David Lawson 2002
Life is sweet. Sales are up, the new chairman is throwing around bonuses, air-conditioning has made the office habitable and the trains seem to be finally running on time. A good offer has come in for the house, the kids have been accepted for a decent school near the new one and the only thing to worry about is getting in trim for the golf tour to Florida. Then comes the call. The chairman has some new ideas. A rival is ripe for plucking. Shareholders will demand cost savings, of course - maybe by merging a few offices. ‘Perhaps we could move into their HQ,’ he muses through the cigar smoke. ‘It costs a fortune here.’
Meanwhile, the suits brought in to ‘take a little look at the business’ have suggested moving customer service out to a call centre somewhere you vaguely remember going for a holiday when you were a kid. Cancel the golf. Tell the estate agent to slow down. Hold off signing the school cheque. Things could get hairy.
Moving home is said to be the most stressful experience after death and divorce. It’s not. That dubious honour goes to moving a business. Multiply the hassle of moving one family by perhaps several hundred. Factor in dealing with landlords and leases. Prepare for serious butt-kissing with staff who refuse to move, suppliers that don’t cover the new location, clients who worry about how to get to the new place– and all while trying to run a business.
Luckily most businesses don’t move. You can go a whole working life suffering only the lesser evil of house-hopping. But things are changing. Pressures are building which will lead to a lot more surprise calls from chairmen. And because managers have so little experience of moving, the prospect can be frightening.
There is no simple cost-benefit benchmark which offers advance warning that relocation could be in the wind, according to Peter Hollingsworth, who warplanned the transfer of Tetrapak from west London to Wrexham. It emerges as part of general business planning. ‘We were under no pressure from headquarters in Switzerland to move. But we saw a need to mitigate the effect of pressure on prices and volumes,’ says the former finance director.
It emerged that moving the UK administration centre from Stockley Park, near Heathrow, to Wales would save £1.5m a year in occupation costs. Stockley is an expensive business park: Tetrapak owns its factory in Wrexham which could take the admin staff. That might seem a no-brainer, but then the hidden costs began to emerge. Almost none of the 120 people would move, so a whole new staff had to be recruited. ‘I calculated that we lost 400 man years of experience,’ says Hollingsworth.
At one time occupation costs were the prime driving force in relocation. Soaring rents and/or local rates sparked an exodus of businesses out of the south-east into areas where they could pick up the extra benefit of development grants. Aid is now more strictly controlled by Brussels and focussed on urban regeneration. But the headline costs and savings hid the fact that staff was always the principal factor. They do, after all, make up 85% of business costs.
While Tetra Pak felt the sacrifice of its HQ team worthwhile, other have recoiled. Sainsbury looked at dozens of places across south-east England to rehouse staff from nine offices scattered across central London. It settled on a glossy HQ in the heart of Holborn. Rent savings were minimal, but extensive consultations among staff showed it would lose an ‘unacceptable’ number of people, says main board director Ian Coull.
This is why most moves nowadays are much shorter than in the past. ‘It’s called the one-stop-shuffle,’ says Chris Hiatt, a European director for property consultant Jones Lang LaSalle, who has helped hundreds of relocations over the last 20 years. This is evident not just in the crowded south-east but in provincial cities. Manchester, Bristol, Leeds and Birmingham are ringed with business centres where smaller firms have spun out of the centre but kept close enough to retain staff.
So one major lesson for potential movers is to think people rather than pounds. A move to a pleasant greenfield park, for instance, might seem so advantageous as to please everyone. But young singles are not interested in fresh air. Some of the high-tech firms which migrated out to areas like the Thames Valley and Scotland’s Silicon Glen are now looking back towards town centres and the clubs, bars and apartments demanded by skilled young staff.
Tetra Pak found most staff had partners or children they did not want to move from familiar jobs and schools. Hollingsworth was one, so he remained behind to organise the changes before resigning to become a consultant. In that time he discovered another hidden cost. The business had to continue over a 12-month transition period while the move happened. So the firm had to maintain one management team at Stockley under Hollingsworth and another under the MD in Wrexham. That meant paying bonuses to keep people in the job for that year
Relocation has hidden benefits as well as costs, however. Some firms want to shed staff and figure the lively ones will move while the dead wood falls off. Jeremy Charles of property consultants Strutt & Parker quotes a firm that moved out of London just to stabilise its staff. ‘It was tired of the rapid turnover in the capital,’ he says.
3M welcomed a move into its Bracknell HQ because it had been looking for a culture change and creating a new building meant it could implement changes such as switching from cellular offices to a more dynamic open plan, bringing managers closer to staff. But this was possible only because the 800 staff were involved early in every stage of the move. It made them feel central and developed a bond, says Pip Frankish of 3M.
None of this precludes straightforward savings by shifting from expensive to cheaper locations. London Electricity pioneered the current fashion for remote call centres by moving support services to Sunderland. A combination of tax incentives, lower rents and wages cut costs by 75%. But even here staff issues were paramount. Property services director Alan Chaney says it worked only because the firm has a nil-redundancy policy. People were offered alternative jobs instead of moving, so there was no friction with trade unions.
Thousands of managers will face these kinds of decisions in future because so many factors are combining to stimulate movement. Property is still a factor, as finance directors are now having to expose previously hidden costs because of new accounting regulations. Bricks and mortar are also being integrated more closely to business plans rather than treated as an afterthought. Outsourcing is a hot topic since BT climbed out of a hole by raising £2bn from property sales. That means finance directors have to answer awkward questions about property costs not just from auditors but also shareholders asking: ‘Can we do this?’
But BT succeeded because it spent almost a decade trawling through vast holdings, shifting almost 10,000 staff out of central London and setting the groundwork for a quick sale. Former property director Alan White, now a consultant with DTZ Tie Leung, says smaller firms could do the same – and far more quickly. In fact it should be a priority. The first thing any predator looks for is an expensive headquarters that could be sold and pay for a takeover, he says.
Looking from the other direction, rationalising property can help pay for expansion. When London Electricity took over SWEB three years ago, it released property in London by merging the two companies’ support desks in Bristol and computerised billing operations in Plymouth. Despite continuing to gobble up other electricity suppliers, the head office has been slashed and four out of five of the total staff are now outside London.
Relocation is no longer a rare and traumatic event. Property consultants like DTZ and Strutt & Parker have set up specialist sections which meet almost monthly with finance and human resources directors to plan strategies as part of integrated business plans. These anticipate anything from investor pressure and accounting changes to the impact of new technology and globalisation.
The house price boom and congestion charges may tilt the balance to relocation. Terrorist attacks on the US could have an impact, as firms consider dispersing important operations and providing disaster recovery space. The Euro will encourage more firms to set up overseas, which brings in a whole raft of property and staff issues.
Just before the turn of the millennium, a poll showed 20% of executives in top firms anticipated relocating within five years. That number will have swelled enormously and there is no reason to believe why this does not apply right down to the smallest firm as new factors come into play. Yet every consultant will moan that companies never plan more than a year or two in advance, so relocation is inevitably rushed and strewn with mistakes. Perhaps the biggest lesson is that if the chairman’s call has not come yet, it will soon, so start to prepare now.