Kpmg Outsourcing Report 2011

KPMG 2011 Real Estate & Facilities

Management Outsourcing

Pulse Survey

KPMG 2011 Real Estate & Facilities Management (REFM) Outsourcing Pulse Survey - Page 2

Introduction

KPMG LLP (US) and KPMG Holdings Limited (UK) are pleased

to release the findings from the inaugural 2011 global Real

Estate & Facilities Management (REFM) Outsourcing Pulse

survey. The REFM Outsourcing Pulse is the newest addition

to the KPMG Pulse family of surveys. These Pulse surveys

provide insights into trends and projections in end-user

organizations’ usage of shared services, outsourcing and

third-party business and IT services. The learnings from

the REFM Outsourcing Pulse are gleaned from end-user

organizations that are actively exploring or undertaking

REFM outsourcing efforts as well as from leading global REFM

business and IT service providers.

The Pulse survey research program was originally developed by

EquaTerra, a leading sourcing advisory consultancy that KPMG*

acquired in February 2011. They are now part of a broader

family of KPMG Pulse surveys that include the quarterly global

sourcing advisory Pulse, similar surveys focused on specific

geographies such as China, and studies focused on important

market topics such as cloud computing and HR transformation,

and broader business market trending.

Since their inception in 2004, the Pulse surveys have yielded

insightful analyses of current and ongoing market trends

in the use, deployment and delivery of business and IT

services. They capture changes in demand, usage levels,

future adoption plans and related key market indicators.

They highlight the changes, and the direction of change,

in the business and IT service markets as a whole. The surveys

focus on where the market is going and how that direction is

changing—or not—compared to prior quarters and years.

The global REFM Outsourcing Pulse survey will be conducted

on an annual basis. Topics explored in this first edition of the

REFM Outsourcing Pulse include:

Current REFM outsourcing market trends and conditions •

Deal drivers, challenges and service delivery models•

Global REFM sourcing trends•

REFM outsourcing deal attributes.•

Demographics

Over 200 respondents were surveyed in this market study.

One-third of respondents were from end-user buyer

organizations currently utilizing or in the active process of

undertaking REFM outsourcing. Two-thirds of respondents

were from third-party providers of outsourcing and related

REFM services. A small portion of the service provider sample

(less than five percent) was comprised of respondents from

law firms advising end-user organizations on REFM sourcing

efforts. The majority of both buyers and service providers

are focused on the U.S. market, with 30 percent each

operating globally and the balance operating in the EMEA

and Asia Pacific regions. Figure 1 illustrates the geographic

distribution of the buyer and service provider respondent

base. All major REFM service providers are represented in the

results, including CB Richard Ellis Group, Cushman & Wakefield,

Johnson Controls and Jones Lang LaSalle.

*KPMG LLP (US), KPMG Holdings Limited (UK) and KPMG

International have acquired the business and subsidiaries of

advisory firm EquaTerra, Inc.

http://www.equaterra.com/pulse

http://www.equaterra.com/EquaTerra-is-now-KPMG-2159C514.html?LayoutID=32

http://www.equaterra.com/2Q11-KPMG-Sourcing-Advisory-Global-Pulse-Survey-2298C6.html?LayoutID=127

http://www.equaterra.com/2Q11-KPMG-Sourcing-Advisory-Global-Pulse-Survey-2298C6.html?LayoutID=127

http://www.kpmg.com/cn/en/IssuesAndInsights/ArticlesPublications/Pages/Shared-Services-and-Outsourcing-201007.aspx

http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Press-releases/Pages/Pulse-KPMG-Global-Business-Outlook-Survey-Winter-2010.aspx


3

5

53 9%

7

3

End-user organizations (1/3 total sample)

REFM service providers (2/3 total sample)

Global Americas EMEA AsiaPac

Figure 1

Questions or comments regarding this report and the KPMG

Pulse survey program should be directed to Stan Lepeak,

Director of KPMG Sourcing Advisory Global Research,

at [email protected] or +1 203-458-0677. The KPMG

executive sponsors of the REFM Outsourcing Pulse research

program are:

Ron Walker, Principal, KPMG REFM Sourcing Advisory Practice,

at [email protected] or +1 760-703-2076

Doug Burr, Senior Manager, KPMG REFM Sourcing Advisory

Practice, at [email protected] or +1 925-895-4747

Steve Silen, Senior Manager, KPMG REFM Sourcing Advisory

Practice, at [email protected] or +1 949-885-5431

Survey Respondent Demographics

http://equaterra.com/fw/main/Stan-Lepeak-1074C514.html

mailto:slepeak%40kpmg.com?subject=


Management Summary

framework to design, build, deploy and manage service

delivery globally. The traditional REFM model was to perform

all activities using internal resources. Over time, it has evolved

to include: out-tasking, outsourcing (bundling of services),

integrated facilities management and global integrated

facilities management, an REFM instantiation of the general

EGE framework. Outsourcing of REFM services is a journey,

and not all end-user organizations are in the same place.

Some end-user organizations are considering outsourcing

REFM services for the first time while others that have already

outsourced are looking for opportunities to outsource more

sites and services, to consolidate what has been outsourced

under fewer providers or to restructure the pricing of their

current contracts to deliver additional savings. Most end-

user organizations still prefer to outsource REFM tactical

services and have in-house staff perform most of the strategic

activities. However, a growing number of service providers

are demonstrating advanced capabilities that enable them to

move up the value chain in terms of services offered. They are

becoming better able to integrate into existing business

operations to provide more high-value, strategic services

(e.g., portfolio strategy planning).

The business climate in 2011 remains challenging, and end-

user organizations are under pressure to reduce real estate

and facilities management costs and improve their process

performance and their global delivery and operating models.

For many organizations, REFM costs are the second largest

cost behind personnel. So managing these costs and driving

continuous improvement is essential, particularly in today’s

environment of economic uncertainty. Thus, outsourcing of

REFM services has become a compelling solution for many

firms that can potentially reap annual savings of seven percent

to 20 percent off of preoutsourcing levels (based on EquaTerra

and KPMG member firm client engagement experiences).

The growth of REFM outsourcing is part of a larger trend

of how organizations deliver and manage core operating

functions (e.g., REFM, IT, F&A, HR, customer care) globally.

The means through which organizations deliver and manage

these services have changed significantly over the past

25 years. Leading enterprises employ a broad range of service

delivery models and techniques, including alternative delivery

models such as shared services centers (SSCs), offshore

captive operations and IT and business process outsourcing

(ITO/BPO). KPMG firms have developed a model labeled

the extended global enterprise (EGE) that provides a

http://www.kpmg.com/Global/en/IssuesAndInsights/ArticlesPublications/Pages/The-extended-global-enterprise-advantage.aspx


Evolution of Facilities Management & Real Estate Sourcing

Pre-1980s ’80s to mid-’90s

Mid-’90s to 2000

Early 2000s to mid-2000s

Mid-2000s and onward

Most, if not all, activities are performed in-house.

Self-perform

Low-tech services such as cleaning, security, food services and landscaping are individually sourced by different locations to external providers.

