Jones Lang LaSalle


Outsourcing Is In
By Vik Bangia

Last updated: February 1, 2006 10:23am
Real Estate outsourcing now carries the industry's imprimatur. To be anti-outsourcing in 2006 is to stigmatize yourself as hopelessly out of date. To be sure, the service provider and corporate community are not without localized areas of backlash and conflict when it comes to outsourcing. But, despite the seemingly long list of concerns, outsourcing of corporate real estate services is overwhelmingly successful.

A recent study by Ernst & Young indicates that nearly 85% of companies lowered occupancy costs and increased service levels by outsourcing. The benefits increased when surveyed companies outsourced more than one function. Those companies that outsourced transaction management as well as facilities-, project- and portfolio-management services showed measurable savings that were greater than the individual savings by service. Savings were shown to increase further still when surveyed clients consolidated to one provider. In fact, 84% of companies that consolidated to a single provider achieved lower costs.

The mere concept of single sourcing causes consternation and raises the ire of procurement managers as well as CREs. So, let’s look at some pros and cons. I invite you to help me. If you know of additional cons; I’d like to hear about them at vik.bangia@cbre.com.
Pro: Single Sourcing Is the Way to Go
Single-sourcing provides the client with individual, responsive customer service. Knowing who your provider is and having a single point of contact creates internal efficiencies, allowing easier tracking and management for both the service provider and the CRE. Clients enjoy the increased feeling of control by not having to "herd the cats."

Using one provider exclusively offers the client scalability of services. Because you use only what you need when you need it, clients can order up individual services when needed, bundle them when necessary and reduce them when appropriate. Because service providers can leverage resources and purchasing power internally, they can pass on that savings more readily.

When CREs single source, both parties can share information openly and commit to mutual success. It’s no secret that service providers will likely hold back on sharing proprietary information if they feel it may get into the hands of a competing firm. No matter how strong the confidentiality agreement, there’s always a risk. Single sourcing resolves that dilemma.
Con: Single Sourcing Has Major Flaws
Most procurement managers are dissuaded from single sourcing. They have a fear of service-provider complacency (scope and cost creep, deteriorating quality or delivery performance). This is because historically, in most commodity-based purchasing decisions, the management of the vendor relationship went unchecked for years. Sadly, this mentality has permeated the real estate outsourcing industry but it is generally unfounded. Real estate is not a commodity business. What’s more, procurement departments and CRE organizations can establish backstops for the cost, quality and performance of their service providers. To me, this is a phantom deterrent.

Second, there is a fear in many CRE departments that, if it became necessary, switching service providers could disrupt business with serious long-term consequences. While this is a legitimate concern, it holds true only if both the client and service provider have become intransigent and the outsourcing relationship has deteriorated beyond repair. If this is the case, there is something more serious going on that doesn’t involve real estate or outsourcing. It involves professional counseling.
So, you see, I cannot buy into the myth of multiple providers unless I suspect one is comfortable spending time managing the minutiae. I’d rather be championing my department’s cause. But that’s just me. What say you?

Vik Bangia (vik.bangia@cbre.com) is a managing director in CB Richard Ellis' global corporate services organization. Views expressed here are the author’s solely.