Visions of tomorrow

It is abundantly clear that the security guarding industry will change in the wake of a period necessarily beset by pain and turbulence. The Regulator – the Security Industry Authority (SIA) – has set out its stance, which is that of a modern Regulator working with all stakeholders to develop a transformed and mutually beneficial industry for all.

The SIA is a listening Regulator. One that asks all stakeholders for their views, many of which are polarised.

On occasion, the industry will become frustrated at the length of time taken to put the building blocks in place that are essential for regulation, but as those blocks are laid the foundations of a prosperous industry will – and, indeed, have already begun to – emerge.

We are clear in our minds that, to a large extent, the ‘presence sector’ of the manned security industry is going to be under threat. The actual quantum will be determined by the knock-on effect of the cost of regulation and subsequent wage inflation. While there is no empirical information available, there should be a direct correlation between the cost base increase and the volume of end users who turn towards alternative security solutions.

Our thinking here is corroborated by the international market experiences of Securitas, the largest global provider of security guarding services, and is highlighted in the company’s extensive 2002 Annual Report which illustrates the following linkages as the guarding market duly develops:

• a decrease in labour turnover once wages are increased;
• a change in the product mix;
• stabilised wages resulting in real growth and improved margins;
• higher profitability engendered by further value-added services and improved efficiencies creating better, more realistic margins.

Emphasising the likely changes in the security industry, Nick Buckles – chief executive of Group 4 Securicor – recently commented in Security Management Today (SMT): “Regulation will create new quality in the marketplace. Contractors are going to be forced into displaying a really professional approach just to meet the terms laid down by the Security Industry Authority. Those who are able to make licensing work will be the solutions providers who can ably manage change” (‘Two’s company’, SMT, March 2005, pp20-23).

Any cost increases are likely to result in strong market resistance based on the perception that the market would be expected to pay a higher price for the same product. This will undoubtedly require significant education of the buyer. As demonstrated by Securitas’ own developmental model, profitability will increase as the market begins to develop.

We also believe that most market leaders are moving – and will continue to move – towards the three elements highlighted by Securitas (namely employee training, service quality and compensation). The difficulty with this model, however, is that there will be somewhere between 50 and 80 security companies left post-licensing with an indistinguishable service offering, resulting in the market competing on price. In order to succeed in the ‘new’ security industry, substitute services and products should no longer be regarded as threats but as part of the solution of securing (and not solely ‘manning’, as has been the case to date).

Companies wishing to compete in this arena will first have to analyse their current strengths, and thereafter understand the new market opportunities that will help them to develop solutions aimed at placing clear blue water between themselves and their competitors. The re-engineering process could be vertical or horizontal in scope, and may involve movement towards becoming a facilities service, a niche market player, a security services provider or the harbinger of a complete security package (ie tailored to the ‘one-stop shop’ edict).

While the ultimate solution is not easily found, the smart contractors are already doing their homework. Above all, the key element will be differentiation between competitors.

In an interview with Infologue.com back in June 2004, SIA chief executive John Saunders stated: “The way some businesses compete, there has to be critical mass. I do not deny that, but there are some businesses in niche markets with specialist expertise that are highly successful and don’t need the same critical mass.”

If smaller companies were to outsource their non-core activities, it is obvious they could then effectively compete with the larger concerns in the industry. We believe that the outsourcing of non-core activities in the security guarding sector will become the central ingredient in the sustenance of a vibrant industry. Those elements that could be outsourced would include: recruitment, vetting, training, administration and payroll, Control Room duties, SIA Employee Registration, uniforms (direct to the employee from the supplier) and a Call Centre (whereby that Centre’s staff might answer all non-operational daytime calls).

Change has already begun

The ‘normalisation’ of the security guarding industry is expected to take up to ten years post-regulation. We are likely to see a visible difference in three-to-five years’ time. The first couple of years following the implementation of licensing and the Approved Contractor Scheme will be somewhat uncertain and turbulent as the market ‘shakes itself out’. It will not be an easy time for security companies but, for those who survive, the benefits will be both evident and tangible.

John Saunders is a firm believer that change in the industry has started, and that the realities of the new marketplace (with its new characteristics) will begin to take effect now and over the next four years. Thomas Berglund – the president of Securitas – feels that transformation will occur over a somewhat longer timescale.

