HQ Location Selection: The Human Resource Factor
By Tsila Zalcman, Ph.D.
The unprecedented expansion into global markets has placed increasing demands on companies to maintain profitability and growth. One strategy that executives often explore in their attempt to meet these escalating challenges involves relocation — moving to a new, viable location that would allow them to upgrade facilities, reduce costs, acquire better quality labor, gain proximity to clients and suppliers, and ultimately achieve a more productive and profitable operation. While relocation may indeed offer many advantages, relocating a company is also extremely difficult and fraught with numerous serious risks.
By far the single greatest risk in a corporate relocation is the threat to business continuity. From the moment the plan to move is announced, employees become preoccupied with the impact it will have on them and their families. This preoccupation not only diminishes productivity but often results in the loss of critical talent, when employees begin to search for jobs elsewhere. Given the potential of move-related employee attrition as well as the disruption to business, coupled with the enormous costs involved in relocation, a company considering a move must be reasonably certain that it is worthwhile. It must assess all the prospective risks and the projected costs for the relocation as well as its benefits in order to establish the feasibility of the move and present a persuasive business case to all its stakeholders.
In deciding where to locate a company, management must also focus on employees’ needs and requirements in order to maximize retention and ensure a smooth transition. Yet, how can a company ascertain employees’ needs without informing them about the potential move, while management is still deliberating its merits under strict confidentiality? Analyzing workforce demographics, available from human resource data, has proven to be a useful heuristic device to estimate likely retention and attrition and to gauge employees’ needs and requirements.
Below are three examples of corporate move decisions highlighting the impact that a comprehensive feasibility study, conducted well before the conclusion is finalized, can have on the decision-making process.
Example 1: Publishing Company
A publishing company in the Northeast was operating its business profitably for many years at the same suburban area. Yet the advent of a new management team advanced the option of moving the company to another location, preferably a dynamic urban one. The new team felt that a less isolated site, in closer proximity to complementary businesses, would enhance the company’s reputation and ability to attract skilled labor and in the long-run, grow and be more profitable. In order to assess the pros and cons of a potential move, a feasibility study was commissioned and conducted by an outside independent consulting firm specializing in site and location selection.
The feasibility study focused on a comparative analysis between the existing suburban location and the proposed urban one in terms of availability of skilled labor, proximity to complementary businesses, vicinity of clients, educational institutions, transportation, and housing costs. The proposed location was by far stronger on all these measurable factors and clearly appeared to offer the advantages that management was seeking. In addition, the feasibility study included a financial analysis, calculating the one-time costs involved in relocation as well as the payback over a 10-year time frame. It confirmed that a payback could be realized within three years. All in all, the rewards seemed to exceed the costs and management decided to announce the move to its employees.
The move announcement, however, resulted in a strong negative reaction among many employees, who informed their managers, in no uncertain terms, that they have no intention to follow their job to the new area. A quick survey revealed that the attrition rate would exceed 75 percent, a large segment of skilled employees that management could not afford to lose or replace. Puzzled by the adverse reaction, management proceeded to investigate employees’ reasons via focus groups. It quickly became evident that the large majority of the employees were women who had worked for the company for many years (average length of service was 15 years). For many of those women, who were married to primary providers, the geographic proximity and therefore short commute to work made it easy for them to combine child rearing with working outside the home. A move to the new location was not an option. This fact could have been easily anticipated had analysis of the HR demographics been performed before the decision had been reached and before the announcement of the move was made to employees.
In an unusual corporate resolution, management canceled all previous plans and commitments for the relocation and decided to stay at the present facility.
Example 2: Manufacturing Company
A manufacturing company, located in a similar suburban location near New York City for close to 100 years, began contemplating a major move to a new area. The existing location had become problematic for several reasons. These included a shortage of qualified labor, difficulty in national recruiting due to expensive housing, steep business operating costs — particularly labor but also utilities and taxes and a geographic displacement from their customer base, which mostly migrated to the Midwest and the Western regions of the country.
Management, recognizing the challenges involved in a corporate move, began considering relocation, listing the criteria that would make it a worthwhile decision. Several cities in the Midwest came under investigation and the Chicago area was finally chosen as the most desirable destination. A site and location consulting firm was selected to examine the pros and cons of the move and to recommend the best deployment strategy under management’s operating objectives. The assignment addressed: identification of the optimum location, with the benefits and tradeoffs measured against the existing location; evaluation of the relocation impact on employee retention and potential business disruption; the one-time human resources and real estate costs associated with the move; recurring costs; and the ability of the company to recoup the one-time relocation expense over a three-year period.
In addition, based on management concerns, the new location would ideally promise a reliable supply of skilled labor to accommodate recruitment needs, a quality-of-life for maximum appeal to relocating key staff and new recruits and lower operating costs to allow payback of the one-time corporate expenses of the relocation.
