Sound Business Investments for the Finance Sector

Stability Shaken

I think it’s fair to say the demise of Carillion earlier this year was a shock to many people.  Established as one of the largest construction and facilities management companies, with around 19,000 employees in the UK, thousands of people and businesses have been affected.

Although compared to other sectors the financial sector tends to be fairly stable in terms of economic backing, the Carillion collapse has bought into sharper focus the importance of contract terms and the financial risks providers are willing – and able – to take.

Litmus Partnership specialises in catering and facilities management consultancy, and one of the sectors our FM consultants focus on is finance.  Over the years, we’ve navigated various partnerships between providers and financial businesses. In the past six months we’ve certainly seen providers being more cautious in their approach to contractual agreements with more of a focus on ensuring there is stability for both parties.

 

Cash is King

Money talks and this is reflected in the traditional contract set up which focuses more on penalising the service provider. If KPI’s aren’t met the consequence is usually in the form of a financial penalty.  This gives the client an element of power – and reassurance that if a provider falls short, that they have some leverage.

Clearly, clients need a level of protection to ensure the contractual agreement is met. However, if we’re penalising ‘bad work’, why aren’t we rewarding ‘good work’? This approach – one which is mutually beneficial to both parties – isn’t currently common practice in the UK. It’s this more collaborative style of working which is gaining traction in the US, and is helping to develop high-performing strategic relationships.

 

Total FM Model

Before we talk about this new approach it’s worth noting the financial sector has naturally become more progressive over recent years, with the adoption of a ‘total FM approach’. This has been seen with Barclays, which moved to a total FM model with ISS around 5-6 years ago; as did Lloyds TSB with Mitie in 2014.

This arrangement sees both ISS and Mitie provide everything in terms of facilities management from cleaning, security and catering to front-of-house, waste management and energy management.

Of course, to deliver this type of model requires the provider to have the capabilities to provide an integrated FM set-up, but if it’s possible to do, it allows for a much deeper relationship to become established between the client and provider, one where the culture and ways of working become fully understood.  This, in theory, should result in a more mutually agreeable contract, as opposed to the more traditional contract set-up.

This is a step in the right direction of a new way of working; one which is beneficial to both parties.  However, for providers where a total FM agreement isn’t possible we need to look at a different way of achieving this mutually beneficial relationship.  Even in cases where the total FM model is possible, this is just a step in the right direction.  There is much further we can go.

 

Opening our minds to a new way

I was introduced to the concept of the ‘Vested’ outsourcing approach by an American colleague, when I was working on a project with Jones Lang Lasalle. This was the first time I had heard of Vested, which is a rather forward-thinking approach to business relationships.

The University of Tennessee has conducted award-winning research into this concept and runs courses specifically based on the Vested business model.  It describes Vested as ’a business model, methodology, mindset and movement for creating highly collaborative business relationships that enable true win-win relationships in which both parties are equally committed to each other’s success.’ All rather interesting.

One of our team went out to the University to take part in the course, so we’re in a strong position to share learnings.  I’m also going out later this year.  I believe elements of this Vested approach could revolutionise the way that clients and providers in the finance sector work together.

Interestingly, there are some who believe that the Vested approach could have potentially avoided the Carillion collapse.  In a recent blog Kate Vitasek, faculty at the University and author, researcher and innovator of the Vested business model, talks about how Carillion underscores the need for the Vested contracting model. She says Vested ‘is the answer to the issues we have with our business relationships’ and that organisations need to work together ‘in a productive and rewarding business relationship.’

So what are the actual, tangible benefits of Vested?  What could both parties be looking at if they choose to follow this method? Below are the three benefits as we see them:

Benefits

  • Mutual success for both: more than simply focusing on the success of the contractual relationship, Vested commits both the company and the service provider to the success of each other’s overall business.  
  • Stronger partnerships: a more lasting relationship is developed between the client and provider, through a strengthened sense of partnership.
  • Aligning on goals: by sharing their expertise and aligning their goals, both parties are able to drive innovation, adapt to changing needs and mitigate risk while working towards mutual success.

 

The Ingredients

The positive impact of these benefits is clear, but in order for changes to happen both parties need to change the way they currently think. Changes aren’t going to happen overnight.  They take time. Vested isn’t for the faint hearted, and it will require stepping away from what has been considered ‘the norm’.  There are key ingredients needed for both parties to get into the right mind set; ingredients that include:

  • Long term vision: for example, having the willpower to walk away from short term price savings to make long term savings – essentially being able to envision the bigger picture. 
  • Senior team support: having commitment and buy-in from the senior leaders within the business is needed for any changes and improvements to be made.
  • Collaboration: A true win-win requires all parties to be willing to collaborate together and strive towards mutually aligned success.

Vested challenges the usual way of working.  It creates an environment where new thinking is welcomed. It brings both the business and the provider together to be one team. Instead of having 10 people working for the provider and 10 people working for the client, you suddenly find yourself with 20 people all working towards the same end-goals.  You’ve doubled your team.  You’ve doubled your brain power.  You’ve doubled the outputs.

 

What could this look like in action?

As each contract is unique and has various factors to take into consideration, it’s difficult to give one example to show how Vested could look. It’s so much more than a simple ‘tick box’ exercise. It’s a mindset change.  It’s not ‘them’ and ‘us’; it’s everyone.

This approach is about encouraging innovation.  Innovation means the service provider can achieve the client’s desired outcomes. Innovation doesn’t come for free – particularly when it’s client specific.  It usually requires up-front investment.  However, this innovation can pay dividends if the contract allows for the service provider to be suitably rewarded when successful new ideas are introduced.

As I’ve said, any change to how business relationships operate will take time.  There are individual nuances, synergies and ways of working that are bespoke to each relationship. This isn’t a change that can happen overnight. However, I believe aspects of the Vested approach could greatly benefit the business relationships within the finance sector. It offers a much more promising future for all parties.  If we combine forces, and work together towards common goals, just imagine what could be achieved.