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A point of view on the future of real estate and facilities management

EY Advisory Services | Workplace solutions

Does your workplace outsourcing

create value beyond savings?

Page 2

Recent development in the REFM outsourcing market

Source: EY Advisory I Workplace Solutions

The REFM market as we know it is changing. The business is growing fast and, with

ongoing consolidation of REFM companies, the focus on total cost of occupancy brings

REFM management closer to the boardroom. More and more companies also expect

their REFM operating model to deliver on both top and bottom lines. Consequently,

leading companies see workplace management as a strategic concern for the executive

team.

REFM executives are also increasingly being seen as strategic business partners,

focusing on creating as much value as possible rather than a tactical and operational

support function. In line with this, there is a growing trend to ensure that REFM business

is based on facts and analytics. Governing through oversight is no longer enough – in

today’s market, stakeholders must work together to harness as much insight as possible

in order to harvest new value pools. All parties must come to the table and join up the

dots.

However, we have discovered that the REFM outsourcing market is confronting some

very obvious challenges:

• Suppliers are not the proactive and innovative integrators that many wish for.

• Buyer demand organizations are often neither skilled nor organized optimally.

• Both parties experience opportunistic behavior in their relations.

• Last but not least, REFM deals do not drive strategic business transformation.

In other words, many REFM deals and relations in the current market neither satisfy the

buyers nor the suppliers. Neither is procurement satisfied despite the fact that in many

cases the total cost has dropped by 50% over just a few years while maintaining end-

user satisfaction.

EY REFM Outsourcing Point of View 2016

Addressing the REFM outsourcing market challenges

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The global REFM market has reinvented itself many times over the last decade

10 years ago the world looked different and so

did corporate REFM operating models

• In-house delivery/ make/buy • Instruction/function based transactional

business models based on SLA:s • The toughest negotiator won respect • Focus was mainly on cost

Today: Corporate REFM Operating models and

strategies are changing radically

• World leading companies are shifting mindset from ”invented here” to buying competitive advantage

• Companies are therefore seeking to buy outcomes and services that can increase speed of transformation and total value creation

• Companies are seeking ways to make all parties collaborate to reach targets

Source: EY Advisory I Workplace Solutions

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EY has identified and defined 3 trends that are shaping the REFM outsourcing market development

1. There is a mindset shift from focus on cost to focus on value

2. Suppliers are shifting value creation chains to answer to new market requirements

3. Companies are seeking more partnership-based models

Source: EY Advisory I Workplace Solutions

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We asked executives in the market on how they address the challenges in the REFM market

“Conventional transaction-based

approaches have inherent flaws

because the economics of the

deal structure keeps buyers and

suppliers at arm’s length. This

approach is not conducive to

collaboration, innovation or

sharing value, especially for

complex multidimensional

business relationships”

Source: EY Advisory I Workplace Solutions

Kate Vitasek Faculty Graduate & Executive Education University of Tennessee

“Buyers are increasingly seeing

that the total cost of occupancy

is a complex formula. The

advisors best poised to help

calculate the solution, while also

solving for productivity, are

those with expertise across

multiple RE disciplines –

Workplace, Logistics, Portfolio

Optimization for example – as

well as practical insight into

their clients’ industry verticals

like R&D”

David Susoreny Senior Managing Director and Regional Lead Cushman & Wakefield

“The market has not yet

accepted the fact that it is the

contract and the commercial

setup that matter the most. One

common denominator for the

most successful deals is the

quality of the relationship. The

biggest challenge for the market

is to understand this.”

Ulf Wretskog Former CEO Sweden COOR Service Management

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Executives highlight relationships as key enabler when address the market challenges

“The main challenge in

comparing transactional

solutions and strategic

partnership solutions is the I in

IFM. Parties must find ways to

integrate the solution, which

makes it important to establish

a professional demand

organization. With a competent

demand organization you can

also delegate the responsibility

with a business model based on

trust.”

Source: EY Advisory I Workplace Solutions

Azita Shariati CEO Sweden & Denmark Sodexo

“We have developed the

relationship with our supplier

over a long time, and it is today

characterized as positive and

collaborative. We have strategic

discussion about innovation.”

Jörgen Zetterström Vice President Global Indirect Sourcing Sony Mobile Communications

“You have to state how to

behave − if you don’t, you will

only become buyer and supplier.

Morality is what people should

do, economics is what people do.

What really happens is what’s in

the contract.”

Fredrik Justesen Project Manager Global REFM Ericsson

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Conventional REFM outsourcing approaches are not architected to drive collaboration, innovation and sharing of value

Source: EY Advisory I Workplace Solutions

Cost per head & End-user

satisfaction

Protect functionality

Reduce cost per

head

Balance cost per head

to End-user

satisfaction

Time

“Old service models were often based on a cost-plus model, which doesn’t fit the way most organizations want to operate today. Now, we see more performance-based commercial models. If we deliver strong results, we create a better world for our clients and get compensated accordingly. It is a win-win situation: everyone benefits from good performance and the relationship is based on mutual success. This tends to lead to long-term partnerships.”

