The last two years have been a turbulent time to be a FM services provider (especially if you are strategic gov supplier). From the collapse of Carillion to a number of high-profile contract failures, many questions have been raised over the Model of Outsourcing and large contractors have often been in the news for all the wrong reasons.

In a climate of public controversy, media scrutiny and Investor Scepticism about suppliers to government, it is easy to lose sight of the facts.

The Facts

Typical punitive contract structure, EBITDA margin erosion (as low as 3%), high CAPEX and OPEX are common factors in the FM industry producing high stressed assets.

Service Providers are spending more time in fixing operations. Lucky few who have fixed their operations are successfully mining their existing accounts by cross selling and upselling more services. Even the providers who have grown through acquisition in the past are constraint due to poor cash position with integrations taking longer than expected

Gone are the times of market intimidation – Very few FM providers have new business win rates above 50% and retention above 80%. Some running as low as 10%. Many service providers have stopped measuring and continue to approach the market impulsively. Any provider can be displaced from their contract with the right strategic approach.

Looking at Top line, Many of the Top 50 FM Providers are in Financial Distress and Commercial Value of UK Contract – 0.5 (Commoditised Market) and decreasing!

Funds are drying with the European Investment Bank has already reduced deals with UK venture capitalists and private equity groups by more than two‑thirds since the UK’s EU Referendum, with no equivalent funding from the UK government yet in place

Synchronised Slowdown in an uncertain environment : US China, Brexit, Hong Kong. Trade wars wiping out $700bn from global GDP by 2020. $19 Trillion Corporate Debt predicted to default (40% of total debt in 8 major economies)…

The Market – Overview

• Global market size : 1.2 – 1.3 trillion USD.
• The 4 big service lines covering 1.1 Trillion USD are Property maintenance, Cleaning, Security and Catering.
• 50% outsourced market in North America and Western Europe : North America – 250 B USD and Western Europe – 350B USD

UK – 120B GBP is the most matured market

Future of FM, Final Comments

Buyers

• Buyers will continue to drive towards Technology led payment by results model
• Buyers will expect service providers to integrate the supply chain (including buyers) bringing together all of the services with real time contract reporting, Social Value reporting and manage their Carbon Target

Service Providers

• Service providers will continue to consolidate their supply chain towards more self delivery and invest or collborate for technology solutions to improve margins and showcase innovation
• Service Providers will continue to move towards service integration, robust customer experience and sophisticated advisory services to keep growing and remain profitable
• Service providers will need to invest on Government relations not a generic public relations if they want to continue to operate in Public Sector
• Successful service providers will continue to extend, renew and mine existing contracts and will qualify new business even more carefully!
• In addition to Brexit planning, service providers will also need to conduct risk assessment of their operations around new government policies

The Market

• High growth forecast in France, Middle East and ASPAC
• In UK, Private sector will continue to drive growth
• Local Government, Housing and Central Government are popular Public Sector markets (50% of the outsourced market) followed by NHS and Education
• M&A activity will continue apace with more consolidations
• Both growth and margins will continue to be under pressure from commoditisation and buyers robust contract models!
• Buyers will be expecting service providers to demonstrate resilience and investors will expect service providers to break away from the pack

Your strategic roadmap

Critical questions for service providers?

• Which geography have the fastest growth and how to enter those geographies ?
• How will the competitive landscape expected to look like by 2023?
• Which are the fastest growing customer segments in UK market and how to enter the customer segment?
• What types of services will see growth and which are the ones that will face the maximum challenges due to the maturity of the market?
• Who are your competitor’s top public and private sector customers?
• How exposed are your competitors to individual contracts?
• Who is winning (and losing) from this erosion in market share?
• How does your go-to-market strategy compare to your competitors?

Critical questions for buyers ?

• Which service providers are well placed in the market and how to encourage them to be in your procurement ?
• How will the FM market in UK evolve to 2023?
• Which service provider(s) would be most exposed with the new governments policy change?
• How does your go-to-procurement strategy compare to other buyers ?
• What impact will technology and new business models have on the future of your operations?

Thank you for reading my post. I hope the FM market overview in the article was useful. Regardless of your situation – My business dont have strategic plan, my business strategy is not working, I have no time to do strategy or my strategy team needs support, you are not alone! Join one our market awareness events – http://baachurain.com/events/ or reach out to us.

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About Baskar Sundaram

Baskar Sundaram is Founder/CEO of Baachu. Baskar specialises in strategising growth and is an acclaimed business services thought leader. He regularly presents his insights at UK outsourcing forums, UK government and industry round tables, entrepreneurship meet ups and APMP conferences around the world.

More than 30 global outsourcing companies, investors and public bodies use Baskar as a trusted advisor to help solve complex strategic growth and operational challenges, test hypothesis, gain market feedback and seek mentorship. Every day Baskar actively engages his 7,000+social media followers and shares content that reaches thousands of readers.