Outsourced service providers take charge in benchmarking, policy changes for clients seeking to stay current with best practices in relocation.
By Andy Teng
If any sector is suffering the most from the malaise of the current economy, you can be sure real estate is among one of the contenders for that title. And as anyone knows, what happens in real estate is inseparable from the corporate relocation business, where employers everywhere have markedly cut back on traditional moves among its workforce, turning to alternative assignments instead and pondering policy changes to best cope with the times.
With the economy firmly gripped by the recession and no relief in sight, many companies remain skittish about relocating workers. Although it’s a trend that has been unfolding for several years now, the shift to alternative assignments continues to garner momentum, on both a domestic and international front. While some employers still deploy executives on 3- to 5-year assignments as part of their corporate leadership training program, many have sharply cut back on the overall volume, electing to embrace lower-cost alternatives such as telecommute programs, short-term assignments, and other economical substitutes.
Of course the number of relocations has declined also as a result of the depressed real estate market. With homeowners facing big losses on sale—and many with negative equity as a result—a growing number of workers are resisting offers to take on new positions until they feel more comfortable with the bids made for their properties. This is causing some HR leaders to scramble to come up with innovative programs to incentivize employees. Because most employers are updating on loss on sale benefits, they’re also turning to other ways to help workers dispose of their homes, including marketing support, incentives to sell more quickly, and the like. Even then, employers are hamstrung by limited mobility budgets.
Home Sales Drive the Market
“Clearly, the whole mobility experience is being driven around home sales. It’s about real estate, it’s about driving down cost levels, and about the willingness of the transferees to move. The real estate market is making it very difficult for employees to sell,” said Earl Lee, president of Prudential Relocation.
According to Lee, the market’s difficulties are having a chain effect on the industry, influencing everything from disposition of properties to household moves to mobility policy changes. As a result, much of the efforts that outsourced relocation service providers are delivering to clients these days is aimed at resolving the thorny issue of real estate, which for some companies has become an all-encompassing difficulty. That means helping employees come to grips with the true market value of their properties and resetting their expectations on offers.
In its annual survey of North American employers, Weichert Relocation Resources found that HR professionals reported that 90 percent of mid-level managers are experiencing difficulties selling their homes and that 82 of percent employees report significant losses on sale. This is leading to all sorts of fallout for employers, including a sharp rise in exception requests and policy review. In response, employers most often added or increased assistance for loss on sale, followed by adding or tightening policy on required list price guidelines. Although many companies still offer guaranteed buyout programs (at 35 percent of those surveyed, it’s the most common type of home sale programs followed by buyer value option alternatives), they are mostly reserved for executive-level employees. That’s why many companies may experience a talent crunch in the middle-manager ranks once the economic recovery begins.
With mobility programs everywhere under siege because of the economy, this crisis has led relocation managers to look for more innovative ways to cut costs while meeting the talent needs of business partners. In some instances, they are working closely with all stakeholders as well as executive management to strike a balance. Other times, they’re turning to outsourced service providers to improve everything from process efficiencies to benchmarking to vendor management. In fact, where there is a dollar to be saved, companies are consulting their mobility service providers on the feasibility of making such cost-cutting moves.
One industry that has witnessed a dearth of relocations is automotive, which arguably is another business that can make a claim as being most affected by the economy. But despite the drop off in the number of moves, some companies still see value in engaging in an outsourced mobility provider. For instance, BMW of North America continues to work closely with Altair, even though the company is suffering from unprecedented difficulties like all carmakers around the world. Jacqueline Jasionowski, an HR staffing manager with the Woodcliff Lake, NJ-based company, explained that the automotive manufacturer needs to maintain the partnership it has established over the years with Altair and benefits from its best-practices knowledge.
“Due to the economic climate, the relocation benefit provided by our organization has seen a lot of attention. In speaking to other companies within the automotive industry, it appears that we all are making changes to save dollars,” she said. “My vendor has been completely informative and has educated me along every step of the way. I’ve turned to them as the relocation expert to provide me with the pros and cons of changing our policy. More importantly, they have exercised 100-percent flexibility. When I communicate the changes, there are no hesitations in implementing the new policies.”
Indeed full-service relocation providers have grown more consultative in their relationship with customers these days. That’s because companies around the globe are revisiting policy more often as they enter this new economic paradigm. According to Prudential Real Estate and Relocation Services’ “2009 North America Departure Provision Trends” report—a survey of its top 53 volume accounts—the percentage of companies that consistently reviews mobility policy has increased from 17 percent in 2007 to 24 percent in 2008. Furthermore, the percentage of companies that seldom review policies—defined as those who wait three or more years in between looks—has dropped from 24 percent to just 10 percent. Clearly it shows that businesses are concerned about whether their policy is adequate enough to keep employees happy without being overly generous.
