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Methodology seeks to determine the most cost-effective strategy for real estate functions. Should they be done in-house, by UK provider or by an overseas provider? |
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Offshoring is the talk of the media – and of the property industry. The media worries about British jobs going overseas, property people about the empty office buildings.
But are players in the property industry themselves considering offshoring some work? Many industries have realised the financial benefits of moving large parts of their operations offshore to countries such as India. Yet, despite many business success stories, newspapers often carry stories about dwindling customer satisfaction.
Now, some offshore firms are eyeing the property industry in Europe with a view to luring the industry’s administrative functions away from its traditional locations. Is this desirable – or even possible?
Remit Consulting, in conjunction with Estates Gazette and the Royal Institution of Chartered Surveyors in the UK, and Alvarez & Marsal in the US, have undertaken a survey of leading property owners, investors and managers. The survey analysed the opportunities and pitfalls associated with using business process outsourcing (BPO) to reduce costs and increase flexibility in property management.
The full findings will be available in September. The research was carried out between February and May 2005 and covered property owners and investors, property managers, facilities managers, owner-occupiers and business process service providers.
The intended consequences
So, of the organisations that were looking at implementing BPO, what were they hoping to achieve? Business operational requirements were selected as the key objective by a large margin. Other factors are of far lower significance and of these, improved customer service is the least popular.
The reasons for pursuing BPO showed a similar pattern. Cost control and operating efficiency were the most frequently cited factors but risk mitigation was in a strong third place. This may be significant in assessing the readiness of UK companies to experiment with initiatives such as BPO.
We examined the six processes most likely to benefit from being outsourced either onshore or offshore. These are lease abstraction, deal modelling/underwriting, invoice payments, receipt of funds and credit control, bank reconciliation, and facilities help desk.
Most processes still done in-house
The majority of these processes are still dealt with in-house. The most frequently outsourced functions are lease abstraction and facilities help desk, each of which is outsourced by only 25% of respondents.
Across the board in outsourcing, 80% of respondents are happy with the quality of outsourced services and so there seems little reason to suspect that questions about service would limit outsourcing. However, in the UK, relatively few people are involved in the processes compared with the US. On average, between four and seven people deal with each of these processes in a UK company – this is not enough for a single large outsourcing deal to be economical.
This is the first indication within the research that offshoring may not be a big factor in the property industry.
By far the greatest number of respondents who outsourced came from the medium- sized companies – those holding between 250 and 1,000 properties. This could further limit the initial thrust of BPO companies wishing to take on the business processes of large portfolio-holding companies. Offshoring, however, has yet to take off. Not in itself a surprising result, but with only 11% of respondents dealing with processes offshore, there is either a huge potential market or a significant and challenging marketing task ahead.
More interestingly, few non-property companies had been outsourced by stealth – for example, few finance departments had been offshored together with real estate processes.
Those companies already using offshore services have indicated that the quality of service was good. However, anecdotal evidence from interviews suggested that service can be patchy, especially where UK property legal and finance requirements are not well understood.
The main reason given for not adopting offshore BPO is the need to stay in control, although people are also worried about a lack of compatibility between the UK client and offshore service provider. Service providers will need to prove their worth before property managers decide to implement BPO in a search for savings and operational benefits.
We observe that no large owner/manager of commercial property is likely to openly commit to BPO in the immediate future. Pilot studies are likely from a few of them, though.
It is also clear that the strategic impetus behind BPO of operational efficiency and lower costs, and the increasing number of case studies from the US on offshore successes, should encourage firms to adopt BPO.
Cost benefits are irresistible
The loss of control feared by the real estate industry has not stopped large parts of the financial and retail sectors from using offshore BPO because the cost benefits are huge.
The property industry is right to be cautious but this important trend towards BPO cannot be ignored.
Melita Thomas is a partner at Remit Consulting
