Article written by John Nagy, Robolliance Expert, with contribution from David Heller
The security guard industry has traveled a road which has seen, and continues to see, growing overhead costs both direct and indirect.
Once healthier operating margins have shrunk to levels that are extremely challenging to say the least.
Overhead pressures that vary by region and state include:
- Increasing wage pressures, together with mandated benefits (with no customer appetite to share in them)
- Increased Workers’ Compensation and Liability Insurance rates
- Defense costs associated with litigation
- Scrutinized customer security budgets
- Customers’ implementation of purchasing strategies which leverage frequent bid processes
- Employee health insurance and the other benefit
- Hiring and training costs negatively affected by high employee turnover rates
Contract security guard company management teams are amongst the hardest working across all industries. Tight margins are a thorn in the boots that hit the pavement 24 hours a day, 7 days a week to deliver the service that is expected to be uninterrupted and 100% effective.
Expectations don’t shrink; however, customer operating budgets do. The fact is, service often fails…..with its root cause traced back to a guard company’s squeezed organizational infrastructure. Let me be clear, service levels are directly influenced by the supporting infrastructure which is simply not funded sufficiently to the extent needed by currently squeezed revenue streams.
Guard company customers continuously turn over their service providers. The larger security guard companies consistently lose so much volume that their sales teams cannot physically replace those former accounts quick enough to avoid devastating blows to their P&L’s.
Low margin businesses are more exposed to volume losses when price increases are a rare option. The result is a security guard industry ecosystem that is characterized by continuous acquisitions in the form of asset purchases (purchasing of accounts from primarily smaller guard companies) to replace lost volume – an extremely expensive option. These acquisitions are executed by relying on financial models with many assumptions reflecting positive returns on investment. In reality, most of these asset deals mutate into a collective life preserver pool which individually do not hit the goals that the financial models presented.
Robotics to the rescue…. Robots might as well be built to resemble a knight in shining armor. For the first time, since the advent of the security camera (which reduced manpower demand), robotics will greatly reduce overall security cost.
The security guard companies now have a rare chance to drive profitability via margin improvement reflected by lower labor costs versus traditional labor pools. Lower labor costs will not only be driven by the difference in the hourly cost of a robot versus a human security guard wage. One must also consider the fully burdened cost of a human security guard, which includes turnover (training and hiring costs), benefits, workers’ compensation insurance, uniforms, and peripherals (guard tour systems and patrol cars).