Although the UK market for facilities management is definitely healthy, it is not about to experience the boom everyone once thought it would. After questioning 600 non-information technology directors and 1,200 information technology ones, Graham Browne of market research group International Data Corp, concluded that, unless the Government goes down the facilities management path – which he believes is questionable – the UK market is unlikely to experience the 30% per annum growth rate generally forecast. It will more probably be about 13% to 14%. Such growth, he reckons, will centre around local government, although the private sector is also showing some interest. Browne’s definition of facilities management is the management, by a third party, of an organisation’s information technology infrastructure. He differentiates this from outsourcing, which he says covers a much broader spectrum – it does not just involve looking after computer hardware and software, but includes other non-computer-related services too. Although Browne says that the bulk of suppliers follow market leaders, Hoskyns Plc, AT&T Istel, and Electronic Data Systems Corp, he believes that unless they concentrate on niche markets or certain technology sectors, such as personal computers and distributed systems, they face high risks and low margins. The element of risk results from several factors. First, it can take between one and two years to negotiate a contract. Not only is competition fierce, but the amount of money involved means that all parties are keen to get the terms of the deal right – the average contract is worth between UKP5m and UKP12m. These negotiations, of course, cost a supplier a considerable amount of cash for which there may ultimately be no pay-back. Conversely, it may take a great deal of time before the vendor actually makes money on the deal. According to Graham, many suppliers are even prepared to take an initial loss in the hope that they can win other more profitable contracts on the back of the first. Second, as a lot of contracts last for up to five years, the risk factor increases year-on-year, especially as many companies are now restructuring. As a result, Browne said, suppliers need to understand clearly the areas in which they excel to minimise problems later. Third, when facilities management first took off in the US, suppliers were dealing solely with mainframes, and could earn higher margins from significant economies of scale – several mainframes were centralised on one site, and could deal with the information technology requirements of many customers – and so the old bureau service was recreated under another name. Furthermore, a limited number of staff could service all of the machines. Now, with the advent of client-server and departmental computing, it is much harder to generate such economies of scale. Customers use a wide range of boxes, with a wide range of software, all needing a different set of skills to manage.

Profit margins suffer

Furthermore, many customers’ computing needs are currently looked after in-house. So because a client’s main aim behind using facilities management services is to cut costs, the supplier’s profit margins suffer. And the problem is exacerbated with the level of competition on the market increasing all the time – many hardware vendors, for example, are trying to boost dwindling profits by moving into this arena – many observers question whether IBM Corp can actually make money from facilities management. The upshot of this pressure on margins and the fight for market share, Graham said, could well be a reduction in the level of service offered by vendors as they reduce staff levels on contracts to cut costs. So, all in all, although he reckons the outlook for facilities management is not quite as optimistic as people once thought, he does feel that there is a logic in making use of the experts. Facilities management does offer suppliers significant long-term opportunities within an overall IT services portfolio, he believes. But they need to specialise, be creative

and target their marketing activities effectively, as well as offer other higher margins services too.