“We should not expect any dramatic change over the next few years,” commented Berglund at the SIA’s official launch conference back in April 2003. “This work will take half a generation, spread over a decade. It will also require changes in legislation. That doesn’t happen every year. Perhaps every fourth year if you are ambitious. That process alone will take 8-12 years. If wages are almost doubled, it may be a good idea to offer a pension scheme if you want employees to remain within the company for a few years. That also costs money. Perhaps it might be wise to have health benefits in place. We can make a start now, but it will take 10, 12 or maybe 15 years’ work to reach a new level of standards and operation. If it will take half a generation to fully realise this, then it follows that in half of this time we should be able to see some significant change.”

Regulation will trigger consolidation, and is also likely to bring alternative solutions into play. There is a vision espoused by certain factions in the guarding industry that, post-regulation, profits will improve and the number of contractors could be reduced (as previously stated) to around 50-80. We do not discount this scenario, but truly believe that regulation alone will not create such an environment (aside from triggering a directional path for the industry to follow).

The service offering must have a distinct added-value element to justify improved profitability. As shown by the Securitas study, there will be a reduction in the number of presence officers who will be replaced by alternatives (for example time-share officers, value-added officers and numerous electronic solutions). Central to identifying the correct solutions will be the use of dedicated security consultants, who might even be added as an extra component of the service offering.

Supplying an expensive security operative when there are better, more cost-effective solutions available will not necessarily reap the expected benefits. Neither will the demand-supply chain necessarily realise increased revenues. We believe that increased profits will stem from security companies that converge offerings into a single security solution and develop – well ahead of their competitors – what is effectively a ‘one-stop shop’ for the client.

The road to integration

While there have been examples of crossover and collaboration, a competitive element has emerged between electronics and security guarding to the extent that, where companies have developed both strands, they have been demarcated into separate operating divisions. For at least the past decade now there has been the vision of an integrated solution, but there has been no form of key driver as a catalyst for developing that theme. Regulation, cost reduction and security awareness are the very catalysts for such a change. It is evident that several prominent guarding contractors are now shaping to move in this direction.

The outsourcing of policing functions should also continue apace as part of the Government’s strategy to create an extended policing family. This will become a niche market. Those security companies using a separate structure outside of their commercial sector activities are more likely to succeed.

Only recently, we listened to two speakers at an industry conference who explained the modern day relationship between the police and the private security industry. Successful examples of the ‘inclusive security network’ (wherein all stakeholders including the police, private security companies and client organisations play pivotal roles) were provided by Sergeant Paul Valentine of the Northamptonshire Police and John Devine, manager of Slough Trading Estates’ successful Business Watch initiative.

The security company of the future is likely to be multi-disciplined in structure, combining physical, electronic, manned and consultancy services as a ‘bundled’ package. Holistic integrated services will provide the best solution as opposed to specific service offerings

Sergeant Valentine emphasised the importance of information/intelligence sharing with CCTV system operatives. “Information sharing and Exclusion Notice systems are making CCTV work,” stated Valentine. “There is no better example of a public sector-private sector partnership than the Northampton Retail Crime Initiative, where staff from Reliance Security Services operate

the town’s surveillance systems. Joint security briefings between the police and the security company add to the CCTV set-up, and also make a positive impact on crime reduction.”

The Reliance officers working on the Northampton Town Centre CCTV Scheme operate a Number Plate Recognition system which involves them liaising with the police every time there is a ‘hit’. There is a police viewing suite next door to the Control Room where officers are able to scan incidents that may provide subsequent evidence for the Crown Prosecution Service.

Mutual partnership approach

The other area of real interaction with the police is that of retail crime. For example, three Reliance officers working for Northampton County Council helped recover more than £13,000 of stolen goods in the town centre over a nine-month period. Those same officers are called out (on average) three times every day on reports of retail crime.

For his part, John Devine credited CCTV – backed up by a rapid response service delivered by Reliance in conjunction with Thames Valley Police – with reducing incidents of car theft from more than 500 in 2001 to a little over 100 last year. “In 2005 and beyond the police service can no longer afford to operate in a silo,” stressed Devine. “It needs good partners with whom it can work to reduce crime and make society a better place.”

