The International Organisation for Standardisation defines facilities management (FM) as the “organisational function which integrates people, place and process within the built environment with the purpose of improving the quality of life of people and the productivity of the core business.” Essentially, it’s about transforming physical buildings into buzzing workplaces where people can be happy and productive.
Globally, FM is a US$1.15 trillion global industry, with around 2.5 million professional practitioners and industry participants[1]. In UK, it accounts for 7.5% of GDP and is expected to be worth over £52billion by 2026[2].
BIE works with many of the UK’s largest FM businesses on senior leadership appointments, change programmes and business consulting.
Dan Middleton, Associate Director in our CFO & Financial Leadership Practice, looks at what FM leaders have on their plates right now.
Most sectors have faced significant challenges in the last three years, and facilities management (FM) providers have not been exempt. In fact, the sector has been particularly exposed to COVID-related social changes, due to the strong links between FM and the hospitality, commercial real-estate and staffing industries. This has affected providers of soft and hard FM services.
As always, margin, revenue, profit and cash are the KPIs that matter. Leaders must control costs, staffing and time-management effectively. But they are also facing a new set of challenges that are particular to the industry.
The impact of inflation
Inflationary pressures are felt across all industries, but the impact on FM is significant.
Inflation raises the prices of many of the goods and services commonly used within FM – food and drink, cleaning supplies and equipment, maintenance equipment, energy and, of course, staffing costs.
With RPI at 10% plus, and some client contracts having an indexation allowance, the effect on margins can be considerable. There are also areas where the value of assets has decreased in real terms, which impacts the balance sheet.
Simon Finnie, Executive Director at BAM FM, is driving savings with technology: “We’ve been working hard to improve the efficiency of our own operations, and the way customers use their assets. Our investment in Digital Twin capability and IoT building sensors has demonstrably improved asset utilisation, as well as the wellbeing of service users. This has helped us tackle inflationary cost pressures.”
The demands of ESG
BIE conducted research recently in which 90% of respondents in procurement and 83% in finance said they believed sustainability investments would improve business results in the next five years.
ESG used to be something of a grey area, but in recent years it has started to be taken very seriously by FM businesses. Most have clear frameworks in place now. They know they need to be more sustainable and reduce the energy profile of assets.
Royal BAM Group is again turning to technology for help, reducing its own energy use and enabling clients to be greener by using solar panels, wind turbines and energy storage.
“Environmental sustainability is at the heart of everything we do now. We are helping customers redesign their overall energy strategy,” says Simon Finnie. “We believe FM can make a significant difference in tackling the climate crisis.”
The switch to hybrid working
Overall, the real-estate market has recovered well from the pandemic, but momentum has slowed because of the challenges created by the transition to flexible and home working.
We have certainly seen benefits in employee wellbeing, and many people with commitments outside of work have been enabled into the workplace, which is good. But hybrid working also creates significant challenges when it comes to using and planning office space.
There is still uncertainty about what the new normal will look like, and how long-term occupancy rates will change from pre-pandemic rates.
Commercial property prices are forecast to fall in 2023 and many tenants are considering a reduction in office space. This is bound to affect the facilities management industry negatively and make competition tougher for FM firms.
Liz Benison, Chief Executive Officer UKI at ISS, nevertheless believes workplace experience still plays a huge part in organisational culture and the ability to attract and retain top talent. She thinks now is a good time to make investments in real estate: “Organisations like our own who invest in making the workplace ‘earn the commute’ will see the rewards.”
She believes business leaders should be proactive in defining the new normal and set a course for what they want it to be. This is not about forcing people back to the office, but having honest conversations with stakeholders to define what’s required to ensure continued growth and performance – without compromising on employee wellbeing and a better work/life balance. “We are excited about shaping what the ‘future of work’ looks like and how it can make businesses more sustainable, equitable and productive,” she says.
The need to retain staff
Staff salaries have stayed relatively flat for some time, but in the last 12 months there has been a significant shake up. In April 2023 the national minimum wage increased by 9.7% and over half of employers now intend to increase staff pay by at least 5%. Figures in this ballpark are likely to have a dramatic effect on low-margin businesses.
In some situations it may be possible to renegotiate terms with your client. But in a competitive market this may not be straightforward, or welcomed.
What’s clear is that so long as the workforce is the most important part of a business, staff retention will be vital. Dan Middleton: “Our clients are meeting the challenge by driving employee engagement at every level. Creating an empowering culture where the workforce is motivated and feels an appropriate amount of responsibility, has become business critical.”
What next?
Like most industries, facilities management is subject to macroeconomic pressures, and in the coming months and years one of those will certainly be inflation. To manage the impact, businesses will need to find new ways to cut costs. The good news is, technology has answers.
The ESG agenda will continue to dominate. As well as environmental concerns, issues like ED&I and worker wellbeing will stay in the spotlight.
FM leaders will also need to keep a close eye on the future of hybrid working and the issue of staff retention, which is bound up with it. Some version of the hybrid model is here to stay, but the ‘new normal’ has yet to be defined.
There are challenges ahead, but overall the outlook is optimistic. The facilities management industry has proved remarkably resilient. It came back strongly after the pandemic and continues to grow every year.
Sources
[1] Global FM
[2] The future of FM on World Facilities Management Day, May 3, 2023
https://www.mrisoftware.com/uk/blog/the-future-of-fm-on-world-facilities-management-day/
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