It’s these concerns that have many providers finding new ways of supporting their clients, even if they aren’t performing many actual moves. One of the key ways they are accomplishing this is by helping clients perform benchmarking studies to determine if contemplated policy changes will adversely affect their talent management. Even in these times, some industries continue to hire and have a pressing need to retain talent, especially in the technology and healthcare sectors. Relocation benefits—especially around home sales—are a cornerstone of making sure companies can fill the critical positions they need to grow. At the same time, many organizations are concerned that they are up to speed with current practices within their industry.
This was the case for Ciba, a global chemical specialties company owned by BASF. After the company eliminated its guaranteed buyout program, it looked to update its policy covering loss on sale. Even before it reached a decision on how much it would cover, the company’s relocation provider, AIReS, offered advice and industry data to help the company set a competitive amount, said Susan Vittorio, manager of people services at Ciba, who oversees domestic relocation, staffing, and some aspects of employee relations and HR. She explained that the mobility industry’s consultative support these days is helping to drive greater savings for clients.
“I call them regularly just to run things by them, and they are proactive coming to me with what’s happening,” she said of her vendor. “We were contemplating the loss on sale program. They had come to me saying, ‘Your loss on sale happens to be x amount. We are seeing the industry actually be less generous.’ It wasn’t by much, but we were able to reduce loss on sale by $5,000.”
Vittorio said this kind of advice, along with additional insight the provider offers, are helping companies struggling with their policies to strike a balance between satisfying the needs of employees with corporate edicts to toe the line on spending.
“One way in which they have helped us is to look at our policy and find different areas where we can save money. They are always benchmarking our policy against the industry so we always know what’s going on,” she added.
Beyond policy support, relocation service providers are helping employees better market their properties. In the past, when the economy was strong, employees themselves could be trusted to effectively sell their homes. Today, as properties languish on the market, a sense of urgency has emerged, and employers are more aggressively setting guidance on home sales. Some of this effort is through incentives to sell more quickly and not hold out for higher bids. Other ways include marketing support to improve appearance of homes, requiring homeowners to work closely with Realtors, and adjusting allowances for temporary housing.
One emerging trend some providers have observed is an uptick in group moves due to companies consolidating facilities. As some facilities are shut down due to the economy, these employers still look to keep the top talent at those sites and are asking providers to step in to help with relocating retained workers. Because these moves are more complicated, providers are usually counted on to bring in technology and administrative support that can scale with group moves.
Delivering economies of scale is also a key to driving greater cost savings these days. Most mobility service providers are working closely with HR and procurement departments to reduce vendor costs—through either consolidation in the number of suppliers or actively searching out more cost-effective ones. Additionally, providers are seeking greater support even as their own HR ranks shrink, said John Arcario, executive vice president at provider firm Cartus.
“They are looking at ways to redesign the delivery model. They are saying, ‘I was moving x amount of employees with this amount of support level. Now that the support level has reduced significantly, I need to reduce my own internal fixed costs—whether through outsourcing or better efficiencies,’” he noted.
Other ways of achieving efficiencies is through procurement of cost-effective vendors around the world. In response to this, Cartus has developed an online procurement system that seeks out bids to achieve the greatest cost savings for its client. Other providers are also working more closely with clients to ensure they capture the greatest savings.
“Everyone is cutting costs. Procurement is driving almost 100 percent” of decisions, pointed out Don Watson, president of Graebel Relocation Services Worldwide. He explained that buyers are asking for more data as well in their efforts to reign in costs.
To be sure, analytics have become a much valued support tool sought out by HR managers. Whether the data is around home sales, vendor spend, or service metrics, in these austere times employers want to make sure they are squeezing efficiencies from all aspects of relocation.
A Global Market
Although the volume of moves is down sharply, the industry has one bright spot to turn to: Global relocation. While the real estate problem is a global phenomenon, some regions continue to grow economically, which means talent needs still exist. Providers report that areas such as China and India continue to lead the world in mobility growth, although the robustness previously reported in those areas has diminished significantly. Still this has led some companies to start consolidating their mobility vendors to reduce costs as well as standardize policy across the globe, said Prudential’s Lee.
“They’re saying, ‘We want to see more uniformity under those [mobility] contracts.’ I think corporations are starting to look at everything and to look at policies consistently,” he said.
The same mindset is also setting into reporting capabilities. Cartus’ Arcario pointed out that clients are asking for spend data that will show them how mobility services are being delivered everywhere within their organizations and whether lines of business are adhering to policy. “We give them a lot of transparency, and we give them better opportunity for compliance and consistency of policy,” Arcario added.
With mobility managers shifting their focus from administering moves to a more strategic role, they are pulling service providers into a new direction as well. Now needed more than ever for their domain expertise, providers are helping to set policy, make available important process data, and deliver more outsourcing value than ever before. The last part is perhaps the most important component because in this era, value trumps just about everything else the vendor community can offer.