Partnering for innovation

by Michelle Dunner
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Back in 2010, US popular science author and media theorist Steven Johnson gave a talk at a TED conference with a simple, yet powerful title – ‘Where good ideas come from’.

That presentation has reverberated around the world since, influencing a diverse range of pursuits, professions and people – not the least of which is facility management, grappling with client demands to be more innovative. But how do we define innovation? Are we talking about measures that result in operational efficiencies, or are process improvements sufficient?

Donald Macdonald, co-founder with Brendan Lucas of facilities management consultancy Macdonald Lucas, says innovation has to be seen as a change in process. “It’s a new way of doing things, if you like, that results in tangible and positive outcomes for the organisation,” he says.

“That could mean a variety of things – they may be related to reducing cost, improving quality, saving time or some other aspect of core business, such as increasing social engagement, reducing negative environmental impacts or increasing inclusiveness. Ultimately, I’d find it difficult to argue that a change in process that didn’t achieve tangible benefits for the organisation was innovative.”

Richard Gee, chief commercial officer at Brookfield Global Integrated Solutions (BGIS), agrees innovation can be incremental or more of a fundamental transformational change. “But it’s also about being open to major change,” he says. “We often talk about what innovation means within our own organisation. For us, it’s about problem solving, not just new ideas or brainstorming; we’re looking for new thinking, new ways of doing things, new outcomes and that requires a focus on the customer value proposition – how does what we do help improve their core business?”

In an era where costs are heavily scrutinised and margins are slender, many organisations are looking to quantify innovation within contracts. Macdonald says trying to turn innovation into something measured by key performance indicators (KPIs) doesn’t foster the right environment.

“I was particularly inspired by Steve Johnson’s talk, which was based on a five-year journey researching the environments and circumstances in which high levels of innovation flourish,” he says.

“Steve identified the catalytic effect of collaboration in arriving at true innovation. While I’ve seen KPIs for innovation included in contracts, they have, in my experience, not been terribly successful. There are a number of reasons for this.”

Macdonald says KPIs typically place the onus on the FM provider to come up with a certain number of innovations per month or year. “This tends to result in the service provider drip feeding ideas that they believe to be innovative to the client.

“They offer up a sufficient number to meet the KPI and hold the rest back for the next reporting period. I’ve even seen service providers develop Innovation Registers – a catalogue of good ideas shared across their contracts to be drawn from when the next reporting period comes around.

“This approach flies in the face of the client’s best interests where clearly they would be best served by receiving as many innovations as possible, as soon as possible.”

The shortcomings of ‘contractual’ innovation are clear to see, Macdonald believes. “I find it difficult to believe that a service provider can commit with any certainty to this obligation.

“Innovation is, by its nature, subjective. I’ve seen service providers frustrated at a client’s refusal to accept proposed initiatives as being innovative and that frustration negatively impacts relationships, and the contract more broadly. It disengages the client from the innovation development process.”

Gee believes innovation KPIs can be added to contracts, but with some caveats. “I think you have to be careful not to create an artificial outcome. I think a framework KPI that defines realistic current and medium-term targets, along with an incentive for the service provider to meet those targets is the way to go. But, ultimately, the contracts need to get service providers to focus on achieving outcomes.

“We also need to look at the governance and the structure of the contract. To create incentives, you need to think about the wider commercial structure. We do a lot of PPP (public-private partnership) contracts and FM can contribute to the whole life cycle – design, build, operation and repurposing of assets. We shouldn’t just be focusing on the core operational phase where we deliver our services – we have to recognise the wider impact.”

Indeed, Macdonald believes facilities management innovation is a key enabler for life cycle optimisation. “This is especially for clients with large portfolios and substantial capital works budgets,” he says.

“Effective engagement between the capital works team and the FM team can give rise to a virtuous cycle. We need
to be challenging the status quo and driving innovative outcomes that result in more maintainable, operable and cost- efficient buildings.”

OBSTACLES TO INNOVATION

“The chief obstacles in FM contracts are probably time, cost and ROI (return on investment) for the service provider,” Macdonald says. “Most FM contracts are competitively priced on thin margins and delivered by optimised teams. They lack the capacity for innovative thinking.”

Macdonald says he has seen a lot of contracts, particularly in the public sector, where prescriptive procurement methodologies limit the quality of client-bidder engagement during the tender period.

“There needs to be a willingness to move beyond this. In the PPP environment there are larger margins, greater risk transfer, a multidisciplinary approach and a longer time horizon for return on investment.”