The due-diligent feasibility study verified management’s goals and proclaimed the move both advisable and indeed necessary if the company would continue to survive and be profitable. Yet it also became clear that employee attrition would exceed tolerable levels. A large portion of the workforce was in their 50s, and while highly skilled, were not high-earners. They would be hard-pressed to leave their present communities on the East Coast for the Midwest. Realizing that replacement would be a major problem, causing too many disruptions in production and service to clients, management decided to proceed cautiously with the move but altered its plans for the transition. Instead of moving the workforce over a period of three years as originally planned, the relocation was crafted in several manageable phases over a much longer period of time. It was also decided to provide a comprehensive relocation package as incentive for some employees to make the move. Furthermore, management sought to allow for attrition through retirement to gradually reduce the current location’s workforce, while slowly building the new site to full capacity. The plan further allowed for dual operations to exist for much of this time, so that new hires could be recruited and trained in the new location while the existing facility would gradually shut down through normal attrition and retirement over a manageable seven years transition.
The insight acquired during the feasibility study contributed to a cohesive and well-planned transition that, when announced to employees, was accepted as a reasonable plan for the company’s future.
A financial service company was considering a move from northern California to Denver. Some of the newer board members felt that the firm had outgrown its current small-city image, somewhat remote location, and limited workforce pool and should therefore relocate to an urban, centrally located area. Considerations also included cheaper housing, better transportation, good schools, a much larger and diversified workforce and a young vibrant community.
For this company, Denver offered a much wider range of available workforce than the existing location because of its sheer size and diversity. Furthermore, Denver is a superior location for recruiting management, financial and IT professionals, which added to its desirability. Considering the many positive advantages of Denver over the current location, the final recommendation could be looked upon as somewhat of a surprise. The unexpected outcome of the feasibility analysis was the advice that the firm remains where it is currently located and build a new expanded facility to accommodate its growth.
Despite all the favorable locational aspects that made Denver very appealing, it became evident that most of those factors, while important, were not significant to the company’s continued success. Moreover, there were many reasons why a move was not at all desirable. For one, retention of their current, long term staff and long term presence in their current community was of major importance to many board member and c-line operating officers. The loss of staff, all well paid and well established in their positions and commitment to their employer, would mean a very long presence in any new location before the replacement staff could reestablish the same levels of productivity and business continuity required of the long term business plan; projections being more than 10 years for such a recovery. Management, realizing that there was no compelling reason to move, abandoned its desire to relocate.
As can be seen in the examples above, a careful consideration of employees’ situations and personal needs can often mean the difference between a successful and a disastrous relocation. The publishing company’s move had to be aborted well into the process when it was learned, belatedly, that their loss of key personnel would be a major long-term disruption to doing business. The deal saver for the manufacturing company was their discovery of how the move would affect productivity, before the notification. This enabled them to modify their plans to implement a long-term phased move permitting the workforce to self-adjust to the change, which resulted in preserving business continuity.
The financial company example underscores the idea that even when a new location is deemed more attractive, there has to be a very compelling reason to move a company there. Results of an extensive feasibility study, which incorporated in-depth interviews with several decision-makers showed that although the new location would have many advantages over their present one, the nature and history of their business, workforce and clients dictated that not relocating would be the best short and long term plan for the business.
It is clear that all the consequences of a move need to be thoroughly analyzed from a broad, objective, business point of view. This analysis, including all financial projections, must take into very serious consideration the continuity of doing business during the transition. The stability and productivity of the workforce during this period, is, as always, a key factor in realizing the success of the enterprise and must be addressed as soon as the discussions of relocation is being considered.
Tsila Zalcman, Ph.D., is a principal in Dynamic Systems Design, a consulting firm specializing in the HR aspects of relocation and organizational change. She can be reached at firstname.lastname@example.org.
Georgia’s first Diverging Diamond Interchange is located at Interstate 285 and Ashford Dunwoody Road, which created a major gateway into the Perimeter Community Improvement Districts, a four-square mile development in metro Atlanta. The project is an effort of a multi-jurisdictional coalition to improve connectivity to the metro’s leading employment and activity center. Perimeter, which is served by four MARTA stations, comprises two districts spanning Fulton and DeKalb counties, and the municipalities of Dunwoody, Sandy Springs and Brookhaven. The activity supports a high-quality market that is performing well and creates brand recognition for major corporations, and other opportunities, says Yvonne Williams, president and CEO, Perimeter Community Improvement Districts. The self-taxing location uses the funds collected to improve mobility, access and provide congestion relief. The Perimeter development has the assets to support the needs of companies undergoing consolidation or those looking for high-end, Class A office space, Williams says. The Central Perimeter market is home to the corporate headquarters for 47 companies, three of which are Fortune 500 companies. Recent corporate expansions include those by Cox Enterprises Inc., State Farm and AirWatch LLC, a global leader in mobile device management. Perimeter also features a large medical industry cluster, which attracts additional medical offices and medical practices to the market. “We have a $3 billion impact in regard to medical in the metro,” Williams says. “We also have a more than $300 million annual sales tax revenue impact for the state of Georgia.” For complete details on Perimeter, visit www.perimetercid.org.