Out-tasking

A combination of low-tech and high-tech services—such as electrical, mechanical and environmental—are outsourced in service bundles.

Outsourcing

Facilities management and real estate services are outsourced to a single service provider, which manages subcontractors.

Integrated facilities management

Facilities management and real estate services are organizationally aligned with other support services—such as finance, HR, procurement and IT—and outsourced in a global bundle across business units.Bundled business process outsourcing (BPO) across multiple functions is emerging as an option.

Global integrated business services

Most end-user organizations today, especially larger firms

in western markets, have already undertaken some level

of REFM outsourcing, even if it has been to outsource a

few services (e.g., janitorial, cafeteria and amenities services).

Self-performing REFM work remains more common in

emerging markets where the capabilities of the marketplace

may not be mature enough to outsource or at small offices

in all markets where most of the services are provided by the

landlord. While many end-user organizations are operating

today in the outsourcing model (bundling of services),

the most innovative firms are operating under an integrated

facilities management model or a global integrated business

services model. Although many end-user organizations aspire

to operate under a global outsourcing model, most of them

operate under a local or regional model because the global

provider market isn’t mature enough to meet their needs.

Similarly, leading practice is to perform governance across

the portfolio wherever possible. This drives more consistency,

shares leading practices, increases ability to leverage spend

and reduces management complexity.

Where an end-user organization should ideally be in its REFM

outsourcing continuum requires a careful evaluation of

the performance of its current operations, business needs/

challenges, the marketplace capabilities and the benefits

and risks of making a change. There is no right answer,

but status quo is not prudent. More sophisticated buyers

understand how their operating model compares to their

peer group and have developed an REFM sourcing strategy

to map the way forward and gain a competitive advantage.

They have engaged the right players from within and outside

their organization to create a credible strategy and have

implemented an appropriate change management program

to ensure a smooth transition. They have also evaluated their

current practices, benchmarked them, implemented process

improvements and driven consistency across their portfolio,

where appropriate. Bottom line – smart buyers are carefully

planning their ongoing REFM outsourcing journey and are

focused on executing on this strategy.


Here are the key findings from the KPMG 2011 Global REFM Pulse Survey:

Global demand for REFM outsourcing remains strong and •

continues to grow. Nearly all polled buyers undertaking

REFM outsourcing expect to maintain or increase

outsourcing usage in the short-to-medium term.

REFM service providers cite current growth in their

outsourcing business sales pipelines and expect that

growth to accelerate in 2012. The greatest growth

expectations came from REFM providers operating

globally and supporting global outsourcing efforts.

The primary focus areas for REFM outsourcing among •

buyers are workplace services, facilities services, and

transaction and brokerage services. Service providers

see near term increased growth opportunities in these

areas, as well as in facilities management, and even

in more strategic areas such as portfolio strategy and

planning. From an overall topical REFM perspective,

the top themes buyers will focus on over the coming

year are energy management, cost reduction efforts,

and addressing a sustainability and corporate social

responsibility agenda. The key is to determine how,

when and where REFM outsourcing can help address

these issues.

A dominant theme in the REFM outsourcing market today •

is consolidation. REFM outsourcing buyers are aggregating

existing outsourcing efforts spread across multiple service

providers, geographies, contracts and functional areas.

This plays to the strengths of the larger, more global and

diversified service providers. Buyers are striving to bundle

together more existing and new REFM deals and, while

typically they want to maintain overall management

control of these services bundles, they are increasingly

open to ceding more of that management control to the

providers performing the underlying services.

Reducing operating costs is the top driver for •

organizations undertaking REFM outsourcing, but buyers

also seek a variety of other benefits above and beyond

cutting costs. These include improved REFM process

performance, improved financial flexibility, creating

a more variable cost model, and supporting global

business growth and expansion agendas, especially

into emerging markets. As a result, a key challenge is

to balance cost cutting and process improvement and

related agendas and needs.

Buyers continue to face many challenges to successfully •

undertake new REFM outsourcing efforts and

consolidating efforts already in flight, especially when

pursued across multiple functional areas and on a global

scale. The top challenges cited include prioritizing

the broad range and number of REFM outsourcing

opportunities and related change programs, addressing

the economic uncertainly that makes short-to-medium

term planning difficult, and addressing challenges related

to retained organization, relationship management and

outsourcing governance issues.

The globalization of the REFM service market tends •

to follow the globalization of buyer organizations’

geographic footprint that these REFM services support.

As buyers expand into emerging markets, for example,

the demand for outsourced REFM support services

in those markets grows. So while in contrast to most

ITO and horizontal BPO efforts, REFM outsourcing is

not so much about shipping services back to the west

from lower-cost offshore markets. This being said,

REFM buyers still need to improve global sourcing

skills, especially as they relate to managing multiple

efforts across multiple providers and geographies,

consolidating efforts to gain economies of scale, and

better accounting for and dealing with regulatory, data

and intellectual property risks and challenges. The key

to buyer success in global sourcing is to define, deploy

and optimize the mix of global service delivery models

employed as part of the adoption of an extended global

enterprise model.


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Table of Contents

IntroductionI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2Survey Respondent DemographicsFigure 1 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3

Management SummaryII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4

REFM Outsourcing Pulse Highlights: Buyer OrganizationsIII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

REFM Outsourcing Pulse Highlights: Third-Party Service ProvidersIV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8

Current REFM Outsourcing Usage and Market Demand ConditionsV. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9

Current and Planned REFM Outsourcing Usage Trends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Buyers: Current/Planned REFM Outsourcing LevelsFigure 2 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9Buyers: Future REFM Usage PlansFigure 3 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10Service Providers: Pipeline GrowthFigure 4 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11Service Providers: Demand ProjectionsFigure 5 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11Service Providers: Demand by Process AreasFigure 6 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13Service Providers: Demand by IndustryFigure 7 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14Winter 2010 Global Business Outlook: Figure 8 – Outsourcing Plans 12 Months Forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .15

Top REFM Outsourcing Drivers, Challenges, and Service Delivery Model Approaches . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16Top REFM Outsourcing DriversFigure 9 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .17Top REFM Outsourcing ChallengesFigure 10 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .18Change in Service Delivery Model PreferencesFigure 11 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20Changes to Buyers Interests/Preferences Relative to Key REFM TopicsFigure 12 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21Future Space Utilization PlansFigure 13 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22REFM Figure 14 – Reporting Systems Needs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

Update on Global SourcingVI. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .24

Buyer Global Sourcing Preferences and Demand Levels . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24Buyer Global Sourcing Interests/PreferencesFigure 15 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24

Buyer Global Sourcing Maturity and Sophistication . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25Buyer Global Sourcing CapabilitiesFigure 16 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26Management and Governance of Existing Global REFM EffortsFigure 17 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27Management and Governance of New Global REFM Efforts Figure 18 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Current Market Deal Characteristics: Service Providers’ PerspectivesVII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .29

Pricing Competitiveness . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29Service Providers: Pricing CompetitivenessFigure 19 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29

Contract Profitability and Ability to Increase Scope . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30Service Providers: Contract Profitability, New and Existing DealsFigure 20 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .31Service Providers: Ability to Increase Deal ScopeFigure 21 – . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32

Where to Learn More about Global Sourcing Market TrendsVIII. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .33

Service Provider Performance and Satisfaction Market Studies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

ConclusionsIX. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .34


REFM Outsourcing Pulse Highlights: Buyer Organizations

Top REFM Processes OutsourcedWorkplace services1. Facilities services2. Transaction/brokerage services3.

