Outsourcing is a trend that is gathering momentum. Many companies believe that outsourcing non-core activities allows them to concentrate on their core business and look at ways to expand and improve efficiencies, to make them more competitive in their area of expertise.

Initially services such as cleaning, security and other soft services were outsourced.  These were generally services, which had a high staff component, and hence a higher level of management was required. The trend further intensified with the outsourcing of non-core management utilities such as IT infrastructure, facility management and property management.

According to Andrew Teixeira, property management director of JHI Real Estate, the advantages of outsourcing non-core activities are numerous:

-        Property management is generally a low margin business, however, if portfolios are bulked together, the efficiencies increase exponentially allowing the outsourced service provider to build a business from what generally was a cost centre, and an auxiliary division in the company that has outsourced;

-         Because property management is the core business of the outsourced service provider, it generally has an association with an international property company in this field which facilitates benchmarking of practise and systems as well as an exchange of leads and research;

-         Non-core activities usually have a high personnel component, and consequently the human resource cost is high. These costs together with the management of personnel are transferred out of the client organization. Using property management as an example, the transferred personnel are now active in a business whose core focus is their activity, as opposed to being in a non-core field in the client’s business;

-        The outsourced service provider focuses on the activity as their core business and is more likely to invest in the latest IT infrastructure and implement the latest trends to improve efficiencies, in the management of the portfolio;

-        Bulk purchasing of equipment and supplies can be made use of by the outsourced   service provider and discounts can be negotiated, which are then generally passed on to the client; and

-         There is no all embracing property management qualification so property management companies generally employ from a broad base of qualifications and experience, and then provide in-house specialized training, based on practical knowledge that has been built up over many years;

Teixeira adds that there are disadvantages. However, if the correct mechanisms are put in place upfront when outsourcing the business to a specialist third party, these no longer are an issue. These include:

-         The company loses direct control, therefore different authority levels/mandates need to be agreed on at the time of doing the contract;

-         There needs to be an outsource manager from the client’s side liaising with the outsourced service provider, ensuring that service levels are maintained and the desired level of reporting is taking place; and

-         There can be a duplication of accounting systems. However, this can be overcome by downloading the information onto the client’s system.