Evaluation of Risk factors in Outsourcing Facilities Management services in Shopping Malls in Lagos
The review of literature is on: Overview of Facilities Management services, Classification of FM services in shopping malls, shopping centre management, the role of shopping centres, outsourcing in FM, reasons for outsourcing, benefits of outsourcing, weaknesses of outsourcing, outsourcing service delivery routes, risk defined, types of risks, factors that influence risk, outsourcing risk exposure, risk factors in outsourcing, risk management objectives, risk management processes, and risk management approach.
2.2 OVERVIEW OF FACILITIES MANAGEMENT SERVICES
Every organization regardless of size or sector depends on a range of “non-core” services to support its “core” operations. No organization can thrive or perhaps even survive long term without effective security, cleaning, maintenance and a host of additional facilities services.
FM services were first provided in the 1960s in the United States of America (USA) and they were fully developed in the 1970s. But it was only in the 1980s that such FM market developed in Europe (Salaris, 2002). FM processes as well as management practices are the same all over the world, while different constraints have to be handled in different countries. The FM industry provides services that range from management, products and services to enhance the built environment and work environment for public and private organizations. FM services are critical to enhancing the competitive position of an organization. The activities that might be carried out within the FM are mainly connected to building facilities and auxiliary activities. They include building maintenance and management of HVAC and energy sources, gardening, surveillance, cleaning and logistics etc (Ancarani & Capaldo, 2004). The facilities management function has been gaining increasing recognition for the important role it can play to create cost savings and efficiency of the workplace. FM has been defined as the integration and alignment of non-core services, including those relating to premises, required to operate and maintain a business to fully support the core objectives of the organization (Tucker & Pitt, 2008). The primary task of FM is to manage support services to meet the needs of the organization, its core business and employees. It deals with the maintenance management of the physical assets and incorporates controlling services necessary for successful business (Lavy, Garcia & Dixit, 2010). As a coordinated and structured activity, FM has been successfully applied to maintaining and operating diverse types of constructed facilities in many sectors. FM discipline emerged out of practice because of a clear need to focus on the elaborate and expensive facilities that crucially support the activities of most businesses. It is a distinctive part of the overall management function on the workplace. It can be seen as an integration of three main strands of activities: property management, property operations and maintenance, and office administration (Kincaid, 1996). The scope of FM services varies from one organization to another depending on the size, complexity and line of business. Although FM offers a wide range of FM services, different organizations have different sets of combination. In other words, there is no uniform service package which works perfectly to any particular organization/establishment (Atkin & Brooks, 2009). However, the proper application of facilities management techniques enables organizations to provide the right environment for conducting their core business on a cost-effective and best value basis (Atkins and Brooks, 2005).
In a business context, FM helps to align the organizational objectives and missions so they can be achieved successfully. FM is a key function in managing support services, the working environment to support the core business of the organization in the long and short term and the managing of facility resources (Chotipanich, 2004) , as facilities make up 90 percent of any organization’s assets (Ajator, 2012). FM has become significant to various kinds of organizations as an emerging service that can support and enhance their business value. It has become the focus for the important issues of best value and customer satisfaction within the management of supporting services. An efficient FM is a contributing factor of an organization’s success. On a daily basis, it is a service that can provide a safe and cohesive working environment, contributing to the overall work performance and business success. Myeda, Kamaruzzaman and Pitt (2011) also signified the importance of a good coordination of support service and system to ensure a smooth operation of a business.
According to Faremi et al. (2014), FM services comprises of planned preventive maintenance, cleaning, catering services, space management, move management among others. In practice, facilities management can cover a wide range of services, including real estate management, financial management, change management, human resource management, health and safety and contract management, in addition to building maintenance, utilities supplies and domestic services, that is cleaning and security (Atkin & Brooks, 2005). Kincaid (1994) views that the integration of facility management as an effective function for an organization can be achieved by recognizing three key characteristics;
- Facility management is a support role within an organization, or a support service to an organization.
- Facility management must link strategically, tactically, and operationally to other support activities and primary activities to create value.
- Within facility management, managers must be equipped with knowledge of facilities and management to carry out their integrated support role.