Future REFM Outsourcing PlansNext 1 – 2 quarters: 50% plan to increase outsourcing• Next 3 – 4 quarters: 36% plan to increase outsourcing• 12+ months out: 44% plan to increase outsourcing •

Top REFM Outsourcing DriversReduce operating costs1. Improve process performance2. Improve financial flexibility3.

Top REFM Outsourcing ChallengesPrioritizing opportunities1. Economic uncertainty 2. Retained organization, transition, and governance challenges3.

Top REFM Focus Areas Next 12 MonthsEnergy management1. Cost reduction 2. Sustainability3.

REFM Outsourcing Pulse Highlights: Third-Party Service Providers

Deal PipelineFifty-eight percent of providers cite pipeline growth over last 1 – 2 quarters; 41 percent cite no change

Future REFM Outsourcing DemandNext 1 – 2 quarters: 21% cite demand growth• Next 3 – 4 quarters: 52% cite demand growth• 12+ months out: 72% cite demand growth•

Top REFM Process Demand Growth AreasFacilities management 1. Portfolio strategy and planning2. Space management 3.

Top Industries for DemandBanking, Financial Services & Insurance (BFSI)1. Healthcare2. Pharma/Biotech3.

Top REFM Outsourcing DriversReduce operating costs1. Improve global delivery and operating models2. Redirect resources to more strategic activities3.

Top REFM Outsourcing ChallengesInadequate change management capabilities1. Inadequate management support2. Retained organization, transition, and governance challenges3.

Top REFM Focus Areas Next 12 MonthsEnergy management1. Cost reduction 2. Improving the workplace to attract/retain talent3.


Current REFM Outsourcing Usage and Market Demand Conditions

Current and Planned REFM Outsourcing Usage Trends

KPMG LLP (US) and KPMG Holdings Limited (UK) polled users of REFM outsourcing

on what REFM process areas they have already outsourced, plan to outsource or

have no plans to outsource in the foreseeable future (see Figure 2). It is important

to note that this study surveyed organizations that have already undertaken or are

actively planning to undertake REFM outsourcing, so the levels cited below are not

representative of the market as a whole, but rather of organizations that are already

actively engaged in REFM outsourcing.

The most commonly outsourced REFM process area by firms that have •

undertaken REFM outsourcing was workplace services. This includes activities

such as janitorial, cafeteria and amenities services. Sixty percent of respondent

organizations have already fully outsourced workplace services, 27 percent

have partially outsourced them and just seven percent have no plans to

outsource this type of work.

The second most frequently outsourced area of REFM services was facilities •

(e.g., HVAC, electrical, mechanical, building repair). These activities were fully or

partially outsourced by 85 percent of survey respondents with just 11 percent

having no plans to outsource these activities.

REFM portfolio strategy and planning was the area least often outsourced, •

with just 22 percent of respondents having partially outsourced this more

strategic work.

Buyers: Current/Planned REFM Outsourcing Levels

11%

16%

20%

24%

26%

33%

46%

48%

60%

22%

32%

43%

50%

47%

33%

28%

30%

37%

27%

4%

5%

2%

4%

2%7%

7%

4%

2%

2%

2%

5%

2%

2%

4%

2%

2%

2%

4%

72%

48%

36%

24%

22%

33%

30%

20%

11%

7%

0% 20% 40% 60% 80% 100%

Portfolio strategy/planning

Real estate and facilities IT

Space management

Project management (<$20M/project)

Facilities management

Major project management ($20M+/project)

Lease administration

Transactions/brokerage

Facilities services

Workplace services

Currently fully outsource Currently partially outsource

Planning to outsource in next 12 months Planning to outsource 12+ months out

No plans to outsource

Figure 2


Buyers were next asked about their near-term plans for additional usage of REFM

outsourcing (see Figure 3). One-half of respondents plan to increase REFM outsourcing

levels over the next one to two quarters, with just six percent planning to decrease

usage. The number of buyers planning to outsource more REFM services over the next

three to four quarters and 12 months out declined somewhat, to 36 and 44 percent,

respectively, though overall it is clear the market is in a growth mode. Interestingly,

REFM service providers were less bullish on short term market growth but more

positive on longer-term growth projections (see Figure 5 below).

Buyers: Future REFM Usage Plans

Q 4 - Buyers: Future RE M Outso rcing Us ge Pla

6%

7%

44%

64%

48%

50%

36%

44%

0% 20% 40% 60% 80% 100%

Next 1-2 quarters

Next 3-4 quarters

12+ months out

Decreased usage No change in usage Increased usage

Figure 3

The other dimension of the KPMG REFM Outsourcing Pulse survey is gathering

input from the sell-side of REFM services on market demand and deal trends,

characteristics and future expectations. To do this, KPMG polled leading global

REFM service providers on the current and expected growth levels in their pipelines

for services deals. Service providers polled in the inaugural REFM Pulse were bullish

regarding new outsourcing deal pipeline growth projections.

Fifty-eight percent of service providers cited pipeline growth over the past one to

two quarters, while just one percent of service providers polled indicated pipeline

growth had contracted (see Figure 4). It is important to note that the Pulse surveys

measure change in pipeline growth levels, not absolute pipeline size or revenue levels.

REFM service providers were next asked about their projections on buyer demand for

REFM outsourcing over the next 12 months (see Figure 5). Just 21 percent of service

providers expected demand levels to increase over the next one to two quarters,

while an equal number expected demand levels to decrease. This is in contrast

to much more aggressive numbers cited above by buyers. Part of the difference

is likely due to estimations of when new business will hit the market and go into

service provider pipelines (buyer projections) and when that business will actually

consummate into new deals (service provider projections). The number of service

providers expecting REFM outsourcing demand levels to grow increased for both


three to four quarters and 12+ months out. Higher longer-term demand projections

from service providers were also tied to expectations for an improving economy

in 2012 and less economic uncertainty among buyer organizations, a factor cited

as slowing deal flow. Market events occurring as we put this document together

(including the equity market crashes of early August 2011) br ng this into question.

Service Providers: Pipeline Growth

Q4 - Service Prov ders: ipeline Grow h

1%

41%

58%

Down relative to last 1-2 quarters

About the same

Up relative to last 1-2 quarters

Figure 4

Service Providers: Demand Projections

21%

11%

12%

59%

37%

16%

21%

52%

72%

Next 1-2 quarters

Next 3-4 quarters

12+ months out

Demand will decrease Demand will remain the same Demand will increase

Figure 5

2011 has been a very challenging year for the REFM service providers. While their

business continues to grow, the marketplace remains very competitive. Buyers are

being more aggressive with their pricing demands. Rather than renewing contracts,

satisfied buyers are increasingly going to the market for competitive bids. There is

more demand on service providers to reduce their pricing (e.g., management fee)


and to deliver additional cost savings. Also, some buyers are trying to shift more risk

to the service providers, have guaranteed savings or, at a minimum, create more

shared risk. Service providers are being increasingly asked to demonstrate more

value in the energy management and sustainability arena. Buyers want service

providers to have good site data, technology and systems to enhance their ability to

monitor performance (cost and service) and make data-driven decisions. Buyers with

large portfolios want service providers to have the flexibility, scope and scale to grow

or shrink geographically with them when their business needs change.

