When it comes to corporate headquarters, it is important to address the dynamics associated with its relocation. We’ll, therefore, first visit the issue executive management should raise before delving into the challenge of geographically relocating headquarters. That issue involves defining “what” functions should be housed in a headquarters facility.
Once the “what” consideration has been resolved, the next question to address is “why?” In other words, what are the primary drivers motivating top management to even consider moving the home office?
Subsequent questions would be “whether or not” and “where” to relocate. “Whether” measures relevant impacts and leads to a “go/no-go” decision. If the decision is to go, “where” would determine the new site for a relocated headquarters operation.
Headquarters Composition
A mini-trend has been occurring in corporate America, especially among industrial enterprises. That is, the leaner, smaller corporate head office. More and more companies with over a billion dollars in sales have been redefining what constitutes a headquarters office. In many cases, head office headcount size is under 100.
Today, many headquarters embody the C-suite and perhaps one or two direct-report levels. These executive-oriented functions typically include:
1. CEO
2. Finance
3. Legal
4. Human Resources
5. Technology
6. Sales/Marketing
7. R&D
8. Operations (usually includes heads of the major business groups).
A number of forces have led companies to “right-size” corporate headquarters. These include:
1. Concentrating the design and oversight of corporate strategy in one physical entity
2. Decentralizing the execution of corporate strategy into integrated business units, such as divisions or subsidiaries (which are often field-based)
3. Reducing corporate overhead and maximizing efficiency
4. Fostering location optimization for office segments
Front
Middle
Back
5. Encouraging innovation and flexibility among business units, with headquarters providing a collaborative framework
6. In some cases, going offshore for tax reduction reasons.
We are witnessing an increase in the number of companies adopting the “lean” corporate headquarters model. Examples include:
1. AOL (media)
2. Aon (insurance)
3. Boeing (aerospace)
4. Cadillac (mfg.)
5. CKE Restaurants (food)
6. Dover (mfg.)
7. Exxon (energy)
8. Fiat Chrysler (mfg.)
9. Gardner Denver (mfg.)
10. Graftech (mfg.)
11. Hannaford (food)
12. Maybelline (cosmetics)
13. MoneyGram (finance)
14. Rain Cii (chemicals)
15. Tronox (chemicals)
16. Western Refining (energy).
As companies continue striving for efficiency, flexibility and nimbleness, the trend toward downscaling the flagship office is likely to continue. This does have implications for location of truly C-suite headquarters operations. They will typically gravitate to Tier One metros with global business resources.
Whether or Not to Relocate
Once the scale/composition of headquarters has been delineated, executive management should raise a basic question: Is the headquarters located in an area that maximizes attainment of key strategic business objectives? If there is any serious conjecture, a worthwhile exercise would be to explore the feasibility of relocation. Common drivers of the decision to relocate a headquarters include:
1. Customer access
2. Proximity to company operations (e.g., manufacturing plants, R&D centers, subsidiary headquarters, etc.)
3. Ease of travel
4. Talent pool depth
5. Ability to recruit nationally
6. Industry ecosystem
7. Infusion of fresh talent/internal change
8. Consolidation (especially post-merger or acquisition)
9. Divestiture
10. Cost reduction.
Scale and drivers materially impact whether or not and where to move corporate headquarters. Ascertaining whether or not to move is frequently referred to as a relocation feasibility analysis. Dimensions of a feasibility study entail the following:
1. Executive management decides on team members to perform the analysis
Confidentiality is of utmost importance
Protocols for communications, including a project code name, must be defined and followed
2. The team delineates the following:
Base case for comparison purposes
Confirmation of key drivers
Realistic scenarios to evaluate, e.g.:
All business functions move locally (short-distance)
All business functions move out-of-area (long-distance)
Some functions remain locally while others relocate long-distance
Front office moves to a Tier One metro and back office relocates to a smaller, low-cost metro (Tier Three or Four)
3. Impacts associated with each relocation scenario must be quantified
Human resources
Retention
Attrition
One-time costs
HR related
Real-estate-related
Transition
Miscellaneous
Annual costs (savings or penalties)
Payroll
Occupancy
Travel
Taxes
Incentives (offset)
Additional considerations
Customer proximity
Air access
Labor market
National recruiting
Capacity to facilitate culture-shift
4. Synopsis: risks/rewards
Operational
Cost
Bottomline
5. The decision
Which scenario
Go/no-go
If no-go
Identify steps to enhance success at current location
Leave door open to future revisiting of issue
If “go”
Determine optimal timing
Post-move operating requirements
Expansion of the project team
Location study game plan (the where challenge).
