialized expertise needed for such procedures, it is feasible to outsource the tasks to contractors who are more specialized and familiar with the procedures.

During the signing of contract between the two parties, legal aspects of risk and damage are detailed so that the contractor takes responsible for damage in such cases. This way, the firm minimizes costs of maintenance [7]

Disadvantages of Outsourcing

Outsourcing a few operations may not be that costly as the costs are neutralized by better production in the areas that the business specializes in. However, outsourcing entire business operations can be quite costly, overriding strategic expectations.

While a number of businesses have thrived on this strategy, an almost equal number have also failed due to the strategy. Decisions concerning outsourcing need to be carefully made, bearing in mind all factors and expectations. Outsourcing should not be done arbitrarily, but rather with a clearly defined scope and purpose of engaging in the practice [4]

The decision to outsource is arrived at when outsourcing becomes cost effective and more appropriate than in- sourcing. The transaction cost theory can be used to determine cost efficiency where the calculation is not straightforward. The effective sourcing alternative must be lower in cost in all aspects of planning, work transaction, implementation process, and service agreement [1]

Although outsourcers believe that outsourcing guarantees best quality services, it has been found that a number of outsourced contactors do not meet the quality standards. This can negatively and adversely affect the business which spends a lot in services that turnout to be poor, not meeting customers’ expectation. Before outsourcing, therefore management needs to research on contractors and use the very best renowned in the particular services or products [2]

Another challenge inherent with outsourcing is the risk involved and agents taking advantage of the outsourcer. The outsourcer needs to be aware that business people will always tend to pursue self interests at the expense of the consumer, who in this case is the outsourcer. He must, therefore during the process monitor possible opportunities for opportunism by the contractor [10]

Risks that are likely to arise during the transaction should be properly envisioned and apportioned between the outsourcer and contractor fairly. This, if not well articulated in the performance contract can cost the business large sums of money in replacement and repair if the service providers tamper with machinery or premises facilities [10]

Trends in Outsourcing

Flexibility is an emerging trend in the practice of outsourcing in the hospitality industry. This is achieved by using the short-term approach in contracting. This process allows the outsourcer to terminate the contract when he feels necessary at low cost. To avoid this, the outsourcer should seek a contractor with flexible terms of negotiations’ so that adjustments can be made to the contract, modifying it to the outsourcer’s satisfaction [7]

More and more firms are now seeking modern information technology (IT) systems. Large firms do not have integrated IT systems because they were formed by mergers or have not upgraded their systems because of the perceived costs.

IT systems are crucial in the hospitality industry to enable management of inventory, revenue appropriation, to track customers and monitor their activities, and connect with other related industry players such as travel and tourism firms. This is in an effort to offer the customer integrated and complete services [9]

Another trend in today’s outsourcing is that of multi-sourcing. The sourcing firm partners with a number of service providers in specific areas where they are best specialized in. This is rather than sourcing the entire project to a single provider that may t posses all skills required in the project. This enables businesses to obtain optimal expertise services in each area of the project [8]

Conclusion

Outsourcing is an inevitable practice in the hospitality industry. Some services have to be outsourced due to their complicated nature and possible lack of sufficient knowledge by in-house employees. Adoption of the practice is not a haphazard procedure whose decision is arrived at vaguely. Deliberations and critical analysis of the benefits and costs accrued to the practice have to be made before adopting it.

Upcoming managers should know that, at any one point, outsourcing can be both beneficial and costly. A calculation of the costs to be incurred visa vis the benefits to be gained is what determines its adoption. While given services may seem costly to outsource, other benefits such as building and increasing consumer confidence in the firm must be factored in the analysis.

The manager needs to know that outsourcing is not the end of the maintenance process. He has to monitor the process constantly approving the progress made. Unsatisfactory progress should be noted and informed to concerned parties.

References

  1. Yadav I. Hospitality Industry Shifts towards Outsourcing? Express Hospitality. 2011: 34(2): 124-127.
  2. Tsang A. Strategic Dimensions of Maintenance Management. Journal of Quality in Maintenance Engineering. 2010 February 17; 8(1): 7-39.
  3. Char K. An Empirical Study of Maintenance Costs for Hotels in Hong Kong. Journal of Retail and Leisure Property. 2009; 7(3): 35-52.
  4. Lam I, & Han M. A Study of Outsourcing Strategy: A Case Involving the Hotel industry in Shanghai, China. International Journal of Hospitality Management. 2009; 24:41-56.
  5. Okoroh MI, Jones CM, & Ilozor BD. Adding Value to Constructed Facilities: Facilities Management Hospitality Case Study. Journal Performance of Constructed Facilities. 2011; 17(1): 234-35.
  6. Simon EY. Pros and Cons of Hospitality Outsourcing. 2010.
  7. Goolsby K. Trends in Outsourced Business Transformations in 2010.
  8. Goolsby K. Trends in Outsourced Pharmaceutical Services –the Shift to Functional Service Providers. 2010.
  9. Rosenthal BE. How Outsourcing Transformed a Hotel Operations into a Services Company. 2010.
  10. Wathne KH & Heide JB. Opportunism in Inter-Firm Relationships: Forms, Outcomes, and Solutions. Journal of Marketing. 2010; 64(4): 36-51.
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