To some degree, buyers are asking their existing service providers to continually

demonstrate the value they can add today and tomorrow as opposed to giving

them a free pass based on what they have done before. It has been KPMG’s

experience that service providers with the right talent, combined with strong

innovation, leading practices and continuous improvement programs, are the most

successful in meeting this need.

There are many players in the REFM marketplace and careful consideration of each

service provider’s strengths and weaknesses is essential. A good approach is for

buyers to assess their situation, consider the solutions that the market can offer,

and then determine what level of integration makes the most sense for their firm.

Don’t force fit a solution that the marketplace cannot support (e.g., having a provider

be responsible for a service that is not a core competency or operate in a region

where it does not have an appropriate presence). A formal business process should

be established and followed to ensure that the buyer’s requirements are clearly

defined and understood, and the right service provider/s are chosen. Buyers that do

this well will achieve the best results.

Digging into the service provider expectations for increased REFM outsourcing

demand going forward, providers were next polled on what they see are the REFM

process areas where the demand for outsourcing is increasing (see Figure 6).

Seventy-five percent of service providers cited increased demand for •

facilities management services (e.g., management of facilities services,

workplace services, property management), with no providers expecting

demand for these services to decline going forward.

In contrast to buyers polled, service providers identified portfolio strategy and •

planning services as the next largest area of increased demand. While some

of the difference is attributable to the different assumption on the degree of

outsourcing of these activities (e.g., full, partial, minimal), it is likely that service

providers are overstating how much actual outsourcing work is available related

to these services, and providers often highlight their movement into these more

strategic activities even if the volume of work outsourced is not significant.


The process area cited with the greatest potential for declines in demand, •

or at least the slowest growth, was for major project management services,

defined as projects over $20 million in service fees. This is not surprising given

the slow growth of major REFM projects by buyers in the market today due to

current economic conditions and uncertainties.

Service Providers: Demand by Process AreasQ5 - Service Pro iders: Deman

20%

2%8%

7%

7%

4%

2%

3%

45%

51%

42%

42%

41%

39%

35%

33%

31%

25%

36%

47%

50%

51%

52%

57%

65%

65%

66%

75%

Major project management ($20M+/project)

Workplace services

Transactions/brokerage

Real estate and facilities IT

Project management (<$20M/project)


Facilities services

Space management

Portfolio strategy/planning

Facilities management

Declining Flat Increasing

Figure 6

Service providers were next polled on demand levels by vertical industry and industry

group. Banking, financial services and insurance (BFSI) was clearly the top industry

group, cited by 65 percent of service providers (see Figure 7). Healthcare was second,

cited by 45 percent of service providers, while pharmaceuticals/biotech ranked third,

selected by 39 percent of service providers. Across all geographies represented,

BFSI was the strongest market segment, and there were also consistent demand

levels cited for pharmaceuticals/biotech. Healthcare ranked higher in the Americas,

and manufacturing higher in EMEA. Among buyer organizations participating in this

study, BFSI, manufacturing, and pharmaceuticals/biotech were the top three industry

groups represented. This distribution is a direction indicator of market demand but

less authoritative than the direct service provider demand assessments.


Service Providers: Demand by Industry

7%8%9%10%11%12%13%13%

20%24%24%25%

28%39%

45%65%

0% 20% 40% 60% 80% 100%

Aerospace/DefenseAutomotive

Entertainment/Media, Hospitality/TravelChemicals, Minerals/Nat. Res.

Transportation & LogisticsTelco

Bus Svcs/Consulting, Construction/Eng.Real Estate

CPG, Food & Bev., Retail, WholesaleGov't, Education/Non-Profit

High Tech Products/SvcsManufacturing

Energy/Utilities, Oil & GasPharma/Biotech

HealthcareBFSI

Figure 7

While overall market demand growth for outsourcing remains positive, trends in REFM

outsourcing are somewhat different from those in other areas of outsourcing, such as

with ITO or back-office business processes (e.g., HR, F&A). KPMG research and client

experience finds that buyers are not as aggressive at pursuing ITO and horizontal BPO

deals as in the past, nor has the pace or size of new outsourcing deals picked up as

much in 2011 as was predicted by some service providers and market pundits.

Growth patterns have not followed the path they did when the global economy

was coming out of the last recession in the 2003–2004 time frame, a period when

both BPO and offshore outsourcing growth was significant. Specific to the REFM

outsourcing market, buyers continue to add to often already significant outsourcing

portfolios, but are also focused on consolidating portfolios that are frequently

fragmented geographically, across many providers and many separate contracts.

Results from the Winter 2010 edition of the KPMG Global Business Outlook

Survey illustrate the trending in overall outsourcing demand. The Global Business

Outlook Survey is a broad-based study of key global business indicators and another

member of the KPMG Pulse family of market research studies. Figure 8 shows buyer

sentiment on outsourcing trending among the 6,000+ survey respondents.

Sixty-four percent of respondents indicate that their organizations will be doing

the same level of outsourcing 12 months forward as at the time of survey,

while 13 percent indicate outsourcing levels will increase. These totals are roughly in

line with results from the past four quarters, which indicate that while the market is

still growing, the pace is more measured than it has been in the past.

http://www.kpmg.com/Global/en/WhatWeDo/Special-Interests/Business-outlook-survey/Winter-2010/Pages/default.aspx

http://www.kpmg.com/Global/en/WhatWeDo/Special-Interests/Business-outlook-survey/Winter-2010/Pages/default.aspx


Winter 2010 Global Business Outlook: Outsourcing Plans 12 Months Forward

4

% 65

8

% 7 4

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

Oct 09 Feb 10 Jun 10 Oct 10 Feb 11

% Don't know

% Lower

% Same

% Higher

Figure 8


Top REFM Outsourcing Drivers, Challenges, and Service Delivery Model Approaches

There are a variety of factors that drive organizations to undertake REFM outsourcing

just as there are an increasingly broad array of benefits they seek to gain from their

efforts. While outsourcing has always been about reducing costs, this goal is not

as monolithic as is often perceived in the market. As outsourcing buyers become

more sophisticated, so do the benefits they seek from outsourcing. Reducing costs

is a base level goal for buyers and a base prerequisite deliverable for providers

competing for the business. But the ultimate benefits from outsourcing and

differentiators for service providers are the benefits derived or provided above

and beyond cost reduction. The key for buyers defining outsourcing goals is to

ensure that their scope and level are practical and achievable given the nature of

the outsourcing effort and in the context of buyers’ own outsourcing skills and

capabilities.

KPMG polled both buyers and service providers on what they see as the top drivers

for REFM outsourcing in the market today. While reducing operating costs is clearly

the top driver, results highlight the broad mix of goals organizations have for their

REFM outsourcing efforts.