The just-noted items need to be assessed for each relocation scenario and the base case. Figure 1 illustrates how outcomes can be summarized for top management review.
It should be emphasized that a notable proportion (approximately one-third) of companies that consider headquarters relocation opt to stay put. In such cases, the potential advantages are not viewed as being sufficiently compelling to offset the downside, which could include business disruption, diversion of management time, loss of critical personnel and cost. Regarding the latter, the preponderance of headquarters moves are not undertaken to achieve cost savings. Often annual costs will be higher (than current), and one-time outlays can be substantial, with no payback due to savings. Rather, headquarters tend to relocate for strategic business reasons such as talent attraction.
Despite this proviso, feasibility study results commonly lead executive management to pursue relocation. In such cases, upper management needs to understand the extent of resources (financial and people) that must be deployed to smoothly implement relocation within acceptable cost/disruption parameters.
Where to Relocate
As with relocation feasibility, scale and function will ultimately shape the location decision. Front office (C-suite and/or two rungs below) will gravitate toward “global metros.” These Tier One areas feature international air service, extensive domestic air service, substantial presence of Fortune 500/1000 headquarters, a large executive/managerial talent pool, diverse range of lifestyle opportunities and favorable national recruiting capabilities.
If a back office operation (e.g., financial transaction processing, customer service, help desk, etc.) is involved in the relocation, then labor market considerations will predominate. The objective will be to locate in an area (Tier Three or Four metros) with minimal competitive demand, abundance of direct skills, a big underemployed base and modest labor costs.
Should relocation encompass any middle office operations, then the project gravitates to a location in between the above. Middle office functions tend to be more professional skills oriented but still somewhat cost-sensitive. They can include fraud/compliance, technology, shareholder services, asset management, legal support, etc. Here, Tier Two or Three metros become likely targets.
As can be deduced from the above, composition and scale can decidedly affect the efficacy of a final location decision. If two or all three office segments are involved, tradeoffs (e.g., air access, clerical labor pool depth, national recruiting and labor costs) will invariably arise. In other words, the location solution will be less than optimal for one or more office segments.
The location selection process will be similar no matter which functions comprise headquarters. What changes is only the degree of emphasis placed on various factors. Determining where to relocate involves a two-phase analytical exercise.
1. Phase One: Location screening
Composed of desktop research
Series of statistical thresholds established (e.g., large hub airport, population size, industry/occupational employment)
Metro areas screened and those failing to meet thresholds eliminated
A longlist of eight to 10 areas generated
Longlisted locations further assessed
Mainly by issuing a “Request for Information” (RFI) to each area’s lead economic development organization
RFIs designed to obtain input such as:
Corporate headquarters roster
Roster of new/expanding employers
Roster of downsizing employers
Availability/cost of Class A office space
Planned air service improvements
Tax practices/rates
Potential incentives
Utilizing an area ranking/scoring model, the longlisted locations are compared and contrasted relative to both cost and qualitative factors
Typically three are shortlisted for final consideration
2. Phase Two: Field-based due diligence
In this phase, the study team spends time in each area to assess both short-term and long-range attractiveness for the new headquarters
While in the field, the team engages in the following:
Interviews with other headquarters employers
Interviews with other groups, e.g.:
Executive recruiter
Staffing agency
Workforce center
Business associations
State/local government
Residential real estate
Commercial real estate
Education/training
Qualified office space tours
Quality-of-life tours
Dialogue with state and local economic development organizations relative to an incentives package
Of major importance, the team needs to identify the best sub-markets from an HR perspective
Talent pool
Commute distances
Lifestyle opportunities
For transferees
For new hires nationally recruited
Office space options should be confined to the best sub-labor markets
Each shortlisted location is assessed/ranked (see the sample scorecard in Figure 2) on key factors/criteria such as:
Talent pool breadth/depth
Metro
Best sub-market
University resources
Quality-of-life/cost-of-living
Air service
Office space
Business costs
With incentives
Without incentives
The preferred location and best alternative are selected.
