Reengineering Business Practices: A University's Experience Outsourcing Facility Management Services

Kathryn West

Harvard Medical School

As the Associate Dean for Operations, I am responsible for the provision of facilities management, construction and renovation, environmental health and safety, energy management, and support services for Harvard Medical School, which owns 1.5 million square feet of real estate on 17 acres of campus, and 13 commercial and residential facilities off campus. The medical school has some unique features, but it has experienced many of the same trends as other facilities. In the past year or so, in particular, it has begun outsourcing facilities management. I shall discuss that experience, and review one case of such outsourcing.

Harvard Medical School

Harvard Medical School was founded in 1782, with the mission to shape the future of medicine through education, research, and discovery of new ideas. While Harvard Medical School is perhaps best known for training physicians, much of its effort and funds are directed at basic scientific research. Its more than 7,000 faculty researchers received about $440 million in grants from the National Institutes of Health in 1995. Six basic science departments and two social science oriented departments are housed on Harvard's quadrangle. The student body is relatively small (735 in the M.D. program, 470 in the Ph.D. program, and 170 in the joint M.D.-Ph.D. programs).



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--> Reengineering Business Practices: A University's Experience Outsourcing Facility Management Services Kathryn West Harvard Medical School As the Associate Dean for Operations, I am responsible for the provision of facilities management, construction and renovation, environmental health and safety, energy management, and support services for Harvard Medical School, which owns 1.5 million square feet of real estate on 17 acres of campus, and 13 commercial and residential facilities off campus. The medical school has some unique features, but it has experienced many of the same trends as other facilities. In the past year or so, in particular, it has begun outsourcing facilities management. I shall discuss that experience, and review one case of such outsourcing. Harvard Medical School Harvard Medical School was founded in 1782, with the mission to shape the future of medicine through education, research, and discovery of new ideas. While Harvard Medical School is perhaps best known for training physicians, much of its effort and funds are directed at basic scientific research. Its more than 7,000 faculty researchers received about $440 million in grants from the National Institutes of Health in 1995. Six basic science departments and two social science oriented departments are housed on Harvard's quadrangle. The student body is relatively small (735 in the M.D. program, 470 in the Ph.D. program, and 170 in the joint M.D.-Ph.D. programs).

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--> Operating Issues My group is responsible for facilities management as well as administrative and support services for 16 buildings in a compact urban setting. We also have 300,000 gross square feet under construction. My group provides the full range of operations and administrative services, from security and food services to maintenance and renovation services. In addition, we undertake an annual planning process for our capital investment program, which is about $65 million over six years. About 85 percent of the 1.5 million square feet on campus is occupied by research laboratories, and the rest by offices, a dental clinic, and teaching and dormitory space. We operate 24 hours a day, 365 days a year, to accommodate research activity and student life. Facilities management in such a setting is different from that in office or retail space. Additionally, our urban site means there is little buildable space left in the area. The facilities services provided are generally traditional, but there are several areas we have emphasized over the past few years. The first is preventive maintenance. In the past year we initiated a comprehensive preventive maintenance program, complete with a detailed asset inventory, protocols for maintaining each asset, and a regular maintenance schedule. We are confident that through this program we will save money on breakdowns and unplanned repairs. Energy—a big part of the budget—is another concern. Three years ago our energy expenditures were escalating at an alarming rate. In response, we developed a sophisticated program for tracking energy consumption on a daily basis and now have the energy budget well under control. Waste management for a research institution like ours is also unusually challenging. In addition to the usual solid waste management issues, a scientific research institution's waste stream includes various biological and radioactive materials. Emerging Trends Like other organizations, Harvard Medical School operates within the context of several emerging trends. Three important trends deserve separate discussion: increased regulatory pressures, especially in