Ultimately though, Macdonald says the way tenders are evaluated means service providers tend to regurgitate a similar approach to innovation at every turn. “They’re not really innovations because they’re outdated – a good innovation two years ago needs to be refreshed and challenged and this is not happening.”

Silos remain an issue. “If you’re working for a provider and have been for some time, the only exposure to innovation is within your organisation. But if you’re the client and you’re assessing what’s in the market, you probably have better insight into what’s innovative than any of the service providers.

“We need effective feedback loops from clients at the end of tenders and that’s something the client doesn’t necessarily share with their service provider. As a result, it’s a missed opportunity to revisit their processes and improve.”

Gee points to limited thinking that’s created by silos as a key obstacle to innovation. “We have to get beyond the ‘it’s the way it’s always been done around here’ mentality.

“You have to create time and space to think about innovation in your organisation. Recently we sponsored the CoreNet Hackathon (see the report on page 33 of this issue of FM) where 80 percent of the participants were from outside the property and facilities management industries. We had school and university students and tech employees.

“We got ideas from outside our world and it was quite liberating. It just made me think that, as an industry, we can be quite conservative.”

partnering

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THE STRATEGIC VALUE OF FM

Macdonald considers that innovation is key to gaining C-suite recognition for facility management as a strategic role within the built environment.

“Innovation is the key enabler for FM to shift from a commoditised service, to one that helps drive value into the core business of the organisation at a strategic level.”

Gee believes innovation is a part of the answer. “If FM as a profession is going to be seen as a more strategic function, it has to provide solutions in a rapidly changing world for its customers.”

But are clients prepared to invest in innovation from their FM provider? Macdonald is not so sure. “I can’t say if a client would pay a premium, or offer an extended contract for a truly innovative solution.

“This is because traditional FM contracts procured using methods that are currently in vogue don’t appear to result in this question even arising. While the contracts often include innovation as a criterion for bidders to be scored against, I’m yet to see evidence of in-depth thinking around innovation in the responses received. It means service providers miss the chance to differentiate their bids, from an innovation point of view.

“In contrast, the PPP environment can be highly innovative and the key reasons for this I believe are the multidisciplinary nature of the wider bid team, the length of the contract and the size of the contractual prize at stake.

“I had the pleasure of acting as FM bid lead on a social infrastructure PPP tender over the course of the second half
of 2016. The same contractual entity was bidding to build the facility and also provide FM services. They were also investing an element of equity into the project.

“A team member was appointed by the consortium to lead the innovation element of the response. A series of multidisciplinary and single disciplinary innovation workshops were held – and innovations captured. A highly innovative solution across every facet of the bid was achieved.

“But if you were to ask me how to capture innovation in FM my response would be that Steve Johnson has already done the hard work for us. All we have to do is ensure we are creating the type of FM environments that we know ‘good ideas come from’.”

Gee says BGIS’s clients understand the value of innovation. “But I don’t think it’s a question of the value of contracts, but rather how the innovation can be incentivised to foster delivery.

“A number of contracts we have are looking at more of a partnership style arrangement, an alliance, that creates an incentive to innovate. This is something we’re seeing more of recently, but there are a number of different models in the market.

“In the last 24 months there has been a degree of change in how things come to market with more partnerships, incentives, alliances. That’s a significant change from the preceding period where we tended to see three or four standard contract types coming to market.

“We’re on the cusp of an evolution here. It’s not necessarily about longer-term contracts or increasing the value, but more about the desire of customers and their advisers to look at things differently, to consider a partnership model and to enhance risk sharing.

“There’s a lot of opportunity here because things are changing so quickly. Our industry is very traditional and I don’t believe it has been disrupted as yet, but that will happen. We have some strategic partnerships in place with tech providers and we’re doing some things in augmented reality. The impacts of these emerging technologies will be quite significant.

Macdonald says facilities management contracts need to be put on a different footing. “We need to move the industry out of the comfort zone,” he says. “What Steve Johnson taught me is that innovation is all about collaboration. Clients need to sit at the table with their service providers, brief them, and work together to devise, develop and build new ideas.

“If it becomes a KPI within a contract, I think we run the risk that the client will just sit back, fold their arms and make judgements about whether something is, indeed, innovative. In that scenario, innovation just becomes a buzzword and something that can be used to beat their service provider over the head with.

“The true partnership is the model to aspire to, so that we can unlock that value.”

This article also appears in the October/November issue of Facility Management magazine.

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The FM Innovation Awards are celebrating innovation in facility management – for more information and to enter visit the website.

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