2.3 CLASSIFICATION OF FM SERVICES IN SHOPPING MALLS.
It is very difficult to define FM services in shopping malls due to lack of study undertaken on the application of the subject matters. Most of the research on facilities management is focused on issues of workplace i.e. commercial office building, medical, educational and industrial (Gewald et al., 2006; Ikediashi et al., 2012; Tay & Ooi, 2001), hotels (Durodola et al.,2012; Jones, 2002) , educational institutions(Ikediashi, & Ekanem, 2015; Gbadegesin & Babatunde, 2015), healthcare institutions (Ikediashi & Okwuashi, 2015) but only two academic articles are identified that related to FM services in shopping centress in the UK. One was written by Cant (2005), where his paper considered the story of the new Bullring and the role that the facilities management (FM) approach has played in the success of its development to illustrate the way that infrastructure services for the complex can add strategic value rather than use up operational cost. Another one was written by Pitt (2005), where his paper was specifically focused on one aspect of facilities management services i.e. waste management issue. Facilities management services in shopping centres are varied in accordance with each shopping centre’s management needs. This is because different shopping centres may require different facilities management services. There is a significant difference between providing FM services to single stores or portfolio outlets rather than the management and provision of services to large retail shopping centres in different parts of a city (Willis, 2003).
The management of shopping centres is vital to its success and its proper management determines the overall success or failure of the shopping centre. In order to ensure the quality in maintaining its property, facilities and services, facilities management offers an integrated approach to operating, maintaining, improving, and adapting the buildings and infrastructure of an organization in order to create an environment that strongly supports the primary objectives of that organization (Atkins & Brooks, 2005). It is encouraging to know that facilities management plays an important role in ensuring the shopping centre’s building and other facilities are running effectively through different options of FM service delivery. Facilities management services in shopping centres are non-core services that include mechanical and electrical engineering, cleaning, waste management, security, landscape, energy management, etc. (Cant, 2005) and they are considered critical to shopping centres. Even though facilities management services are non-core services in nature, if managed correctly, they should have a strategic importance to adding value to the shopping centre’s core business delivery. Moreover, by having a core business as a retail property investment, shopping centres may require facilities management services to support the operations of these properties at cost effective and best value basis. These services are crucial and needed every single day during the operation of shopping malls. Hui, Zhang & Zheng (2013) revealed that the management and maintenance of commercial facilities is the most crucial dimension with regard to the overall customer satisfaction. Therefore, a long term or strategic relationship is much better with FM service providers to undertake these services into better quality and cost efficiency. By Outsourcing the non-core areas to the FM service providers, the centre managers can focus on the core business of the shopping mall which is the leasing of retail space for profit (Musa & Pitt, 2009). However, the success of shopping centres depend on how well they are managed and on how well management strategies cope with maintaining a balance between the income generated and the cost incurred in managing these properties. Therefore, when operational costs become an issue, the management tend to change the way a centre’s infrastructure are managed and services delivered. This is the reason that better solutions are sought from the FM provider market. In shopping centres, facilities management services are non-core services which are business critical nonetheless. By outsourcing these non-core functions, shopping centres can leverage its financial resources, share its financial risks, and allow management to concentrate more fully on core business activities. The non-core business of shopping centres is the supporting functions to the core business. This is not primarily to generate income, but in incurring cost to ensure the effectiveness of the supporting function. The non-core business of shopping centres can be divided into three aspects according to Musa and Pitt (2009) and it includes managing property, managing service operations and managing facilities.
One significant function in managing the property is maintenance. Maintenance is a necessary part of the shopping centre business. Maintenance management is to ensure that the mall’s systems are running effectively, maintenance of the building fabrics and elements e.g doors, floors, walls, windows, glazes and building facades; these are in order to enhance the customers’ and tenants’ environment and experience, as well as to preserve and enhance the owner’s investment. Therefore, management needs to develop strong maintenance staff who understand how the shopping centre functions and its inter-relationship with retail tenants, customers, community and environment. Maintenance in the shopping industry is more than just repairing equipment, fixing roof leaks and checking broken tiles. It is about securing the future of the asset, the shopping centre, through a planned maintenance programme (Paul, 1999).
Services in shopping centres are varied. Among them are the administration and support services, cleaning services, security services, Mechanical and Electrical services, maintenance services, waste management, and health and safety services and so on. Managing service operations can be seen as encompassing the processes that deals with the provision of the space that supports organizational activities. This includes the activities that maintain the physical infrastructure and the support services that operate within the space that support those services. Managing these kind of services are important to ensure that the quality and effectiveness of service delivery are guaranteed to the tenants who are the retailers.
Facilities also vary according to the types of building. In shopping malls, facilities provided to the customers (either tenants, consumers or owners) are typically parking spaces, toilets, signage, utilities, heating, ventilation and air-conditioning (HVAC) systems, lifts and escalators, public phones, cash machines and so on. These facilities provided by shopping malls apparently facilitate and attract the tenants and consumers to occupy and visit the shopping centre. Therefore, it is important for the shopping centre management to ensure that these facilities are managed efficiently and this could be seen as a good indicator of an efficient business.