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--> environmental safety and health; financial pressures; and a wave of acquisitions and mergers. Regulatory Pressures. In my environment, one of the most challenging operating issues these days is environmental health and safety. In the last four years, regulatory pressures have greatly increased, particularly in environmental, health, and safety regulation. Many of these pressures come from the federal government. The Environmental Protection Agency has focused considerable compliance efforts in academic and research institutions in the past year or two. We have changing regulatory pressures and guidelines from the Occupational Safety and Health Administration. The Nuclear Regulatory Commission oversees the use of radioactive materials. Finally, there is the alphabet soup of local agencies: the Boston Fire Department, the Massachusetts Department of Environmental Protection, and the Massachusetts Water Research Authority, which is tasked with cleaning up Boston harbor and which requires us to measure everything that goes into the sewer system on a quarterly basis at nine or ten different sampling points. All of these requirements are important and beneficial to the environment and to workers, but they place heavy demands on management and staff. Financial Pressures. All facilities managers are familiar with the second trend: financial pressures. These pressures are coming from several sources: the recent recession, which hit New England particularly hard; stockholders' demands for profits, which has lead to downsizing, among other things; declining federal funds for research; and reduced overhead recovery rates. These pressures have had a number of practical impacts. They have led to downsizing and the loss of many jobs. They have also cut demand for space. Outsourcing has become increasingly common. And industrial shifts have occurred, as developers and general contractors, with declining revenues in their core businesses in the late 1980s, have moved into facilities management. Finally, organizations are being reengineered to adapt to these austere conditions. Mergers and Acquisitions. The third trend we see consists of mergers, acquisitions, consolidations, and the like. This trend is certainly taking place in the private sector, and the health care industry is no

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--> exception. We also see it in the federal government, where divisions are disappearing overnight and are being collapsed into other divisions. Outsourcing Case Study: The Harvard Institutes of Medicine First, let me define what I mean by outsourcing. Outsourcing in facilities management is the hiring of a full-service, single-source vendor to provide many services bundled together. I distinguish it from out-tasking, which is the familiar process of hiring a specialized vendor to provide one or more facilities management services; security, housekeeping, and custodial work are common examples of out-tasked services. Many large organizations—both companies and nonprofit institutions—have outsourced facilities management and other services to better concentrate on their core enterprises. Increasingly, we see vendors providing the full range of services, and not just pieces of those services. My own recent experience with the 300,000 gross-square-foot building that houses the Harvard Institutes of Medicine may be instructive. This ten-story building had originally been a Boston high school, but had been vacant for years when the medical school purchased it two years ago. The city had closed the building in the late 1970s, owing to a declining inner city population, the energy crisis, and the unsuitability of a high-rise structure for a high school. We are currently renovating the building for biomedical research. The project will integrate a number of different institutions and research centers in the building, in partnership with three of our affiliated hospitals. Each of the hospitals will take three floors, and another floor will be devoted to a multi-institutional center for genetics research. We have outsourced 100 percent of the services provided in this building, from the mail and receiving room on up through the environmental health and safety function. Objectives of Outsourcing. The objectives of outsourcing are generally well known. The first and most obvious is to enable an organization to focus on its core business or core competency. The core competency of a medical school, for example, is teaching and research, while the core competency of a facilities maintenance organization is the provision of maintenance services. The employees of such an organization are revenue producers for that company, while the employees of a facilities

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--> maintenance department within a company or institution engaged in another business are viewed as overhead. Another objective is to control costs, though I think the often heralded notion that outsourcing will result in significant cost savings may be something of a myth. There may be substantial savings when first outsourcing to a private company, but the costs of outsourcing may actually be similar to the cost of providing services in house over time. Delivering high-quality and reliable services is our prime objective in outsourcing, for a facility such as ours. The expertise of facilities maintenance personnel must be sustained for reliability of service. The lights and heat in an office building are less critical than the basic services in a research environment; a temperature variation, for example, can ruin years of work for a research project. A final objective may be to force change. If the organization has an inefficient or inappropriate structure, outsourcing is sometimes one way to induce dramatic change in the way business is done. Outsourcing at the Harvard Institutes of Medicine. Our objectives for the Harvard Institutes of Medicine were to provide extremely efficient facility operations, emphasizing performance, quality, and responsiveness. Biomedical researchers are demanding tenants, largely because of the nature of their work. They need a highly responsive and flexible service provider; management needs a skilled and flexible provider who can meet the research-associated environmental and safety regulations. This case had the added complexity of having three different partner organizations as tenants, each with its own needs and practices. In considering how best to serve the needs of the multiple tenants, we established a collective decision process. Four or five task groups were assigned to work on developing a service specification for the building over several months. We were unanimous in our decision to outsource the management of the building, so our energy was directed at providing as much detail as we could about how the facility should be operated. The partner tenants thus agreed to this approach from the beginning, except for environmental health and safety management, which they wanted kept in the hands of Harvard's environmental health and safety group. However, since the outsource contract started last fall, we have

