ARTICLE | August 09, 2023

Economic shocks such as bank failures, the war in Ukraine and high interest rates continue to cause uncertainty. Experts have differing views on the severity and impact of these factors, and how long they may persist. However, as these conditions linger, it becomes increasingly difficult for organizations to understand either the short-term or long-term outlook.

Labor issues

Businesses with a field service component are highly labor driven. Companies that offer commercial cleaning, security, waste management, facilities maintenance or similar services must balance keeping their staff utilized while increasing efficiencies. The goal is to not only maintain or increase the top line, but also decrease operating costs while retaining the staff who were internally trained and cultivated. This is increasingly important as job openings continue to outpace the number of people seeking employment. 

With the number of unemployed persons per job opening coming in at 0.6 as of April 2023—the second-lowest rate of the past 15 years—employees have the upper hand in the job market. More jobs are available to those willing to work. Employees can be very selective and negotiate from a position of power.

Per Bloomberg, the unit labor cost index continues to rise in the services space. Costs include not only wages, but also employee benefits, onboarding, training and more. Labor costs have been on the rise since the pandemic due to the labor shortage, opening the door for employees to demand more than in the recent past. In addition, labor productivity—a metric historically used to counteract the increase in labor costs—has tailed off recently. 

Furthermore, the prices received for services index is at its lowest since fall 2021. This is after record highs in that index throughout most of 2022, as restrictions eased and more Americans ventured out of their homes to spend excess savings accumulated during the heart of the pandemic.

All these factors beg the question of what firms with large labor forces, particularly those that deploy employees in the field, can do to maintain margins.

Technological solutions

After Microsoft’s release of the Office suite in the early 1990s and the iPhone’s debut in 2007, we may now be entering the third secular economic change of the past 30 years with generative artificial intelligence (AI). We believe that generative AI will become as widespread as Microsoft tools and the iPhone in the near future, changing the way people think and work.

Field service companies are already using generative AI and other advanced technological solutions to enhance their productivity.

Some are adopting route-optimization tools to reduce fuel consumption and improve operational efficiency. Others are using equipment-maintenance prediction tools to reduce the downtime and associated costs that result from unplanned maintenance and equipment failures. The use of robotics has become standard in the commercial cleaning services industry for its ability to reduce manual labor. Some services companies are using automation tools to record customer inquiries, automatically draft quotes and timelines, and assign technicians to deliver work on-site.

While similar solutions have existed for some time, they are becoming more refined and are available at a lower cost now that more players are entering the space. 

The need to adapt

Field service companies must adapt quickly to remain competitive. The larger firms are already adopting advanced technologies, and if middle market firms don’t act quickly, they will be phased out. The larger players will take on smaller jobs or clients as their costs decrease due to improved efficiencies created through automation tools. For middle market companies, the penalty for not adopting new technology may be severe.

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