Can the Pandemic Reverse Fragmentation in the Facilities Management Industry?

Facilities Management (FM) is notoriously fragmented: multiple service providers jockey to serve clients in exclusive ways, from lift operators to security system providers. The results are twofold in their terribleness: one, margins, which are already tight in FM, become tighter as these fragmented FM players drive up costs in the wake of the pandemic; and two, fragmentation kills the value of data generated by disparate systems due to a lack of interoperability between different FM providers–so there is data but it isn’t actionable. But in the aftermath of COVID-19, fragmentation may no longer be the flavour of the industry.

As the demand profile for commercial space shifts sharply towards industrial warehouses (to support booms in e-commerce and e-retail) and office spaces for larger corporates who can afford to be in compliance with post-pandemic norms and regulations, FM players will have to confront a dilemma to survive: either get big enough to reliably service sophisticated clients at scale cost-efficiently, or be small but pack a punch with data-driven and technology-enabled specialisation. Both choices ultimately push the industry closer to consolidation: firms that don’t get big enough pull down the shutters or are acquired by larger fish; firms that don’t specialise well enough to beat other specialists face a similar fate. After the pandemic, the bar for FM services will invariably rise–for everything from HVAC to security to maintenance and cleanliness. A higher bar means more losers than today, and the few winners that remain will grow bigger and stronger.

Consider the first choice in the dilemma: scale. As the profile of demand for FM services changes, so will standards and requirements for servicing those standards. Firms will require shared spaces for hybrid employees who work from home and come into the office on some days–shared desks, shared meeting rooms, and shared digital spaces via videoconferencing. Clients that can afford to make this transition will likely be larger corporations who can invest in social distancing compliance and improved ventilation and security technology. Such clients will more than likely demand higher standards of sophistication from their FM providers at or near existing rates. This is not a small ask for an industry with low margins and lower still in Singapore due to fragmented competition. Smaller firms will increasingly find it harder to compete on scale with existing incumbents.

The alternative (apart from closing shop) is to invest in carving out a niche and specialisation to position FM firms to be the best, if not largest, provider of specific services. If FM firms are unable to be a jack of all trades, it is a better bet to be a master of one. By tapping into cutting edge operations and asset management technology–hardware as well as software–FM firms can employ data-first approaches and methodologies that allow them to be cost-efficient in one narrow vertical in a way that larger FM players simply cannot. The result is fragmentation of services but consolidation of players–so that different players offer different services (instead of different players offering the same suite of services at scale). But consolidation would still be a spectre since only the best, most efficient, and most agile specialists would thrive in the future.

Fragmentation is no longer a feasible state of affairs for the FM industry–in Singapore or globally–as cost pressures rise alongside standards for FM service. As the tide of consolidation begins to similarly rise, it is in the best interest of every FM player to evaluate their position and choose between investing in specialisation, ramping up scale, or being carried with the tide involuntarily.

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