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--> changed that arrangement, and even the health and safety services are outsourced. Timeline. Figure 1 shows the timeline for implementing vendor selection. Some of the steps are worth highlighting. We prequalified. vendors. There are many vendors, but few can handle this 100 percent service provision requirement. Of the 20 firms considered, many were former custodial companies that were trying to shift into fuller service offerings, some with more success than others. We identified about a dozen we thought were qualified, then narrowed the group down to four, who were invited to respond to our request for proposals. After receiving the proposals, we interviewed the bidders at length and in detail. Then we did thorough reference checks. I have found that who vendors give as a reference is as important as what the reference says. One firm thought it would be good to use a Harvard reference; when I telephoned, someone answered, ''Housekeeping.'' The work they were doing had nothing to do with what we were interested in. It is also important for one person to do all the reference checks and to try to ask consistent questions, because doing so allows better comparison and a more balanced view. In this building, the first tenant moved in March 1996; the final tenants will not move in until June 1997. So the vendor had to accept the challenge of managing a partially occupied building while tenant fit-out is proceeding on seven other floors. In addition, we wanted our vendor on site last fall as full-time facility manager, in time to work with an independent commissioning agent to commission the building over a three-month period during the winter. This approach has proven to be of great benefit because, instead of walking into a situation and trying to manage a site that they know very little about, the facility management staff has been there from the beginning and understands the building well. Selection Criteria. The vendor selection criteria are important. Cultural compatibility is most important of all, in my view. For example, an organization with a relaxed management style and informal people may not want to engage a "buttoned-down" firm. It was particularly important

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--> Figure 1. Set Deadline for Project Completion.

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--> in our case to find a vendor with experience in similar settings; doing so was not easy, because very few research laboratories outsource the delivery of all facilities services and very few facilities management companies have experience in managing in these environments. We were also interested in someone who could manage a multitenant site. Flexibility was also very important. We needed a firm that could function in a demanding environment, that could "go with the flow," because the needs and demands of our client tenants can change daily. We needed someone with a very strong customer service orientation. The quality of a vendor's reporting systems is important, because outsourcing often involves handing one's money to someone else to spend. A vendor with sophisticated, high-quality reporting systems can relieve much of the anxiety associated with such an arrangement and insure that financial controls are sufficient. Finally, in a partnership, good "chemistry" is critical. One must work very closely with the vendor, solving problems together. If the customer is trying to hold the vendor's feet to the fire, the relationship is not one of partnership. Track Record to Date. We met our implementation schedule, and we had our vendor (Codman Corporate Services) on board for the commissioning. The vendor has been able to provide very flexible staffing to meet the phased schedule for occupancy. Yet our contract with the vendor is not very complicated. Codman is responsible for hiring and managing the staff employed to maintain the building and for subcontracting out services such as housekeeping, snow removal, and environmental health and safety. The tenants occupying the building advance funds for all operating expenses (against an approved budget) to a bank account managed by the vendor serving as our agent. The vendor receives a fixed monthly management fee. In addition, once a performance baseline has been established, we will create financial incentives for performance through which Codman could be compensated above the fixed fee if they saved us money or did other things that we found to be beneficial or attractive. In the meantime, what we have bought is access to superior levels of expertise. Buying these services from a company who provides them for a living is different from putting the same kinds of people on your own payroll. The vendor is extraordinarily responsive to me and the group of

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--> partners (who meet as an operating committee) and to the tenants who occupy the building. We have also bought access to expertise in budget development. The vendor's people have worked in many different settings. Although our demands for reporting detail and different budget approaches are somewhat extreme, because of the multitenant situation, the vendor has met them. This outsourcing arrangement allows senior management to focus on its core business. It would have been difficult to add a 300,000 gross-square-foot building to my portfolio or to one of my facility manager's portfolios. I have really been able to focus on other things that are more critical than managing this one building. A strong partnership is evolving. And partnership of this kind offers great opportunities for cost savings and increased service. In a related partnering arrangement, Harvard University has entered into three institutionwide outsourcing partnerships that are much broader than the medical school's partnership with the Codman Company for this one building. The university has partnerships for office supplies, travel services, and laboratory supplies and equipment. The pricing and service levels under these arrangements is very attractive. Conclusion We learned at least two lessons from this outsourcing experience. First, it is important to adhere to your schedule. Keeping to the schedule does more than accomplishing your program goals. It also gives you credibility within your own organization as well as with the vendor community. Second, it is important to build a team to obtain consensus from top to bottom. Every member of the team must participate. But within the team—and this may sound heretical, because team members are supposed to be co-equal—I believe a senior manager should own the process, lead the team to closure, and appreciate that it is his or her responsibility to deliver the product. That way some measure of control is possible.