Both buyers and service providers identified • reduce operating costs as the top

driver (see Figure 9). There was consensus among service providers across all

major geographies on the prevalence of cost reduction as a driver.

The second most common driver cited by buyers (41 percent) was • improve the

performance of REFM processes. This benefit was identified by a lower number

of service providers at 32 percent. The benefit ranked second by service

providers (45 percent) was improve global delivery and operating models.

Thirty-three percent of buyers cited this goal. There was general consensus on

most responses from service providers across geographies, though providers

in Asia Pacific were much more likely to cite support business growth and

expansion agendas as an REFM outsourcing driver, and those operating in the

Americas were more likely to cite gain economies of scale.


Top REFM Outsourcing Drivers

0% 20% 40% 60% 80% 100%

No specific reasons/many competing reasons

Gain access to external skills/talent/resources

Gain economies of scale

Reduce future investment costs (CapEx)

Redirect resources to more strategic activities

Improve global delivery & operating models

Support business growth/expansion agendas

Improve financial flexibility/create more variable cost model

Improve process performance

Reduce operating costs (OpEx)

Service Providers Buyers

Figure 9

A variety of confluent factors can combine to complicate, slow, and, in some cases,

stop an organization’s outsourcing efforts. Whether or not it can overcome these

challenges depends on a variety of factors including its ability to identify and address

them as early in the process as possible. As outsourcing efforts become more

complex, far-reaching and global in nature, the challenges to deal consummation

grow. The key point is for buyers to identify challenges early, and then work to

address and overcome them, if possible, after determining they are legitimate

impediments to going forward with a major change effort.

KPMG polled buyers and third-party REFM service providers to identify the

current most common challenges to successful REFM outsourcing efforts

(see Figure 10). There were some differences of opinion between buyers and

service providers on these challenges, and no one challenge was viewed as

predominant among buyer respondents.

Prioritizing opportunities and different change programs and economic •

uncertainty and inability to plan medium/long term were the top challenges

cited equally by 33 percent of buyer organizations. These were followed

closely by several other challenges including retained organization, transition

and governance challenges (31 percent of buyers) and inadequate change

management capabilities (27 percent). Highlighting a general market

consensus on the value of REFM outsourcing, fewer than 10 percent of buyers

identified inadequate business case as a challenge.


Service providers exhibited different opinions on the most common challenges •

to REFM outsourcing. While a similar percentage of providers as buyers

indentified prioritizing opportunities as a challenge, the top challenge cited by

over 40 percent of providers was inadequate change management capabilities.

This was followed by inadequate executive and management support for REFM

outsourcing, selected by 38 percent of service providers. Service providers

were more likely (20 percent) to cite inadequate business case as a challenge.

Service providers operating in Asia Pacific were the most likely to cite retained

organization, transition and governance as a challenge, but interestingly,

were less likely to cite inadequate change management, while providers

operating globally and supporting larger, more global deals were the most

likely to identify this challenge.

Top REFM Outsourcing Challenges

0% 20% 40% 60%

Inadequate business case

Costs to do the deal

Inadequate executive/mgmt support

Compliance and reg. challenges/restrictions

External bus. event (e.g., new management, M&A)

Accounting for/managing complexity of change efforts

Inadequate change mgmt capabilities

Quality/fit of supporting service providers

Retained org./transition/gov. challenges

Econ. uncertainty/inability to plan med /long term

Prioritizing opportunities & dif. change programs


Figure 10

Overall, challenges with change management, conducting a successful transition,

interfacing with the retained organization and ongoing outsourcing governance

are the areas and activities that are often identified as the weak links in outsourcing

efforts and the root causes of many outsourcing problems. The 3Q10 EquaTerra

Global Pulse survey did a deeper dive into issues and challenges related to

outsourcing transitions in particular. In those research findings, there was consensus

that a good transition effort is key to the long-term success of an outsourcing

engagement. The key to a successful transition is adequate, skilled staff and

resources to undertake it. While the need for these resources is typically recognized

by outsourcing buyers, getting them into the field can prove difficult, especially in

tight economic times. For example, some providers are expressing concerns over an

increasing number of buyers reticent to adequately fund and budget for transition,

demanding a low-cost approach up-front, but then being disappointed

http://www.equaterra.com/Library/By-Topic/3Q10-EquaTerra-Advisor-and-Service-Provider-Pulse-Survey-Results-1973C1030.html?LayoutID=28

http://www.equaterra.com/Library/By-Topic/3Q10-EquaTerra-Advisor-and-Service-Provider-Pulse-Survey-Results-1973C1030.html?LayoutID=28


with receiving a low-cost deliverable. This is an important challenge that buyers and

service providers must reconcile.

There are different approaches buyers can use to address the challenges associated

with successfully consummating outsourcing efforts. The most important is to

identify up-front where they exist, and prioritize working through them. In some cases

this involves employing more resources, in a more structured approach, to address a

challenge such as outsourcing governance concerns or lack of management support.

In other situations it may involve modifying the scope of an outsourcing effort,

for example, by scaling back the aggressiveness or timing of an effort to make change

management challenges more manageable. Regardless, a rigorous and proactive

approach to overcoming these challenges is the key.

Often the delivery and governance models employed by a user of REFM outsourcing

contribute to the success or lack thereof in achieving the benefits sought from

the effort. The models that worked best, or at least worked when organizations’

outsourcing efforts and ambitions were more modest and regional in nature,

for example, will often break down and prove inadequate as outsourcing efforts

expand in terms of process and geographic scope. This is especially the case with REFM

outsourcing.

KPMG polled REFM outsourcing buyers and providers on changes to demand and

preferences for a range of outsourcing delivery and management model options.

The emphasis was on to what degree were buyers moving toward a more holistic

and integrated management model across the totality of their REFM outsourcing

efforts. The supposition tested is that as buyers become more sophisticated and

their outsourcing efforts more complex, they will move toward a more portfolio-

based approach to managing their outsourcing efforts. Respondents ranked changes

in service delivery model preference on a one to five scale, where one represents

significant decrease in preference or demand and five represents significant increase

in preference or demand. (see Figure 11).

There was general consensus between buyers and service providers on •

the direction of change in demand for various REFM sourcing models.

Scored highest by buyers at 3.27 on the one to five scale was bundle increasing

number of individually contracted services, but retain internal control over

high-level management functions of services. Service providers scored this

approach even higher at 3.57. Ranked a close second by buyers at 3.23 was

bundle and outsource increasing number of individually contracted services,

and outsource key management functions of services in a model such as

Integrated Facilities Management (IFM), including transfer of personnel to

provider. Providers ranked this approach at 3.87. These results support the

trend toward more bundling of REFM deals, as well as the growing acceptance

among buyers to have service providers perform key management functions

over those outsourced activities.


Ranking on the lower end of the scale were trends of • continuing to manage

multiple services with individual contracts and reversing REFM outsourcing

investments by insourcing services currently provided by service providers.

