Concentrated in the northeastern U.S., Fleet Bank is part of FleetBoston Financial, which, with the planned acquisition of Summit Bank, will be the nation's seventh largest financial services company, with assets of $220 billion and global headquarters in Boston. An ambitious succession of mergers and acquisitions, including the addition of Fleet Mortgage, Shawmut Bank, Natwest Bank, and BankBoston, has made it the biggest institution of its kind in New England, incorporating 18 of the 25 largest banks in the region.

"Fleet has grown tremendously during the past 12 years, encompassing a total of 23 million square feet in 46 states and 22 countries, with $522 million in annual occupancy expense," says John Gallagher, vice president and manager of Vendor Outsourcing Facilities and Project Management for FleetBoston Financial. "Bank mergers don't always work as well as predicted, but that is not the case at Fleet. Our goal in 2001 is to drop $100 million from our occupancy expense."

Downsizing to Manage Growth

Shrinking the amount of real estate it occupies is one way for Fleet Bank to achieve economies of scale, eliminate duplication of effort, and rein in costs. For example, in January 1999 the bank shed 300 facilities, going from 1,800 to 1,500. In October of that year, following Fleet's merger with the Bank of Boston, Fleet's Corporate Facilities group led an initiative to exit 2.8 million sf of office space, relocate more than 8,000 people, and re-sign 3,100 buildings.

"We spend more time getting out of space than worrying where to put people," says Gallagher. "We are usually downsizing."

Outsourcing is another weapon in Fleet's cost-reduction arsenal. The bank began its outsourcing program in March 1995, contracting with one local and two national vendors after evaluating 40 different potential providers. A flurry of acquisitions followed, during which Fleet found itself well equipped to integrate the new organizations as its real estate portfolio swelled from nine million sf to 18.7 million sf in a year and a half.

"We had a very good transition because there was a lot of local management--four regional managers, 13 asset managers, and a program manager--overseeing the effort," says Gallagher.

Over time, however, Fleet encountered some drawbacks in the arrangement. The bank's downsizing led to the need to re-deploy its asset managers. The multitude of managers led to inconsistencies, and communication was not always a straight-forward process.

"We had 18 managers so we had 18 variations of service," says Gallagher. "And the layer of management we put out in the field really isolated the outsourcers from the customer."

Consolidating Outsourcing Vendors

In 1999 Fleet decided to restructure its outsourcing program by consolidating from three vendors to one. Following an extensive review process, the bank selected CB Richard Ellis (CBRE) as its sole provider. CBRE, which had worked with Fleet as part of the bank's original outsourcing team, was given full responsibility for six main areas: operations and maintenance, maintenance and repair project management, budget and financial reporting, vendor contract management, administration of 2,500 leases, and operation of a centralized customer service call center.

"When we went from three outsourcers to one we achieved more than $2 million in cost savings just through vendor consolidation," says Gallagher. "Having one management team, one vendor, and one process reduces administrative costs, simplifies our communication process, and increases our overall efficiency.

"Consolidation also makes that provider more accountable and more focused on cost savings," he continues, pointing out that CBRE achieved an additional $965,000 in unbudgeted savings in 1999 and $1.5 million in 2000. "People either went out and re-engineered services, or they just bid something they weren't planning on bidding to achieve these operating economies."

Fleet also gained the flexibility to reassign its regional managers to more needed positions.

"We took internal staff who were acting as asset managers and transitioned them to be overall project managers," said Gallagher. "We realized that we needed more internal project management, instead of relying on vendors to do our project management. This increased our efficiency since internal people have the power to make many decisions that outside people can't."

Controlling Costs With Performance Metrics

To control costs, Fleet's facilities group sets overall operating metrics for the outsourcing program and then uses these figures to compare itself to others within the industry. Some of the bank's recent metrics confirm its lean and mean approach. For example, facility managers are assigned at the rate of one per 500,000 sf, compared to an industry average of 300,000 sf. Similarly, on-site technicians cover 150,000 sf each, compared to 100,000 sf elsewhere.