2.4 SHOPPING CENTRE MANAGEMENT
Shopping centre is a group of commercial establishments designed, built, owned and managed as a single entity (Lambert, 2006). According to Ievuta (2012), a shopping centre refer to the commercial property that is planned, constructed and managed as a single entity including common areas and at least 10 retail units and service providers. Shopping centre management is a highly complex and specialized field. Shopping centres are characteristics of large floorage, extensive range of product categories, a variety of specialty stores as well as recreational offerings. The management of shopping centres is vital to its success. Hines (1988) identified that shopping centres are management intensive processes. Efficiency, astuteness and sensitivity to people and their needs are essential qualities in successful management and operation of shopping centres. Understanding the roles of shopping as a business place, a property and an investment are essential qualities in successful management (Musa & Pitt, 2009). Shopping center management’s objective is to maximize income from the rents collected from tenants. Morgan and Walker (1988) perceived that the quality of shopping centres management is one of the most important factor which can affect the success or failure of a shopping centre. In practice, the management of shopping centres can be established either through management by owner or management by managing agent. According to Carlson (1996), management by an owner as seen as an option depends upon the owner having the time, the knowledge, the skills, the interest and the contacts necessary to oversee these challenging activities leading toward the achievement of stated objectives. Meanwhile, in comparison, Carlson argue that management by managing agent is far better and at its best offers to shopping centre owners a spectrum of desirable qualification for a fee. Whether the property manager is employed by the client organization or by contract arrangement, they have the responsibilities of achieving the success in the shopping centre. Their roles are imperative in contributing to the success of the management and operation of the shopping centre. Okubo (1999) pointed out that the most important role of a property manager is to achieve the shopping centre’s goal and objectives. Therefore, to accomplish the many facets of management and operation of shopping centres, Kaye (1989) states that the property manager has to be capable of assembling a team who will be able to produce a first class standard in the basics of housekeeping, maintenance and security, at acceptable cost. Cowper (1992) suggests that an effective and experienced centre manager should be able to make the task of the shopping centre management more efficient. The property manager may have a number of assistants to cover such narrower management areas as record keeping, marketing, landscaping, maintenance, security etc (Hines, 1988). When defining the facets of management in shopping centres, Musa and Pitt (2009) classified the management of shopping centres as encompassing three main aspects. These are property, facilities and tenant mix. In terms of criticality, there is no doubt with many literatures published in the area of shopping centre industry agreeing that tenant mix is the most critical factor. McGoldrick and Thomson (1992) also agreed and emphasized that tenant mix is a critical factor in the success or failure of purpose-built shopping centres. Muhlebach and Alexander (2005) observed that having a good tenant mix is crucial to the business of shopping centres. This is because a good tenant mix that can work together will enhance the mall’s performance and operate successfully as individual businesses (Greenspan, 1987). Greenspan further explained that these descriptions of tenant mix stress the underlying objective of maximizing shopping centres’ profitability and therefore it is investor-oriented. Underpinning the importance of tenant mix, the management needs to develop an effective business model for tenant location, tenant selection and the structure of lease agreements so as to create value, increase the brand value of the property rentals and achieve a long-term stability in the value of discounted cash flows given various uncertainties ( McGoldrick & Thomson, 1992).
Pitt and Musa (2009) observed that shopping centre management teams include general manager, centre manager, marketing and Public Relation manager, human resource and administration manager, operational manager, I.T manager, event manager, retail liaison manager, customer service manager etc. Management teams in shopping centres may vary from one shopping centre to another. This is because they seek and attempt to establish the right teams to face the challenges in shopping centres in today’s environment. London (1999) states that one of the most consistent challenges in shopping centre management has been to identify, understand and meet the ongoing needs of consumers, retailers and owners. Managing property and facilities of shopping centres are very important for the management teams to maintain and organize. Aside from this, it is also important to retain the value of the property while optimizing the operational cost. With the operational cost in the retail shopping centre coming under increasing pressure(Musa et al., 2009), there is a significant opportunity to consider changing the way centre infrastructure is managed and delivered. Facilities and property managers have seen that FM is an avenue where money can be saved in non-core areas that do not affect the main running of the business. The Operations basically oversee day to day housekeeping, emergency repairs, ongoing maintenance that includes landscaping and usually long-term maintenance as well (London, 1999; Paul 1999). Lighting, security, cleaning, heating, ventilation, and air-conditioning (HVAC) and any other system being in the best condition possible is critical to the success of any shopping centre. Otherwise, this could affect a customer’s expectation and they will go elsewhere if amenities such as parking, security, cleanliness and landscaping are issues (Muhlebach & Alexander, 2005). Pitt and Musa (2009) concluded that operational and management systems of shopping centres are different from one shopping centre to another shopping centre due to variances in the structure of the organization, size of the centres, management strategy either in-house or outsource and facilities provided. Therefore, it is important to establish how the system would be from the beginning to ensure the quality and effectiveness at the end of the day.