Business services industry outlook: Facility services and waste management firms

Business services firms—in particular, facility services and waste management firms—are operating in the most complex environment since the Great Recession. Generative artificial intelligence, regulatory shifts, labor dynamics and a structurally higher cost of capital are forcing leaders of these organizations to rethink growth and capital allocation strategies.

As complexity mounts, firms must prioritize customer durability and labor productivity. While each business’s approach will vary based on its circumstances, leaders must systematically reduce complexity to maximize enterprise value. Otherwise, firms risk decision paralysis—or worse, focusing on operational variables that fail to drive value.

Customer durability

Maximizing past investments is paramount in an environment of scarce capital. Customer acquisition costs often greatly exceed the retention costs, so firms that simplify complexity and provide actionable insights will strengthen relationships and maximize revenues. This not only maximizes the value of work already delivered, but signals customer satisfaction and trust—a distinct competitive advantage.

For waste management firms, this means moving beyond traditional collection services to bolster customer durability by offering compliance as a service. Automating waste-type documentation, compliance reporting, and training and certification tracking can relieve regulatory burdens while giving clients confidence that they are meeting evolving standards. Similarly, as “circular economy” policies accelerate, investing in advanced recycling infrastructure and automation can improve material recovery and operational efficiency, bolstering long-term value.

Facility services firms can take a parallel approach by shifting from single-service engagements to integrated solutions—combining cleaning, maintenance and energy optimization strategies. Digital tools and Internet of Things (IoT) sensors can provide real-time visibility into building performance, while sustainability dashboards help clients track environmental, social and governance metrics to make informed, data-driven decisions. By pairing operational support with data transparency, firms position themselves as strategic partners.

Labor productivity

Service-based organizations take on broader human capital complexities since payroll represents such a large portion of their total costs. Supporting this human capital—internal teams and interpersonal relationships that make up a firm’s workforce—and increasing labor productivity are key to maximizing an organization’s enterprise value.

Historically, firms sought productivity gains by reducing head count, assuming fewer employees would increase revenue per employee. While this approach dominated from 2010 to 2021, recent trends tell a different story among some of the major players in facility services and waste management. Since 2022, both head count and revenue per employee have increased for many facility services and waste management companies, signaling a shift toward smarter deployment rather than simple reduction.

Factors like inflation rates affect revenue and will have an impact on revenue per employee, but the trend generally points to a more innovative solution to improve overall labor productivity.

The response to successful human capital management focuses on different facets of labor productivity, including balancing labor capacity, upskilling and adaptability to AI implementation. As firms deploy expanded product offerings to improve customer durability, the success of new or expanded product offerings—and the efficiencies that can be realized through new tools—are dependent on how the workforce will understand, adapt and deploy them. Higher wages alone are not enough; companies need the right mix of skills, flexibility and engagement to maximize returns on human capital.

For waste management firms, creating efficiency in the labor-intensive task of waste collection—by limiting the amount of time assets are idle, operating empty or hauling between locations—can maximize the revenue earned per employee. Using AI for dynamic route planning can create efficiency in collection activities; leveraging it to plan equipment maintenance can minimize breakdowns and help firms keep assets fully utilized. Creating standardized safety and training programs can also minimize downtime and potentially limit liability costs.

Facility services firms can achieve similar gains by automating the scheduling, deployment and route optimization of field teams. Ensuring deployment of the right team member with the appropriate resources will reduce labor inefficiencies, such as redundant trips for more supplies. IoT-enabled monitoring adds another layer of efficiency, supporting proactive maintenance and reducing labor waste. While unpredictability is inherent within any system, increased monitoring can reveal trends and indicators that would have otherwise gone unseen.

Beyond driving these tangible gains, these strategies enhance employee engagement—team members will not only be more productive, but feel more productive. The employee motivation and engagement that result from having the right team members doing the right tasks cannot be overvalued.

Maximizing returns on human capital is just as important for services firms as maximizing returns on financial capital.