Other key metrics illustrate Fleet's commitment to service and efficiency. For example, an average call center service rep handles a total of 109 calls a day. Almost 90 percent of incoming calls are answered in less than 25 seconds. On the accounting front, the operating standard for invoices per controller is 132,000, versus 89,000 elsewhere. Per AP clerk, the numbers are 22,000 and 11,000, respectively--a 100 percent increase in productivity.

Fleet also uses three key metrics to measure the effectiveness of its outsourcing program. Although the bank does not publicize actual numbers, Gallagher explains that regular monitoring of total cost of program per square foot, outsourcing provider fee per square foot, and average salary of full-time employees enables his group to keep outsourcing program costs in check.

Tracking Performance, Quality and Results

Fleet also requires CB Richard Ellis to meet rigorous performance standards, tracking and reviewing its results with regular written reports.

"We ask for fairly extensive monthly reporting in order to monitor all outsourcing activities," says Gallagher. "The reports serve as a progress update, but they also help us to lay the groundwork for what we'll do in the future."

Financial reports summarize actual results vs. plan on a monthly, year-to-date, and year-end forecast basis, and clearly highlight the progress of all cost savings initiatives. The reports also document service center activities, including call volume, service requests, and preventative maintenance work performed. In addition, the reports help Fleet track the progress of related goals, such as its desire to increase the amount of work done with minority and women-owned businesses.

The facilities group also surveys its customers twice a year to measure the performance of the outsourcing provider. The surveys, sent to both retail and corporate customers and to tenants, are kept very simple in design to encourage respondents to complete the information.

"Our surveys use a scale of one through four with the categories poor, fair, good, and excellent, and our expectation is a score of three or better," says Gallagher. "CB Richard Ellis currently has a 3.12 rating, which we're very happy with."

Last year, Fleet added an incentive to increase the rate of return from corporate respondents. Those who complete the survey now have the chance to enter a raffle to win a $100 gift certificate to the restaurant of their choice. Fleet also changed the target audience in corporate facilities from managers, who often did not take the time to fill out the surveys, to secretaries and administrative assistants. As a result, the average survey response rate is nearly 70 percent.

Fleet also uses benchmarking data to identify operating expenses and savings opportunities. While the bank compares itself against industry standards such as those published by BOMA and KPMG, it is also large enough to benchmark against its own past performance.

A "stable portfolio" of 179 corporate and 1,007 retail properties provides baseline data on maintenance, repair, and utility expenses per square foot. The figures are then adjusted to reflect the differences among the properties, such as facility type and location, since the cost of doing business varies dramatically across the country.

"After analyzing the stable portfolio, anything that falls above the average is identified as a savings opportunity for the bank," Gallagher notes. "Currently we are targeting approximately $14 million in possible savings from our $57-million budget for maintenance, repair, and utility expenses."

Lessons Learned

According to Gallagher, the numbers show that the bank's outsourcing program has been extremely successful. Along with garnering high survey marks, outsourcing has caused the occupancy expense per sf of the stable portfolio to trend down, for a 13 to 14 percent savings during the last three years.

He recommends that others about to implement outsourcing programs consider the following:

· Start with two outsourcing vendors to encourage competition. Once you become familiar with the outsourcing management process and have evaluated the providers, then reduce to just one.

· Make sure the outsourcer adheres to the standards and processes discussed during the initial presentations by having the provider submit monthly documentation.

· The maximum space that one provider should control is 17 to 20 million sf. Any more than that is difficult for one provider to oversee due to the multiple layers of management. Make sure the provider has experience managing similar-sized operations.

· Outsourcers are only as good as the people assigned to your account. Lasso any renegade "cowboys" and make them team players so everyone works consistently toward the same goals.

· Adopt a centrally controlled but locally monitored style of outsourcing management.

By Amy Cammell