Change in Service Delivery Model Preferences e

1.00 2.00 3.00 4.00 5.00

Continue to manage multiple services with individual contracts

Insource services currently provided by service providers

Bundle individually contracted svcs & outsource key mgmt functions of svcs

Bundle & outsource increasing number of individually contracted svcs, and outsource key

mgmt functions of svcs

Bundle individually contracted svcs, but retain high-level mgmt functions of svcs

1=Significant decrease in preference/demand, 5=Significant increase in preference/demand


Figure 11

Additional REFM Market Trending

The Pulse survey assessed market trends in several other areas of the REFM

marketplace. The first focus was on how buyers’ interest levels or preferences toward

six dimensions of REFM are expected to change over the coming year (see Figure 12).

Responses were given using a one to five scale, where one represents significant

decrease in preference or demand and five represents significant increase in

preference or demand.

The top ranked theme according to buyers scoring a 4.0 on the five point scale •

was energy management. This topic also received top ranking by REFM service

providers. Overall, there was consensus between buyers and service providers

across most of the six topical areas.

The • cost reduction theme came in a close second and the highly visible trend

and theme of sustainability and corporate responsibility was ranked third by

buyers and fourth by service providers. Overall, there was a close clustering of

scores for all themes and topics highlighting the collective importance of all

of the topics to REFM services buyers. There were no major differences in

scores from providers from different geographies, though providers in Asia

Pacific tended to rank all themes a bit higher than peers in other regions.


Changes to Buyers Interests/Preferences Relative to Key REFM Topics

Rela ive to Key REFM Topic

1.00 2.00 3.00 4.00 5.00

Space reduction

Partnering/supporting internal customers

Improving the workplace to attract/retain talent

Sustainability and corp. social responsibility

Cost reduction

Energy management

1=Significant decrease in preference/demand, 5=Significant increase in preference/demand


Figure 12

The survey next assessed buyer organizations’ future plans relative to the use of office

space. This topic was addressed straightforwardly by asking respondents if they or their

clients increase space utilized over the coming year, decrease space utilized, or make

little change to the amount of space utilized. There was a marked difference of opinion

between buyers and service providers on expected space usage plans (see Figure 13).

Forty-eight percent of buyers surveyed indicated their organizations would increase

space utilized over the coming year, compared to just 14 percent of service providers

that felt their clients would expand space usage. Thirty-five percent of buyers and

49 percent of service providers expected decreases in space usage. This difference of

thought is a good example of the difficulty in projecting future needs in the current

business climate. However, one thing is certain: buyers and service providers will

need to be able to respond to the unexpected in a timely and responsible manner,

whether it results in footprint changes, changes in floor density or changes in

service levels.


Future Space Utilization Plans

0% 10% 20% 30% 40% 50%

Unsure

We will decrease space utilized

There will be little change in total space utilized

We will increase space utilized


Figure 13

The next topic explored was an assessment of what buyer organizations feel are the

most critical needs in an REFM reporting system. A well-designed reporting system

provides buyers and the service providers with site information, as well as cost and

performance information, including service level data. Having accurate, timely,

complete and useful information is an important element of a successful REFM

outsourcing program. It ensures operational and performance data is appropriately

reported and monitored. Buyers’ data and systems prior to outsourcing REFM

have not always been adequate. Thus, service providers have not always inherited

good data or well-managed systems. The key needs cited in these systems are in

alignment with some of the key priorities identified and with the key drivers and

benefits sought from REFM outsourcing (see Figure 14).

Cost data• was the top cited need identified by over 70 percent of both buyers and

service providers polled. Ranked second by both constituencies was performance

reporting and service level data and information. Business intelligence, as an

extension of both cost and performance data, was explicitly identified as a key

need by 40 percent of both buyers and service providers.

There was consensus among providers across geographies on the importance •

of cost data, but providers operating in EMEA were more likely to cite the

importance of performance and service levels reporting. Similarly, providers in

EMEA and Asia Pacific were more likely to cite the importance of building,

asset and real estate information than those in the Americas or supporting

global deals.


REFM Reporting Systems Needs

0% 20% 40% 60% 80% 100%

Business process and work-flow management

Space planning

Project management

Transaction management

Building, asset and real estate information


Business intelligence

Performance reporting and service levels

Cost data


Figure 14


Update on Global Sourcing

Buyer Global Sourcing Preferences and Demand Levels

KPMG polled REFM buyers and third-party service providers on various trends related

to global sourcing of REFM services. While global or offshore outsourcing is a major

dimension and occasionally controversial aspect of ITO and horizontal BPO, it is

somewhat less a factor in REFM outsourcing given many REFM services in scope for

outsourcing must be performed on-site at client locations. This being said, global

sourcing is an important dimension of REFM outsourcing and enabling an EGE

service delivery model and framework, even if on a less impactful scale than in other

outsourcing categories.

Buyers ranked their own preferences and demand levels, and service providers

ranked the same for their clients, for six different types of global sourcing models.

Demand was ranked on a one-to-five scale, where one represents significant decrease

in preference or demand, three represents no change, and five represents significant

increase in preference or demand (see Figure 15). Both buyers and service providers

polled scored domestic outsourcing the highest at 3.36 and 3.58, respectively.

All other models were scored similarly. These results illustrate growth in buyer demand

for global sourcing, though preferences and demand levels for all service delivery

models are similar with services growth typically following the geographic footprint

expansion of its users. Hence, as more western firms set up operations in China, for

example, demand for REFM services in that market will grow, but to serve the local

markets.

Buyer Global Sourcing Interests/Preferences

Q32 C t B ' i I

1.00 2.00 3.00 4.00 5.00

Nearshore outsourcing

Domestic shared services centers

Offshore captive shared services centers

Offshore outsourcing

Nearshore captive shared services centers

Domestic outsourcing

1=Significant decrease in preference/demand 5=Significant decrease in preference/demand


Figure 15


Buyer Global Sourcing Maturity and Sophistication

More critical than where services are sourced from globally is the maturity level

of buyer organizations to conduct global sourcing well, regardless of location.

Buyers undertaking global REFM sourcing efforts exert much focus on selecting

which service provider to employ and from what locations to source services.

This assessment process should include a clear and realistic evaluation of a buyer’s

own maturity and sophistication relative to sourcing and managing global sourcing

efforts. A common root cause of problematic or underachieving global sourcing

efforts is a disconnect between what a buyer is trying to accomplish and the skills,

experience and resources it possesses to support these efforts. These skills involve

selecting providers and locations, accounting for and managing risk, and governing a

growing number of sourcing efforts spread across multiple providers and locations.

KPMG polled REFM buyers and service providers to assess buyers’ self-assessed maturity

and sophistication relative to various global sourcing skills and how skilled service

providers felt their clients were when it comes to global sourcing. Respondents were

asked to rank their perception of buyer skills on a one-to-five scale, where one

represents very immature or unsophisticated and five represents very mature or

sophisticated (see Figure 16). Results show that overall there is room for improvement

across all of these global sourcing capability sets though buyers are more positive on

their skill levels than are their service providers.

REFM service providers overall did not score buyers above the midpoint on •

any of the five skill sets assessed. The highest score given was 3.00 for service

provider selection and assessing service providers’ global delivery capabilities

and assessing and accounting for data, data privacy, and intellectual property risk.