Now the team engages in final negotiations for office space and incentives in the two (or perhaps three) areas. Additionally, final due diligence is completed by finance, legal, technology, etc.
Before the ultimate decision is made, the following should also be addressed:
1. Expansion of the team to enter the transition phase
Internal
External
2. Milestone relocation timeline
3. Conceptual office space design/space standards for the new headquarters
Collaborative environment
Reflective of corporate values
Sustainable features
4. HR policy design
Separation
Relocation
5. New hire recruiting plan
6. Changes, if any, to compensation and HR practices
7. Final determination on lease vs. own
8. Storyline/communications for announcing the decision
Internal
Government
Other stakeholders
Conclusions
Headquarters relocation occurs infrequently for nearly any company. But when the challenge arises, relocation can be a game changer.
It is, therefore, paramount to get the “strategic” inputs right. These include composition, scale, rationale and relocation scenario (what functions to move and what is sought in a new metro area).
Beware of mixing diverse functions in relocation. Successful operation of each function could be compromised if they have distinctive operating requirements.
Before deciding on a “go” course of action, be sure the risks can be managed and the rewards are fully achievable. If a “go” scenario is selected, then let the end game decision be shaped by what is most critical for a successful headquarters operation. Adopting that guiding principle, follow a dual-phase process to arrive at an optimal relocation decision. And by all means, ensure any relocation study is conducted within the strictest rules of confidentiality.
Back Office/Call Centers/Data Centers
The HQ Relocation Challenge
10 Mar, 2015
By: Katie S. BurdorfOnce the “what” consideration has been resolved, the next question to address is “why?” In other words, what are the primary drivers motivating top management to even consider moving the home office?
Subsequent questions would be “whether or not” and “where” to relocate. “Whether” measures relevant impacts and leads to a “go/no-go” decision. If the decision is to go, “where” would determine the new site for a relocated headquarters operation.
Headquarters Composition
A mini-trend has been occurring in corporate America, especially among industrial enterprises. That is, the leaner, smaller corporate head office. More and more companies with over a billion dollars in sales have been redefining what constitutes a headquarters office. In many cases, head office headcount size is under 100.
Today, many headquarters embody the C-suite and perhaps one or two direct-report levels. These executive-oriented functions typically include:
1. CEO
2. Finance
3. Legal
4. Human Resources
5. Technology
6. Sales/Marketing
7. R&D
8. Operations (usually includes heads of the major business groups).
A number of forces have led companies to “right-size” corporate headquarters. These include:
1. Concentrating the design and oversight of corporate strategy in one physical entity
2. Decentralizing the execution of corporate strategy into integrated business units, such as divisions or subsidiaries (which are often field-based)
3. Reducing corporate overhead and maximizing efficiency
4. Fostering location optimization for office segments
5. Encouraging innovation and flexibility among business units, with headquarters providing a collaborative framework
6. In some cases, going offshore for tax reduction reasons.
We are witnessing an increase in the number of companies adopting the “lean” corporate headquarters model. Examples include:
1. AOL (media)
2. Aon (insurance)
3. Boeing (aerospace)
4. Cadillac (mfg.)
5. CKE Restaurants (food)
6. Dover (mfg.)
7. Exxon (energy)
8. Fiat Chrysler (mfg.)
9. Gardner Denver (mfg.)
10. Graftech (mfg.)
11. Hannaford (food)
12. Maybelline (cosmetics)
13. MoneyGram (finance)
14. Rain Cii (chemicals)
15. Tronox (chemicals)
16. Western Refining (energy).
As companies continue striving for efficiency, flexibility and nimbleness, the trend toward downscaling the flagship office is likely to continue. This does have implications for location of truly C-suite headquarters operations. They will typically gravitate to Tier One metros with global business resources.
