This category includes establishments primarily engaged in providing on-site management and operation of computer and data processing facilities on a contract or fee basis. Establishments primarily engaged in providing computer processing services at their own facility are classified in SIC 7374: Computer Processing and Data Preparation and Processing Services.
Computer Facilities Management Services
One of the oldest of the computer services industries, facilities management includes interactive and batch data processing, data storage and retrieval, system diagnostics and maintenance, and network management. Customers hire facilities management companies to perform any or all of these services at computer facilities located on their own premises, much as they would hire a concessionaire to run a company cafeteria. Because relatively little capital is needed for equipment or buildings, facilities management initially attracted many entrepreneurs, the vast majority of which were small, privately owned enterprises.
Once a mainstay of the computer services industry in its own right, facilities management evolved into just one of many services offered by companies specializing in "outsourcing." Although companies whose primary offering was facilities management still do a substantial amount of business, many companies arrange complex service agreements to include combinations of facilities management, remote computing (doing the client's data processing off-site), contract software programming, systems integration, communications network management, and software maintenance.
Because the profit margin for facilities management fell slowly but steadily over the years, its combination with more lucrative services had a growing appeal to companies in that industry. In addition, corporations with large in-house computing facilities began looking for service companies that not only could handle day-to-day processing but could also update aging computer systems. For an increasing number of computer services companies, facilities management became just a single component of complex service agreements.
Strategic outsourcing became the trend of the 2000s. Strategic outsourcing consists of placing a company's computer budget and operations in the hands of another company in return for the assurance that operational savings and other improvements would result. Besides smaller corporations that hired contractors to manage their facilities and information technology (IT) needs, larger corporations hired contracting firms to manage their information systems.
After the general market downturn of the early 2000s, revenues were down and corporate executives delayed major IT projects in order to allocate their expenditures in areas that would provide the most profit. However, the business climate began to improve in 2004 and by 2006, computer facilities management firms were earning a combined $17.53 billion.
Many companies have found that their data centers, distributed networks, and related facilities can be handled more efficiently by others than by themselves. Programmers and experienced staff are difficult and expensive to hire. For this reason, particularly in industries where wages are generally low and data processing needs high, such as the insurance industry, facilities management services are frequently used. In addition, running computers is often outside the realm of expertise of a particular company. Managing the operations of complex computer systems tends to distract management from the primary focus of the business, whether it is banking, utilities, or health care. To eliminate this distraction and to cut costs, many companies hire a facilities management company to run their computer facilities on a contract or fee basis.
Facilities management companies generally charge a fixed annual fee to maintain a data center, and then add fees based on processing volume. An in-house operation entails a large fixed cost, but with facilities management, data processing became a variable cost. Data processing costs increase when the company's business activities increase and decrease when business slows. This pricing schedule allows more efficient use of the company's funds.
A facilities management company needs little capital to begin operations. Unlike a company specializing in remote data processing, which requires sizable data centers and extensive communications capabilities, a facilities management company has few equipment and building requirements.
Specialized personnel, however, are a crucial component for facilities management firms, not only for the obvious technical areas, but in marketing as well. Knowledge and skill are needed to sell an intangible service to repeat customers. Facilities management companies compete not only with others who offer the same service, but also with those who offer remote processing as well as competing with the customers themselves, who could revert to in-house handling of their computer facilities. This need to constantly cost-justify their service in the face of increasing numbers of competitors led to a steady erosion of profit margins in this industry.
Facilities management companies generally began by specializing in one field of business, such as banking, health care, or government agencies. They developed an expertise in the particular needs of that industry and drew new customers from within that niche. The division between companies providing facilities management to commercial customers and those catering to the government was especially strong. A company...