About three and a half years ago, Toyota USA took a journey into what it calls performance-based facilities management, or PBFM. The company projects nearly $10 million in savings over the first five years of a PBFM-based contract with its facilities management vendor, and plans to continue using the new management style.

“PBFM is facility management with a twist,” explains Jim Cooke, national facilities operations manager for Toyota Motor Sales’ U.S. operations. “We’re focusing more on what needs to be done and trying to leave the decisions to the people who are doing the work. This allows us to spend more time looking at strategic planning as opposed to micro-managing what people are doing.”

Managers have more time to spend with customers at all levels. PBFM also makes it easier to evaluate the performance and cost of facilities management, assure sustainability, and establish benchmarking and best practices.

Review Customer Needs and Expectations

Toyota’s facilities in North America comprise 1,780 acres of geographically dispersed land with 134 separate buildings and 10 million sf of space. Roughly 75 to 80 percent of its operating costs are people costs, 13 percent are spent on technology, and nine percent on facilities. So Toyota set out to save money where it would make the most impact, by investing in areas that positively impact employees’ productivity. Lighting, ergonomics, air quality, etc., are on the list of items the company wrestles with day-to-day.

“The opportunity cost—choosing where to spend the dollars and make it strategic to our senior management—is a function of the people costs. So the real cost plus the opportunity cost is where we think we can build the best value,” says Cooke.

Before embarking on the new management plan, Toyota reviewed who its customers are and their expectations. Customers include not only the owners and stockholders, but also senior management and the buildings’ occupants. Toyota wants to understand what customers need and why, so the company can manage and meet expectations, plus make a clear business case for each decision.

“In today’s world with constrained resources, we have to find a business imperative,” says Cooke. “Why we must do something, not just because it’s nice to do or sounds good, or because we think there’s some value there.”

Biggest Hurdle is Changing Old Habits

One of the most difficult aspects of initiating the PBFM style was changing attitudes and habits. Both Toyota’s management approach and the business relationship with the facilities management vendor had been in place nearly 30 years. Toyota opted to continue working with the same vendor, but getting the vendor on board with an entirely new paradigm was not easy. The two sides came close to dissolving their longstanding relationship.

“This is a difficult thing to do—change a relationship,” notes Cooke. “I think in some ways, it would have been easier to start a new one.”

The contract was restructured so that some of the vendor’s profit margin is at risk if it doesn’t meet key performance indicators and critical performance indicators. Toyota rates the facilities management company’s performance on a monthly basis and does a quarterly summary. If the vendor has a bad month but recovers during the quarter, they can earn back lost profits.

“The better job they do, the more money they get. If they don’t meet objectives, they lose some money,” explains Cooke. “Initially, they had a hard time accepting if they made a mistake, they lost money, but I think it’s becoming more than standard in the industry.”

Cooke suggests starting with common goals and expectations, followed by a lot of communication and discussion about the respective risks and rewards. Toyota’s business partner viewed PBFM as taking money away from them, until Toyota convinced them it was more like money to be earned, equivalent to a shared savings.

For senior management, Toyota set the objective of creating performance accountability for everyone involved. It decided to strengthen facility management by governing with the vendor instead of using the traditional top-down approach.

“In the past, we didn’t have a lot of discussion about how we ought to be doing things--we just said this is how we want you to do it. So the governance process was something new,” says Cooke.

The role of Toyota’s six facility managers had to change as well. The scope of their role was broadened, and they became less caretakers—reacting to crises—and more proactive, looking at the bigger picture. The change in roles came with a corresponding title change to portfolio managers.

“They needed to learn how to handle this new role, so that was another challenge,” says Cooke. “The skills, strengths, and talents that made them successful before may not be the combination that makes them successful in this new role. Some of them needed to be retrained or to refocus their skills and talents.”

Instead of being a one-man band expected to know almost everything about facility operations, the portfolio manager now is more of a conductor.

“The conductor knows how to play three or four of the instruments pretty well, but not all of them. He or she knows exactly whom to call on at the right time to do the job, and then steps back and lets the music happen. We had to reset our expectations internally about what the role of the facility manager, or portfolio manager, had to be.”

Buy-in was not too difficult to achieve, since most managers welcomed more autonomy, says Cooke. Those who were not able to make the switch from “firefighting” mode to “fire prevention” mode found positions elsewhere in the company.

Communication and Clearly-Defined Goals Crucial

The roles and responsibilities of company and vendor had to be clearly defined. As Toyota pulled away from the day-to-day minutiae and allowed the vendors to have more interaction directly with customers, the company relied instead on “relationship management” to keep track of the vendors’ performance. This involved open communication and information sharing, not just with reports, but with a lot of discussion as well.

Toyota decided to focus on measurable goals and work in this partnership environment to achieve the goals. Toyota’s chosen goals were to create greater performance accountability; strengthen business partner governance; create transparency and visibility of performance; optimize services to better support business needs; further empower the business partner to leverage their expertise; and focus company resources on creating greater value for the customer.

The company created four benchmarks by which to measure success: professionalism, quality, communication, and accountability. For each benchmark, they developed guidelines that both the business partner and the customer should follow in order to achieve success.

A good business partner, for example, recognizes the demands of the customer and goes the extra mile in order to perform at high standards. Correspondingly, the good customer treats the business relationship as a true partnership, not just as a user/supplier agreement.

“Each one of these benchmarks talks about behaviors that both the business partner and the customer ought to exhibit for this program to work,” explains Cooke.

Reaping the Rewards

Toyota’s venture into new management theory has been positive on several fronts. The company has saved money, added value to its business operations, and maintained or increased customer satisfaction.

“We’ve had more time for customer engagement—to listen, hear, learn, and probe. Our customers couldn’t be happier,” says Cooke.

Financially, Toyota expects to save $1.8 million a year over the life of a five-year contract, plus incrementally gain a little more each year. It essentially avoids spending $9.8 million for its facilities management program in that same timeframe.

The majority of savings came from the little items, like how often an office is cleaned or the lawn is mowed. Under PBFM, Toyota stopped telling its vendor to vacuum every night or mow “X” amount of times per week. They simply set goals like “no dirty carpets” and leave it to the vendor to decide how often tasks need to be done.

“There were no big zingers. It was a bunch of little things that in the end added up to a lot of dollars,” concludes Cooke.

Key Lessons Learned

Though Toyota considers PBFM a success and plans to continue using it, the change took longer than they thought it would, says Cooke. His advice to others is to give it time.

“We’ve been through two years of PBFM and we’re just starting to feel comfortable with it.”

Cooke recommends using a separate transition team to implement the new management style, which wasn’t an option for Toyota due to its vendor’s size and staffing.

“We actually sacrificed a bit of the day-to-day stuff that we wanted to do so our vendor and some of our employees could focus solely on getting this initiated. If we had the resources, we’d have had a separate implementation team.”

Trying to change 20-year-old habits practically overnight is tough, but is made much easier with constant communication. Toyota couldn’t be happier with the results.

“We think this is the way to go. There is an advantage to being less prescriptive,” notes Cooke. “Change is always difficult. It takes more time and effort than you think, but it’s well worth it.”

Change is fluid as well, and using the Japanese tenet of kaizen, or “moving forward,” Toyota will continue evolving its management style.

By Taitia Shelow