Riding the rising and ebbing tides of the Australian FM market
Facility Management interviews Sam Furphy, founder and chairman of Urban Maintenance Systems, chairman of Furphy Foundry, director of Ultum and a director of NuGreen Solutions.
In September 1995, you founded Urban Maintenance Systems (UMS). How have you managed to grow UMS to a $70 million a year company, employing over 300 staff working from 14 locations since then?
There are so many pieces that make up the answer to this question; however, when you boil it down, there are a few key factors that stand out. First and foremost, it was identifying the opportunity and positioning the company to best respond to demand. Initially, the demand was being driven by local government as a result of the then Kennett Government initiative compulsory competitive tendering (CCT).
I was 24 years old and working for our family business (Furphys Foundry established 1873), which manufactures and supplies street and park furniture to councils. I identified a niche and started UMS at my kitchen table.
At this time, the CCT driven market emerged quickly and, fortunately, UMS read this well and was picked up in the rising tide. Winning bids did not come so quickly; however, persistence paid off and we won our first long-term maintenance contract. We were so excited and thankful for the confidence shown by that customer and never wanted to let them down. This was the early stage of our service-driven culture that helped UMS in the coming years. I am happy to say that we proudly continue to service that first customer.
Another key element of UMS’s success was having the right strategy and sticking to it. Back then it was pretty basic, but the plan was right. I didn’t have to communicate it the way we do now because we were such a small and tightknit group of committed people. We all just knew the ingredients that worked for us.
One of those ingredients was ensuring our structure and resourcing was right. In the rising tide, we had to put in place a structure in advance of the work being secured, which meant as contracts were secured we had people ready to go. Linked to this and another key ingredient was our financial management strategy. Making a profit was important, but cash was king. Our long-term contracts delivered reliable cash flows that helped fund our growth.
Another significant factor that has enabled our growth has been the capable and committed people that have worked for the company. We have certainly had our fair share of letdowns and cultural misalignments; however, I have never stopped being grateful to the people who have embraced our culture and provided excellent service to our customers.
I would also have to say that UMS’s partnering approach to contract delivery greatly aided our growth. At the time many organisations were choosing to outsource for the first time, which naturally brought about a form of nervousness or apprehension. UMS recognised that successful long-term contract delivery was greatly aided by working collaboratively with our customers and our customers responded to this and trust was gained. A successful partnering relationship is not for everyone, but for clients and providers that take a mature and win-win approach, significant contract goals can be achieved.
In addition, we continue to work hard, bidding and developing proposals to retain and win new contracts; however, in more recent years, acquisitions have emerged as a part of the growth strategy. This has been very positive, yet challenging for UMS. We have acquired several companies positioned in the facilities management market, taking us to new customers and markets, and we continue to closely monitor this space.
How has the Australian facilities management market evolved since you founded UMS, especially concerning compulsory competitive tendering?
There is no doubt the facilities management industry has evolved rapidly over the last 18 years and is now a professional industry with continuing opportunity. In addition, there are specific services within the industry that are moving at a better pace than some others.
My personal view, however, is that outsourcing is not a rising tide anymore; it feels more like an ebb tide, but with more competition. The fact that competitively testing and looking for better service delivery models has slowed in Victoria is perhaps a reflection of the political times and changing priorities. Remember, back then, Victoria was under financial strain and it needed savings across the board.
I guess one issue that concerns me is why that approach – better service and lower cost – shouldn’t be the case all the time. For example, many people would not be aware that in 2000 the Bracks Government in Victoria abolished CCT as it was known. Initially, we were concerned about what impact this might have; however, many councils in Victoria continued with outsourcing and in my view have been the net beneficiaries of a much improved, innovative and cost-effective service for their constituents. In all other states and territories, competitive testing looks different and outsourcing can range from an annual trade service contract through to a packaged facilities maintenance service.
What has changed for the better and what has changed for the worse?
Clearly, one of the things that has changed for the better is the continued growth within the market through the emergence of new sectors and services. New sectors such as the public private partnership (PPP) market, corporate real estate (CRE) market and the burgeoning resources market represent good opportunities for companies and individuals positioned in this space.
The need for property owners and managers to respond to the market trends around sustainability and the environment provide further opportunity, as do opportunities driven by more formal regulation and compliance requirements such as the essential safety measures (ESM), NABERS and carbon reduction.
I would also cite the fact that facilities management is now viewed as a bone fide professional industry with facilities management graduates entering the workforce on a regular basis.
The issue that has changed the industry for the worse is the lack of opportunity for many companies positioned in the outsourcing sector of the facilities management industry. There is not enough opportunity to support the level of competition that has emerged across the industry, particularly for companies positioned as facilities management service providers. My concern is that through unsustainable pricing customers will suffer from the service offering being gradually devalued as the prime contractor and the entire supply chain get squeezed.
Innovation will bring certain opportunities for facilities management service providers; however, with much of what gets delivered within the facilities management industry being labour oriented, managing increasing costs in a competitive environment is a significant challenge for our industry.
How do you see the sector evolving in the short and long term?
We are in an interesting time. I think in the short term the market will be tough for many companies positioned in the outsourcing sector of the market and I would not discount some consolidation in the industry as a result of acquisition and/or companies simply being unable or unwilling to compete.
On a positive note, I believe that facilities management – either in-house or outsourced – will continue to be required and many organisations will keep maintaining rather than undertaking capital improvement/replacement until business confidence begins to rise again.
What do you see as the top five challenges facing facilities managers today?
- Rising costs – labour costs, compliance costs and standard of living costs, among others
- A lack of outsourcing and organisations recognising that maintenance of facilities is not their core business
- Competition – the competition is too heavy for the level of opportunity
- A lack of capable and competent people, and frontline management skills and technical skills, as well as general skills shortages
- Strategic positioning – what market(s) do you really belong to?
How do you believe each of these challenges can be combated?
- Rising costs can be combated through innovation and technology
- Lack of outsourcing can be overcome through marketing and business development strategies, and client confidence
- Competition can be combated by staying in your lane or market, focusing on it and innovating
- The lack of capable and competent people can be overcome by investing in people and cultivating talent, and through national and international recruitment strategies
- The problem of strategic positioning can be combated by knowing where you are strong and getting stronger
What opportunities are arising for facilities management in Australia? How can these be taken advantage of?
There are some pockets within the industry that represent good opportunity, such as environmental sustainability (for instance, energy efficiency initiatives and carbon reduction management). In addition, information technology and technological change is changing the way and where people can work, so mobility management is emerging. And, due to never-ending compliance and regulatory changes, risk management continues to strengthen as a focus area for facilities management organisations and individuals.
What final thought or advice would you like to share with the Australian facilities management community?
On the client side, we need to scope and specify carefully and engage in a way that builds innovative partnerships. On the provider side, we need to be proactive and always deliver.
Sam Furphy has been actively involved in the facilities management industry for the last 20 years. He is the founder and chairman of Urban Maintenance Systems (UMS), chairman of Furphy Foundry, director of Ultum and a director of NuGreen Solutions.