Once the scale/composition of headquarters has been delineated, executive management should raise a basic question: Is the headquarters located in an area that maximizes attainment of key strategic business objectives? If there is any serious conjecture, a worthwhile exercise would be to explore the feasibility of relocation. Common drivers of the decision to relocate a headquarters include:
1. Customer access
2. Proximity to company operations (e.g., manufacturing plants, R&D centers, subsidiary headquarters, etc.)
3. Ease of travel
4. Talent pool depth
5. Ability to recruit nationally
6. Industry ecosystem
7. Infusion of fresh talent/internal change
8. Consolidation (especially post-merger or acquisition)
9. Divestiture
10. Cost reduction.
Scale and drivers materially impact whether or not and where to move corporate headquarters. Ascertaining whether or not to move is frequently referred to as a relocation feasibility analysis. Dimensions of a feasibility study entail the following:
1. Executive management decides on team members to perform the analysis
2. The team delineates the following:
4. Synopsis: risks/rewards
5. The decision
It should be emphasized that a notable proportion (approximately one-third) of companies that consider headquarters relocation opt to stay put. In such cases, the potential advantages are not viewed as being sufficiently compelling to offset the downside, which could include business disruption, diversion of management time, loss of critical personnel and cost. Regarding the latter, the preponderance of headquarters moves are not undertaken to achieve cost savings. Often annual costs will be higher (than current), and one-time outlays can be substantial, with no payback due to savings. Rather, headquarters tend to relocate for strategic business reasons such as talent attraction.
Despite this proviso, feasibility study results commonly lead executive management to pursue relocation. In such cases, upper management needs to understand the extent of resources (financial and people) that must be deployed to smoothly implement relocation within acceptable cost/disruption parameters.
Where to Relocate
As with relocation feasibility, scale and function will ultimately shape the location decision. Front office (C-suite and/or two rungs below) will gravitate toward “global metros.” These Tier One areas feature international air service, extensive domestic air service, substantial presence of Fortune 500/1000 headquarters, a large executive/managerial talent pool, diverse range of lifestyle opportunities and favorable national recruiting capabilities.
If a back office operation (e.g., financial transaction processing, customer service, help desk, etc.) is involved in the relocation, then labor market considerations will predominate. The objective will be to locate in an area (Tier Three or Four metros) with minimal competitive demand, abundance of direct skills, a big underemployed base and modest labor costs.
Should relocation encompass any middle office operations, then the project gravitates to a location in between the above. Middle office functions tend to be more professional skills oriented but still somewhat cost-sensitive. They can include fraud/compliance, technology, shareholder services, asset management, legal support, etc. Here, Tier Two or Three metros become likely targets.
As can be deduced from the above, composition and scale can decidedly affect the efficacy of a final location decision. If two or all three office segments are involved, tradeoffs (e.g., air access, clerical labor pool depth, national recruiting and labor costs) will invariably arise. In other words, the location solution will be less than optimal for one or more office segments.
The location selection process will be similar no matter which functions comprise headquarters. What changes is only the degree of emphasis placed on various factors. Determining where to relocate involves a two-phase analytical exercise.
1. Phase One: Location screening
Now the team engages in final negotiations for office space and incentives in the two (or perhaps three) areas. Additionally, final due diligence is completed by finance, legal, technology, etc.
Before the ultimate decision is made, the following should also be addressed:
1. Expansion of the team to enter the transition phase
2. Milestone relocation timeline
3. Conceptual office space design/space standards for the new headquarters
4. HR policy design
5. New hire recruiting plan
6. Changes, if any, to compensation and HR practices
7. Final determination on lease vs. own
8. Storyline/communications for announcing the decision
Conclusions
Headquarters relocation occurs infrequently for nearly any company. But when the challenge arises, relocation can be a game changer.
It is, therefore, paramount to get the “strategic” inputs right. These include composition, scale, rationale and relocation scenario (what functions to move and what is sought in a new metro area).
Beware of mixing diverse functions in relocation. Successful operation of each function could be compromised if they have distinctive operating requirements.
Before deciding on a “go” course of action, be sure the risks can be managed and the rewards are fully achievable. If a “go” scenario is selected, then let the end game decision be shaped by what is most critical for a successful headquarters operation. Adopting that guiding principle, follow a dual-phase process to arrive at an optimal relocation decision. And by all means, ensure any relocation study is conducted within the strictest rules of confidentiality.
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