Measuring Readiness for Performance-Based Contracts: A Complete Model for Facility Management Companies

The facility management industry is evolving and traditional methods are being replaced by new technology-aided practices. In this digital age, it is essential to be well-prepared for change and be eager to embrace and implement it.?

In this article, I am going to share my observations about the readiness of facility management companies in embracing performance-based or output-based contracts and implementing digital transformation.?

I will delve into various aspects that contribute to a comprehensive model we've developed for facility management companies and leaders. The model aims to evaluate preparedness for the challenges that lie ahead, focusing not only on technology but on other crucial factors as well.

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It is certain that performance-based contracts will become more prevalent in the future. Customers in regions like the Middle East and the UK are already prioritizing technology. As a result, contracts will evolve beyond traditional innovation KPI models. FM companies and leaders must recognize that transitioning to output-based or performance-based contracts will not happen overnight. It requires a rigorous approach as well as significant modifications.

Understanding your readiness for this change is important. It is crucial to examine your organization's contract management status and compare it to the industry peer group's expectations. Unfortunately, there is no standardized methodology or score for readiness at this point in time. However, we have developed a complete model based on our extensive interactions with 30-plus FM companies across various regions. This model is made up of 6 important criteria that will assist you in determining your level of readiness.

1. Customer Readiness: Understanding Your Clients

The first critical factor is customer readiness. Assess the kind of customers you are currently serving and whether your existing contracts allow you to transition into performance-based contracts. Evaluate your SLA structures, KPI monitoring, and customer interactions. Is your customer interaction comparable to a regular day in the life of a facility manager? Are you primarily firefighting, or is there room for strategic innovation? Understanding these aspects will give you insights into your readiness from a customer perspective.

We look at the level of data transparency that is currently available in the SLAs. It is one of the important things that is missing from a lot of contracts, but it's something that will eventually change.?

2. Transformation Readiness: Is Your Business Prepared?

The second aspect is transformation readiness. Review the initiatives and innovation programs you've undertaken in the past and determine how many of them have resulted in full-scale implementations. Assess the level of customer engagement during these initiatives. This will help gauge how ready your organization is for transformative changes.

3. Human Resource Readiness: Empowering Your Team

The third factor is human resource readiness, focusing on the blue-collar workforce, especially technicians and O&M technicians. Evaluate how comfortable they are with using smartphones. We still find in several countries where smartphone usage is very limited in certain facilities. However, although more and more people are utilising tablets for routine work orders, stand-off smartphones are still used in some places. From an engineering perspective, you should check whether the engineering team has basic data skills. A well-prepared and skilled workforce is crucial for effective facilities management and demonstrates your readiness.

4. Operational Readiness: Streamlining Your Operations

Operational readiness is the fourth factor to consider. Analyze whether you've made specific changes in your operations, such as putting non-critical assets or overall assets on non-PPM schedules in your existing contracts. If that is not the case, it will lengthen your overall transformation journey. Also, assess how effectively knowledge is transferred between the central command centre or nerve centre and on-site teams. Feedback from on-site to the central team is essential for continuous improvement. This aspect is crucial and primarily depends on whether your organisation has effectively established institutional knowledge to a certain level or still relies on individual knowledge.

5. Funding Readiness: Investing in Innovation

Evaluate how prepared your organization is to invest in innovation and initiatives. Consider the sources of funding, whether it's from customers, internal resources, or strategic initiatives. In this specific context, it is crucial to assess the readiness of the leadership more than that of the organization itself before starting your transformation journey. Another aspect is giving due importance to ROI during the early stages of your initiatives which can significantly impact your overall outlook.

6. Strategic Readiness: Preparing for the Future

Lastly, focus on strategic readiness. Determine how you source innovation—whether through building, buying, or a mix of both. Have you in the past made strategic partnerships with startups or have you considered investing in them. Making strategic investments and partnerships will help you stay ahead and sustain your transformation journey over the long term. Drawing a parallel to the three horizons innovation model, organizations need to foster Horizon 1, Horizon 2, and Horizon 3 innovations concurrently at different points in time. This approach ensures continuous progress and future-proofing of the organization.

Assessing Your Overall Readiness

By combining these six indexes, you can obtain a score that reflects your organization's readiness compared to your peer group. We have developed a model that facilitates this assessment. You can access the model through the link provided in the comments. Simply fill in the Google form with your data, and we will provide you with a detailed outlook on your readiness.

Regardless of where you stand on your transformation journey, I encourage all FM leaders to think about these aspects and more. Understanding your readiness for inevitable transformation is vital. This assessment will not only help you plan your next steps more effectively but also enable you to make better decisions for your organization and the community.

If you have any additional attributes that you believe should be considered to determine readiness, I would love to hear from you. Feel free to share your thoughts with me in the comments so that we can further refine and improve the model. I look forward to hearing from you!

Listen to this podcast episode, to know more about performance-based contracts and digital transformation.

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