Very interesting article in The Economist discussing the contract services (or facilities management) sector, which worldwide is estimated to be as big as $1 trillion per annum. A key feature of firms that provide these outsourced operations is their shift towards providing a full range of service. Operators that started out in ‘soft’ services, such as Sodexho in catering and ISS in cleaning, have acquired expertise in ‘hard’ services such as maintenance and technical services; whilst hard service providers, such as GSF Suez and Balfour Beatty, have added on soft service provision.
The conclusion is interesting. Competition in the sector is largely cost based, since it is the nature of outsourcing that firms tend to bid for work by quoting the lowest price. But in the future, it is the operators ability to innovate – especially in terms of the breadth of services on offer – that may become more important.
From a research perspective it would be very interesting to investigate the economies of scope in this sector, and the extent to which there is synergy between the different service operations delivered by the firm.