Business Terms and Relocation
Risks, Benefits and Costs of Relocation
--By Prudential Joseph R. Carucci Real Estate Business location continues to be a primary factor in sustaining a company’s competitive position – whether it is a corporate headquarters seeking to get closer to emerging markets, or a back office wanting to reduce operating costs. Companies often find that their current locations no longer provide the competitive advantage they once held. Consequently, they attempt to weigh the risks and benefits of a major relocation along with the costs to determine the viability of relocation.
Risks Related to Relocation:
By far the most significant risk related to a major relocation for any operation is the potential for business disruption. The outcome could result in the loss of valuable employees (knowledge assets) and distractions from normal business activity during planning and implementation that impact service delivery and customer retention. While the risk of disruption is real, careful planning and implementation can minimize its impact. A special relocation policy can be developed to maximize employee retention. Effective communications can minimize employee distraction and customer concerns. Short-term staff redundancy along with the phasing of relocation can minimize overall impact. Other factors that influence the success of a relocation decision include:
• • • •
Not making an effective location selection decision; Not adequately defining the costs of a relocation; Not making a reasonably accurate attrition calculation; Not engaging in a major relocation because of the fear of failure.
Benefits of Relocation
A relocation decision needs to achieve a payback in two to three years or less. Since the cost of labor comprises approximately 75% of the total operating cost, picking a location that results in a 10-15% reduction in labor cost is key. Because the majority of staff in a back office are on pay scales that reflect the local market, a significant cost
--By Prudential Joseph R. Carucci Real Estate Business location continues to be a primary factor in sustaining a company’s competitive position – whether it is a corporate headquarters seeking to get closer to emerging markets, or a back office wanting to reduce operating costs. Companies often find that their current locations no longer provide the competitive advantage they once held. Consequently, they attempt to weigh the risks and benefits of a major relocation along with the costs to determine the viability of relocation.
Risks Related to Relocation:
By far the most significant risk related to a major relocation for any operation is the potential for business disruption. The outcome could result in the loss of valuable employees (knowledge assets) and distractions from normal business activity during planning and implementation that impact service delivery and customer retention. While the risk of disruption is real, careful planning and implementation can minimize its impact. A special relocation policy can be developed to maximize employee retention. Effective communications can minimize employee distraction and customer concerns. Short-term staff redundancy along with the phasing of relocation can minimize overall impact. Other factors that influence the success of a relocation decision include:
• • • •
Not making an effective location selection decision; Not adequately defining the costs of a relocation; Not making a reasonably accurate attrition calculation; Not engaging in a major relocation because of the fear of failure.
Benefits of Relocation
A relocation decision needs to achieve a payback in two to three years or less. Since the cost of labor comprises approximately 75% of the total operating cost, picking a location that results in a 10-15% reduction in labor cost is key. Because the majority of staff in a back office are on pay scales that reflect the local market, a significant cost