Challenges in the market has lead to a movement away from traditional transactional contracts with power and zero-sum game based negotiations to more partnership-oriented models based on trust and win-win ideology aiming for strategic value. Moreover, the focus is shifting towards more strategic and company-wide benefits such as proactivity, flexibility, innovation and contribution to corporate transformation.

Guy Holden EMEA President of Enterprise Accounts CBRE Global Workplace Solutions

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The REFM market needs to focus on company-wide approaches to drive transformation and flexibility

Source: EY Advisory I Workplace Solutions

In a volatile global marketplace, it is important that workplace delivery is flexible and can contribute with real value by adapting to the ever-changing needs of the business, i.e. scaling up and down as well as closing and opening new sites effectively and efficiently. In order to continuously support transformation and to be in the forefront of workplace development, focus on innovation is crucial. Mechanics must therefore be in place to support and incentivize innovation, which needs to be a joint priority for the supplier and the buyer.

“Sourcing professionals must improve to be on top of their

games and become more adept in strategic relationship

management. They need to become strategic business

people and aware of the larger competence and decision

making process in their own industry, this is where sourcing

is falling apart.”

Xavier Marmasse Global Sourcing Lead

CBRE Global Workplace Solutions

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With the right REFM operating model the contribution to the corporate transformation agenda becomes clear

The Corporate transformation agendas of today are complex and “the power of AND” is evident. Companies have to Grow and Optimize at the same time, also, they need to innovate and protect the brand at the same time. The REFM operation model must enable strategic business transformation.

Grow • Use market insights and trends to energize and grasp

opportunities for growth

• Leverage advanced analytics to support real-time

market and customer strategies

• Embrace market intelligence to understand how

products and services are bought and sold by the

market

Innovate • Embrace innovation as a catalyst, speed matters in a

relatively complex market place

• Find radically better ways to delight customer base,

find advantages compared to competition

• Leverage emerging technologies, for the next level

efficient operating model

Protect • Reduce exposure to negative events through mature

risk processes

• Balance cost of controls and risk coverage

• Manage strategic and operational risk to safeguard

reputation and business performance

Optimize • Drive profitability through smart operating models

• Increase speed of transformation with support of

business partners

• Optimize technology and data quality, structures and

engagement to drive sustainable cost-efficiency and

effectiveness

Source: EY Advisory I Workplace Solutions

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EY has identified 4 of the main challenges within the REFM outsourcing market

1. Suppliers are not the proactive and innovative integrators that buyers wish for.

2. Buyer demand organizations are often neither skilled nor organized optimally.

3. Both parties experience opportunistic behavior in their relations.

4. Last but not least, REFM deals do not drive strategic business transformation.

Source: EY Advisory I Workplace Solutions

Read the full REFM Point of View report in the EY Insights app

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EY REFM Point of View 2016 is a result of global insights and EY thought leadership

Participating executives • Peter Ankerstjerne, Head of Group Marketing, ISS • Sebastian Beronius, Global Account Director, CBRE Global Workplace Solutions • David Frydlinger, Partner, Lindahl Law firm • Guy Holden, EMEA President of Enterprise Accounts, CBRE Global Workplace Solutions • Fredrik Justesen, Project Manager Global REFM, Ericsson • Juha Olkinoura, Vice President of Workplace Resources, Nokia • Xavier Marmasse, Global Sourcing Lead, CBRE Global Workplace Solutions • Annika Martinson, Director Strategy & Operational Development, Volvo Cars Group • Timothy McParlane, Jones Lang Lasalle, COO, Procter & Gamble Account • Jakob Moltsen, Former Head of Facilities Management, Sony Mobile Communications • Azita Shariati, CEO Sweden & Denmark, Sodexo • David Susoreny, Senior Managing Director & Regional Lead, Cushman & Wakefield • Jesper Svensson, Vice President, Sony Mobile Communications • Anders Thorvik, Facility Management Specialist, Statoil • Kate Vitasek, Faculty, Graduate & Executive Education, University of Tennessee • Ulf Wretskog, CEO Sweden, Coor Service Management • Jörgen Zetterström, Vice President Global Indirect Sourcing, Sony Mobile Communications • Magnus Åkerberg, Managing Director IFM, Jones Lang Lasalle

*(International Association for Outsourcing Professionals)

This report builds on EY thought leadership and interviews with leading supplier executives,

demand organization leaders and sourcing leaders and matched their answers with our

findings from thought leadership, market insights and our latest engagements

IAOP* ranks EY Outsourcing Advisory Services 1st amongst outsourcing advisors globally 2015

Magnus Kuchler, Partner and Leader of REFM Advisory Services at EY

Henrik Järleskog, Head of Vested Advisory Services at EY

EY runs four different FM

Benchmarking Programs in the

Nordic region, and invites more

than 150 FM leaders for annual

roundtable events