At the grass roots level, then, there is clearly a feeling that mutual partnerships are beginning to develop and flourish. However, there is still a distinct line in the sand, as Rick Naylor – president of the Superintendents’ Association of England and Wales – explains.

“We should resist the temptation to give Police Community Support Officers any more responsibilities,” he comments. “Inevitably, this would take them off the streets and place them in the police station which is not the idea. They must remain on the streets, offering the support and increased visibility required by members of the general public.”

We believe that security companies investing in the development of creative, different and focused service offerings will enjoy not only growth in their turnover but also in their profitability. It will not be enough to use training, uniform provision, customer care, management style or the fact that security officers change into blue tights and a red cape in the local telephone booth before reporting for duty as a Unique Selling Point. The differentiation is going to have to be substantially different. Tinkering with the industry will not work. Fundamental transformation is what’s required.

Earlier this year, Thomas Berglund used Securitas’ Annual Report for 2004 (published in February 2005) to highlight the need for security companies to focus on security. “The security market will continue to develop and open up new opportunities for those companies that are focused enough to recognise, understand and capture the trends,” suggests Berglund. “As time goes on, the lines drawn between guarding, systems and cash handling will become more defined.”

Not surprisingly, the second largest global player – Group 4 Securicor – falls into line with this view. Former chief executive Lars Norby Johansen told SMT: “Security is a basic need. With all due respect, it holds a position in any client organisation’s hierarchy that is far higher than cleaning or any general facilities issues. In contrast to some of the service conglomerates, however, we do not believe in the theory of one-stop shopping” (‘Two’s company’, SMT, March 2005).

Talking of ‘added value’

In the UK guarding sector, facilities services providers including Mitie plc, the MacLellans Group plc and OCS have all made significant acquisitions. Meantime, Top 10 guarding contractor Securiplan plc has acquired a large cleaning company. The theory of adding value into a service as opposed to adding value to a service could be tested over the coming years.

Indeed, ‘value-added’ has become something of a buzz phrase in the guarding world. There is often disappointment on the part of the service provider when they perceive they have added value into their service offering but are unable to benefit from improved revenues. The main reason for this is the difference in perception between provider and customer (which includes the ‘measurability’ of such added value). In essence, there are two types of added value – ‘adding value in’ and ‘adding value to’ (the end user’s security regime). In terms of adding value in, this is where the service provider improves the service to the customer by introducing, for example, a patrol system, extra management visits or on-site training.

Here, the service provider is reinforcing the ability to deliver on the service promise. The customer does not see any benefit other than a service which meets the original delivery promise. Normally, the only benefit to the provider is the sustainability of the contract with the customer.

Value is seen to be added to the business where the security contractor changes the service offering while maintaining or improving the delivery of that offering (which is measurable). The improved offering normally has a positive financial effect on a customer’s business, but could also include areas such as enhancement of the image of that customer’s business. Examples of ‘adding value to’ include replacing manpower with alternative services such as electronics-based solutions.

The security company of tomorrow

The security company of the future is likely to be multi-disciplined in structure, combining physical, electronic, manned and consultancy services as a bundled package. Holistic integrated services will provide the best solution rather than specific service offerings.

In truth, there are three possible scenarios: an integrated security solutions provider, a security guarding company working on strategic partnerships with businesses in other sectors of the security industry and a ‘bundled’ or facilities-based services provider (offering security, cleaning, maintenance and catering solutions, etc).

Going forward, the three core components of the security market could be electronics (encompassing intruder alarms, CCTV, access control and monitoring), security guarding and consultancy. Market differentiation will probably stem from the blending together of the various security disciplines. It is also possible that some companies will identify what offerings they regard as core and which they might choose to offer end users as part of a strategic alliance.

In the years ahead, the training and development of frontline personnel beyond the statutory requirements will no longer serve as a mere differential. It will be an essential.

The Regulator has laid the foundations on which to build a modern service industry. It is now beholden upon the guarding sector and its customers to realise this framework. Who knows. Maybe dinosaurs can learn to dance! n

• Bobby Logue is a director of Interconnective Ltd and Editor of Infologue.com (www.infologue.com) – the industry’s premier web site dedicated to the manned security sector
• Security Management Today would also like to thank Peter Kroeger, chief executive of The Shield Guarding Company, for his initial editing of our four-part study into the future of the private security industry