Service providers scored buyers the lowest at assessing/accounting for geopolitical

and service provider risk, though the range from the top to bottom scores is small.

Buyers also ranked themselves the highest at service provider selection skills as •

well as managing and governing multiple engagements and service providers

across multiple functions, geographies, etc. The positive score on multisourcing

and governance is interesting given that it is in this area where KPMG most

often sees organizations struggle with global sourcing efforts. Again, the top to

bottom range of scores was relatively small.


Buyer Global Sourcing Capabilities

1.00 2.00 3.00 4.00 5.00

Service delivery geographic location assessment

Assessing/accounting for geopolitical & service provider risk

Assessing/accounting for data, data privacy & IP risk

Managing/governing multiple engagements & providers across multiple functions, geos, etc.

Service provider selection/assessing service provider's global delivery capabilities

1=Very immature/unsophisticated, 5=Very mature/sophisticated


Figure 16

As buyers’ appetites to source more services globally continue to grow, so too should

their capabilities to source and manage these efforts. This is at the heart of the

EGE model and maturity framework. Similar to REFM outsourcing deal challenges

discussed above, the first step is to recognize the challenge and apply adequate

and skilled resources against it. This is a multidisciplinary effort that extends leading

practices related to sourcing, selection, transition, outsourcing governance and

multiprovider management to account for additional challenges and nuances

introduced from increased globalization of service efforts. As the scope and

complexity of buyer global sourcing efforts continue to grow, this will remain an

ongoing challenge, with the bar for leading practices continually being raised.

One means to improve global REFM sourcing capabilities is to take more of a

portfolio approach to managing global efforts, similar to taking a portfolio approach

and bundling more REFM outsourcing deals overall, as addressed above. This need

grows as global sourcing becomes more pervasive and accounts for more of an

organization’s global services footprint. However, tightly coordinating and managing

sourcing efforts globally is still a goal to which most organizations aspire. Buyers were

polled on both how they manage existing global REFM sourcing efforts and how they

plan to manage new efforts going forward.

Among buyers polled that are utilizing global sourcing as part of their REFM •

outsourcing effort, 23 percent are taking a portfolio approach to managing

existing deals in the field (see Figure 17), with 13 percent employing an

enterprise sourcing center of excellence (CoE) and 10 percent utilizing a less

sophisticated enterprise sourcing council. The majority are managing efforts

organized around geography, business unit or functional area.


Buyers undertaking new REFM outsourcing efforts are much more focused on •

managing them globally (see Figure 18). Here, 34 percent are taking a global

model using either a sourcing CoE or council while 49 percent will continue

to manage and organize efforts around geography, business unit or function.

Service providers polled cited similar results for how their clients manage both

existing and new REFM outsourcing efforts.

Management and Governance of Existing Global REFM Efforts

G

%

0%

Most existing efforts are managed & governed independently

Most existing efforts are grouped, managed and governed by geo, bus. unit, function, etc.

Most existing efforts are managed & governed by an enterprise sourcing council

Most existing efforts are managed & governed by an enterprise sourcing CofE

Figure 17

Management and Governance of New Global REFM Efforts

%

4 %

Most new efforts sourced are handled independently

New efforts sourced are coordinated by geo., bus. unit, function, etc.

New efforts sourced are coordinated globally

Figure 18

Many buyers today still view global sourcing as a series of discrete options and

capabilities (e.g., internal services, shared services, offshore captives, ITO, BPO)

rather than a continuum of integrated service models. This is similar to the

legacy perspective of viewing offshore outsourcing as a point-to-point initiative

(for example, from the United States to India) instead of an integrated suite of global

service delivery capabilities.


The reality today is that organizations should develop a holistic strategy and

operational model to support the totality of their businesses and IT services

operations. This includes how to source and manage these capabilities, as well as

how to continually improve their overall efficiency and effectiveness. While leading

organizations have made progress, for example, in governing their outsourcing

efforts as a portfolio via a portfolio model as cited in the above Pulse survey

responses, often these efforts are disconnected from the management of internal

retained operational systems and functions as well as the strategy and execution

of sourcing of new investments. In short, buyers’ capabilities to source and manage

a diverse services delivery portfolio have often not kept up with their sourcing

ambition’s scale and scope.


Current Market Deal Characteristics: Service Providers’ PerspectivesThe final section of the 2011 global REFM outsourcing Pulse survey assessed the

characteristics of current REFM outsourcing deals in the market from the perspective

of the REFM service providers polled.

Pricing Competitiveness

Increased pricing competitiveness implies the buyer has the upper hand and

is getting a better priced REFM outsourcing deal. As pricing is one element of

determining profitability, the alternative of less competitive pricing generally is

favorable to the service provider. The consensus for the past three years among

most types of outsourcing service providers has been that buyers are getting more

aggressive with their pricing demands. Fifty-seven percent of REFM service providers

polled agreed with this sentiment and indicated that pricing pressure is increasing

for new deals in the pipeline, while just three percent felt that pricing pressure was

lessening (see Figure 19).

Service Providers: Pricing Competitiveness

1 S i e P i er : P i i m et tiv s

57%

40%

3%

More competitive/aggressive

About the same as last quarter

Less competitive/aggressive

Figure 19

While there is a strong desire among buyers today to get more aggressive with

pricing, a number of factors ultimately can temper final pricing level demands.

More experienced buyers generally recognize that the lowest price may not lead to

the best deal. Buyers today also are averse to risky deals and deal failures that could

occur from bad pricing levels. Buyers can reduce overall spend—the ultimate goal—

by lowering consumption levels, but still pay an equitable unit price for services that

help ensure they get the provider’s top resources. The need to access quality skills via

third-party providers can also temper low pricing demands if it means limiting access

to top provider talent and resources.


Service providers influence pricing competitiveness by the extent of their own

aggressiveness in pursuing deals. More service providers in the market today are

increasingly selective about the clients and deals they pursue. Service providers

are more closely assessing the risk profiles of clients they are pursuing, and adjusting

their pricing accordingly. Providers continue to look for ways to reduce operating

costs and overhead to meet their current contract commitments, pushing

price-competitive policies regardless of the economic downturn. The net result

is more aggressive pricing in the market, but not routinely egregious pricing terms,

at least for top-tier service providers or less desirable buyers.

Contract Profitability and Ability to Increase Scope

A variety of factors affect service provider profitability, including deal scope,

transition costs and time frames, exchange rates, wage inflation and buyer pricing

sophistication. Service providers with a higher mix of remote/low-cost resources put

pressure on the profitability of competitive peers with fewer lower-cost resources,

though this differentiator is not as great in the REFM space as, for example, it is with

ITO.

The biggest factors impacting contract profitability today are buyer pressure on pricing

and aggressive competitiveness between providers, along with some buyer pull-back

on more profitable discretionary services and an increased focus on cost-cutting

over process improvement work. REFM service providers are generally pessimistic on

profitability trending on both new deals they are pursuing and existing deals in flight

(see Figure 20). This level of pessimism is greater in the REFM market segment than in

the back-office BPO and ITO market as registered in other KPMG Pulse surveys.

