Does size matter?

Will the globalisation of Facilities Management and the rise in integrated contracts threaten to push small and medium sized enterprises (SMEs) out of the market?

Carl Robinson, marketing manager for cleaning and FM company Nviro, discusses the pros and cons of integrated FM and explains how SME cleaning companies can stay afloat in the current climate.

Over the years the FM industry has seen a huge rise in mergers, with companies not just looking to take over large areas of the market place nationally, but on a widespread global scale. For both hard and soft services, this globalisation of acquisitions and the expansion of the services offered by single companies are slowly squeezing SMEs out of the procurement process. Those at the lower end and middle market players within the cleaning industry now have to fight a harder battle when it comes to tendering for new contracts.

When you consider the motives behind procurement and purchasing decisions, a large company will have the economies of scale and may possess both cost and price leadership. This quickly renders competitor bids uncompetitive where low price is the driving factor, and leaves SMEs with little chance of even entering into the procurement process for many contracts.

In this scenario it isn’t just the contractors who are footing the blame for the lowering of costs during tendering. Clients are looking to save on their own budgets, and they can’t be accountable for seeking global players who they believe can offer a range of services at the right price. However, when you consider the argument between procuring SMEs or larger FM companies offering integrated services, there is a strange paradox relating to company size when it comes to success at winning business.

On one hand, a customer might wonder whether a large company is too big, and that the custom given by the contractor would be insignificant in the grand scheme of operations for a company with a high market share. Yet, on the other hand, a large company would in most cases be more financially resilient than your typical cleaning contractor, so a client may seek this security within the contract.

A big threat to SMEs is the increase in the demand for integrated services. An important question arising from this is whether or not this attraction to integrated FM automatically disqualifies a single service cleaning provider out of the running. Typically speaking, those companies that can offer an integrated service are bigger, with many strings to their bow. But in this instance, the customer is not necessarily simply choosing an integrated FM company because it is big and successful, but because it offers the package that is being sought.

Distinct Disciplines

SMEs tend not to be able to offer integrated service solutions as it requires very distinct disciplines that are generally the preserve of more cash-rich entities. This means that those seeking integrated FM have no choice but to approach the bigger companies, potentially leaving the smaller players out of the running altogether as they simply don’t have the means to provide the service.

Integrated FM customer demand in some cases can be born out of a belief that by having one company service multiple FM needs, you can save money. However, this is not a given and quite often a fallacy. In the current economic climate budgets are certainly stretched, yet clients and suppliers should have value for money at the top of their agendas, not price. It’s imperative to bear in mind that prices can be lowered without affecting services and it’s about finding the companies that successfully work towards this correct approach. There’s nothing worse than discovering problems within the delivery of a contract further down the line. This can be very costly and can lead to the premature end of some contracts, so companies need to be aware of how costs are being cut and how this influences the contract.

A shift in focus needs to be taken away from being attracted by a lower price. This culture of ‘cheap is better’ is drummed into not just business, but our everyday lives. It’s important to remember that quality and function must always outweigh the influence of low prices. We’ve all bought cheap items of clothing and regretted it the instant the first hole appears, and it’s no different in procurement. It’s often better to pay a little bit more so you aren’t re-tendering every six months.

One argument that often crops up in regard to large companies offering integrated FM contracts is the quality of service that is being delivered across all disciplines. If a plumber came round to fix the boiler, would you let him rewire a light, or build a garden wall? In most cases a plumber might be able to build a garden wall, but it won’t be standing for long. In the same way, is an FM company that delivers security, catering and front of house, among a raft of other services going to be able to offer a top class cleaning service?

There has been a constant diversification of service delivery towards integrated services and FM throughout Europe. This will continue as companies grow and attempt to satisfy the demands of new and existing markets that are increasingly seeking integrated packages. However, as companies expand, it harder to consistently supply best in class service, and this is where smaller companies can play up to their strengths.

Instead of trying to expand and dilute services, cleaning companies are using single service delivery as a selling point. Contract cleaners can now prove their worth against integrated and total facilities management contracts by demonstrating a delivery of not just basic, but specialist cleaning services. Instead of attempting to provide new specialisms altogether, companies who perform office cleans might add washroom cleaning, food hygiene, window cleaning or many other disciplines to their roster. This offers them the chance to expand their client base, while keeping a firm focus on delivering what they know best.

Contract stability

Stability is very attractive when it comes to procurement, and this is a factor that can see clients prioritise perceived contract solidity over performance levels. Company maturity and high turnover are undoubtedly surface signs of steadiness, knowledge and success for big businesses. Yet, the danger here is that problems tend to emerge after a contract has been awarded.

Clients tend to favour contractors with a large portfolio of big contracts, however, this may be the very reason that they feel undervalued, as their custom appears as a mere drop in the proverbial FM ocean. The larger the business, the larger the complexity of operations and (arguably) subsequent susceptibility to risk. This is where smaller cleaning providers have the upper hand. These companies, with a substantially smaller portion of the market share, will have an eager-to-please attitude and will work hard to retain contracts as they struggle to gain market share.

Having fewer contracts and the ability to offer a more proactive approach may be an advantage for SMEs, but in an increasingly global industry, another challenge for them is qualification. The barriers of entry for smaller companies are now higher during the tendering process. Companies now need to be able to demonstrate successes in past contracts to satisfy very high criteria levels. If you can’t show that you have achieved results in a similar sized contract then you can be out of the running before you’ve even heard the starting pistol. Because of this, smaller companies attempting to make their way into new and bigger contracts will struggle to get past new hurdles e.g. ensuring they have all relevant accreditations, good references, solid supply chain and in some cases even affiliations with other FM companies.

Some cleaning SMEs have attempted to create these affiliations/partnerships, working collaboratively to produce tenders or proposals for business. For example, a cleaning company teams up with a security firm in order to reach tender stage. This can be seen as more of a patchwork of services rather than a solid integrated delivery by one company, yet may yield better results overall as the individual company retains its specialism.

There is further hope for SMEs in their battle to keep up with big businesses in the new European Commission initiative to tackle regulation on SMEs. The commission will be looking at REACH chemical legislation, value added tax, public procurement and labour market-related legislation, among many others this year with a view to assist SMEs in growing their business and untangling the web of regulation. This comes in line with the recent public procurement reform which aims to improve SMEs’ access to national tenders, reduce red tape and boost cross-border activity.

Not the norm

Although there is a fear within SMEs that big FM companies will continue to push them further outside of the market, it’s important to remember that not all clients seek integrated services. The Shard building in London is a great example of this. Instead of seeking an integrated package, London Bridge Quarter Estate Management, the team running the project, sought the expertise of a range of single service specialists; favouring service partners with clear specialisms over a total FM contract.

This example offers great hope for smaller cleaning companies, and could in fact spell the beginning of a huge change when it comes to contracting cleaning. If we look back over the years it’s key to mention the cyclical nature of this interest in integrated FM. With the query of price at the top of the agenda for most businesses it’s not surprising that interest has again peaked, yet we could be seeing an end to this current phase within the next few years.

With the eyes of the world on the building of The Shard, the process of procuring specialist services fell under the spotlight and could very easily have the power to influence others. Integrated services may offer cheaper prices and be easier for clients to manage, but there’s always going to be customers that seek the specialisms of single service contract cleaners, who will no doubt continue to hold their own and stay afloat on this changing tide.

Published in European Cleaning Journal – October 2013