“I’m sorry, but we’ve decided not to bid for this opportunity.”
Even multinational enterprises looking to outsource services valued in the hundreds of millions of dollars are hearing these words more often. While the sourcing teams from Global 1000 companies are often shocked to have their opportunities declines, this is not really surprising given the evolution of the facility management industry. As deals get larger and more complex, more business risks are transferred from the occupier to the Service Provider. In addition, account margins have become notoriously thin and contracts are managed with more sophisticated cost controls and reporting requirements.
With business development costs rising Service Providers are increasingly more selective about which opportunities to pursue and are particularly careful to avoid expensive pursuits with low probability of favorable results.
The Decision to Move Forward
Most Service Providers make a decision to pursue an opportunity based on their assessment of three critical questions: (1) what’s the opportunity worth? (2) what’s the likelihood of success? And (3) what’s the cost of pursuit? Of course the answers to these questions are likely not well known at the outset, so a number of more quantifiable factors will be considered including:
- Whether a pre-existing relationship exists with the Client organization
- Potential for direct interaction with the key Client stakeholders throughout the sourcing process
- The role of advisors in the sourcing process
- Likely or perceived pursuit costs
- Potential near- and long-term value of the business (including expected margins and the likelihood of growing the account over time)
- Alignment with capabilities and core competencies
- The competitive environment and in particular, the presence of incumbent competitors
- The perception of the “sincerity” of the outsourcing initiative (Will the sourcing event actually occur)
- Whether the outsourcing is first or second generation event
- Other opportunities available in the market place
Outsourcing clients must understand that Service Providers treat each “pursuit” as an investment with a potential return. While the direct costs of a pursuit can be significant – over a million dollars for some multi-national opportunities – it is important to understand that these pursuits also represent the allocation of a limited resource of talented personnel. Service Providers need to make the savviest possible pursuit investments.
Knowing how Service Providers evaluate opportunities provides can inform Client organizations on how to position and create the most attractive possible sourcing events. Clear, open communication to the market place is essential. The better Service Providers are able to understand the nature of the opportunity, the competitive process, and the underlying Client business drivers for outsourcing, the better they are able to qualify the opportunity and evaluate their participation. Client organizations that provide multiple opportunities for interaction, personalized as opposed to group communications and personally (as well as personably!) engage with the Service Provider teams achieve better and more engaged participation than Clients that operate their procurement through a secretive or blind, “arm’s length” process.
Additionally, the role of consultants needs to be carefully considered. Hiring an advisory firm can send a clear message to the market the Client or Occupier is very serious about the opportunity and ultimately help accelerate the process. However, if the advisor’s role significantly constrains direct interaction with the Client team, Service Providers may see the lack of interaction as a reason to not pursue the work.
Excessive competition also discourages participation. When a provider is one of ten or twenty candidates it’s difficult to justify a significant business development effort even if the potential opportunity is large. Having the wrong competitors can signal that the client has not prepared well. Initial market research must efficiently allow Client organizations to identify a selective short list of potential candidates. For an IFM sourcing opportunity, a field of three to five Service Providers is generally ideal. Effective prequalification should focus on verifying a Service Provider’s market presence, experience and capabilities to delivery services as opposed to early solution development.
Finally if your organization follows this advice and still finds a desired Service Provider declines your opportunity, remember this isn’t necessarily a bad thing. It may simply be that they have determined that this fit is not appropriate for their business. Better to move on and focus on building relationships with organizations that, from a well informed perspective, see your opportunity as being highly desirable.
Organizations that have run the most successful FM sourcing processes had a thorough understanding of both the marketplace as well as the drivers of Service Provider participation. They quickly identified the right potential partners in the market place, openly communicated their initiative and structured a sourcing process that, in essence, competes for the best participation from these Providers. This “Duality of Competition” ultimately drives the intensity, focus and openness required from both parties to find and develop the best possible FM sourcing relationship.