Just 12 percent of REFM service providers polled indicated that contract •

profitability is improving in new deals signed, while 44 percent indicated that

profitability is declining in new contracts.

Nineteen percent of service providers expected to improve contract •

profitability in existing deals in flight for more than one year, while 22 percent

indicated existing deal profitability is declining.


Service Providers: Contract Profitability, New and Existing Deals

44%

44%

12%

Contract profitability is declining

Contract profitability is about the same

Contract profitability is improving

22%

59%

19%

Contract profitability is declining

Contract profitability is about the same

Contract profitability is improving

Figure 20

Figure 21 illustrates REFM service provider expectations about their ability to increase

scope, ideally in a profitable manner, in current accounts. Providers today are focused

on growing business in existing accounts not only because pursuit costs are lower

than competing for new business but also because it protects their base as buyers

rationalize suppliers and cut back on spend levels. Seventy-eight percent of providers

polled expected to increase scope in existing deals while just two percent expected

contract scope to decline.

The positive opinion on the ability to increase scope in existing accounts indicates

that while buyer demand for outsourcing remains strong, service providers need to

push hard to expand business, particularly at a time when buyers are rationalizing

and consolidating their service supplier base. Consolidation trends are tending to

benefit larger and more established global REFM service providers.


Service Providers: Ability to Increase Deal Scope

2%

20%

78%

Contract scope will decline

Current contract scope will remain about the same

Contract scope will increase

Figure 21


Where to Learn More about Global Sourcing Market TrendsThe legacy EquaTerra website and research library was rebranded after the KPMG*

acquisition, and is being maintained as a central hub and resource for data, research

and thought leadership on global sourcing trends, issues and leading practices.

Information in the research library is organized by function (e.g., REFM), industry,

topic and phase of the sourcing lifecycle. The EquaTerra blog, Advice Worth

Keeping, is another source of relevant news, research and opinion on the global

sourcing market. There is also extensive information available on global sourcing

trends, issues and futures available on regional and KPMG member firm websites.

Service Provider Performance and Satisfaction Market Studies

On an ongoing basis, KPMG International and KPMG member firms conduct broad-

ranging market studies on Service Provider Performance and Satisfaction in

both ITO and Finance and Accounting Outsourcing (FAO). The ITO studies cover all

major European markets, and the FAO program is global in nature. These studies

survey and interview buyers actively engaged in outsourcing efforts with a named

set of leading market-specific providers. The research unveils direct insights into

buyer opinions on service provider performance levels, and also assesses and

interprets general outsourcing demand and activity trends in the markets covered.

Market coverage and due dates for the next editions of these studies are as follows:

U.K. (next release 4Q11)•

Netherlands (released 2Q11)•

BeLux (released 2Q11)•

Nordics (released 2Q11)•

Germany (next release 4Q11)•

Pan-European ITO (next release 4Q11)•

Global FAO (next release 4Q11)•

Executive summary reports for all of the completed research efforts are available

free of charge, and complete results are available for a fee by contacting Stan Lepeak

at [email protected].

http://www.equaterra.com/Library/By-Function/Real-Estate-Services-and-Facilities-Management-1390.html

http://blog.equaterra.com/

http://blog.equaterra.com/

http://www.equaterra.com/Library/By-Topic/Service-Provider-Performance-and-Satisfaction-Studies/About-Service-Provider-Performance-and-Satisfaction-Studies-1215.html


ConclusionsWe offer the following conclusions from the inaugural global REFM outsourcing

Pulse survey:

Global demand for REFM outsourcing remains strong and continues to grow. •

Nearly all polled buyers undertaking REFM outsourcing expect to maintain

or increase outsourcing usage in the short-to-medium term. REFM service

providers cite current growth in their outsourcing business sales pipelines and

expect that growth to accelerate in 2012. The greatest growth expectations

came from REFM providers operating globally and supporting global

outsourcing efforts.

The biggest focus areas for REFM outsourcing among buyers are workplace •

services, facilities services and transaction and brokerage services.

Service providers see near term increased growth opportunities in these areas

as well as in facilities management, and even in more strategic areas such as

portfolio strategy and planning. From an overall topical REFM perspective,

the top themes buyers will focus on over the coming year are energy

management, cost reduction efforts and addressing sustainability and a

corporate social responsibility agenda. The key is to determine how, when and

where REFM outsourcing can help address these issues.

A dominant theme in the REFM outsourcing market today is consolidation. •

REFM outsourcing buyers are aggregating existing outsourcing efforts spread

across multiple service providers, geographies, contracts and functional areas.

This plays to the strengths of the larger, more global and diversified service

providers. Buyers are striving to bundle together more existing and new REFM

deals and, while typically they want to maintain overall management control

of these services bundles, they are increasingly open to ceding more of that

management control to the providers performing the underlying services.

Reducing operating costs is the top driver for organizations undertaking •

REFM outsourcing, but buyers also seek a variety of other benefits above and

beyond cutting costs. These include improved REFM process performance,

improved financial flexibility, creating a more variable cost model and

supporting global business growth and expansion agendas, especially into

emerging markets. As a result, a key challenge is to balance cost cutting and

process improvement and related agendas and needs.

Buyers continue to face many challenges to successfully undertake •

new REFM outsourcing efforts and consolidate efforts already in flight,

especially when pursued across multiple functional areas and on a global

scale. The top challenges cited include prioritizing the broad range and

number of REFM outsourcing opportunities and related change programs,

addressing the economic uncertainly that makes short-to-medium term

planning difficult, and addressing challenges related to retained organization,

relationship management and outsourcing governance issues.


The globalization of the REFM service market tends to follow the globalization •

of buyer organizations’ geographic footprint that these REFM services support.

As buyers expand into emerging markets, for example, the demand for

outsourced REFM support services in those markets grows. So while in contrast

to most ITO and horizontal BPO efforts, REFM outsourcing is not so much about

shipping services back to the west from lower-cost offshore markets. This being

said, REFM buyers still need to improve global sourcing skills, especially as they

relate to managing multiple efforts across multiple providers and geographies,

consolidating efforts to gain economies of scale, and better accounting for and

dealing with regulatory, data and intellectual property risks and challenges.

The key to buyer success in global sourcing is to define, deploy and optimize

the mix of global service delivery models employed as part of the adoption of

an extended global enterprise model.

Remember, REFM outsourcing is a journey and it needs to be clearly understood

and mapped out. What is right for one company may or may not be right

for another firm. Buyers should not take the easy path by just copying what

another end-user organization is doing. There is much work that needs to be

done to be an informed buyer. Before outsourcing, buyers should perform a

careful evaluation of their company’s business needs, the capabilities of the

marketplace, and the solutions available.

24656NSS_3165_Sept2011

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Although we endeavour to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is

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About EquaTerra

EquaTerra was founded upon the principle of helping clients achieve sustainable value in their IT and business processes through internal transformation, shared services and outsourcing. On February 18, 2011 the business of sourcing advisory firm EquaTerra, Inc. and its subsidiaries was acquired by KPMG LLP (US), KPMG Holdings Limited (UK) and KPMG International.

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Documents

Kpmg Outsourcing Report 2011