Outsourcing relocation services - are HR managers cutting their own throats?

Most employers automatically assume that outsourcing their relocation services will save them time and money. And as a result, third-party relocation companies have experienced remarkable growth during the recent recession. But the benefits of outsourcing relocation services are not as clear-cut

Third-party relocation companies were born in the 1970s, emerged during the 1980s and are coming of age during the 1990s. These companies offer full relocation services, which include real estate consulting.

According to the 1993 Relocation Trends Survey by the Employee Relocation Council in Washington, D.C., the average cost for relocating a homeowning employee during 1992 was $45,330. This is a decline from the 1991 average of $46,667. With that type of cash outlay for employee relocations, employers need to examine cost-of-service comparisons closely.

"Third-party administrators have to make money, so they will normally charge a brokerage fee, typically 4 to 6 percent of the total invoice," said J. Stephen Mumma, senior vice president of marketing and public relations for the Household Goods Division of Atlas Van Lines in Evansville, Ind. "Carriers will generally bid on a relocation job and typically the third-party administrator selects the carrier with the lowest bid, so the actual price may not reflect the actual cost of service."

"We actually welcome cost comparisons, because we do provide a gamut of services," says Barb Conklin, senior vice president of client services for Prudential Relocation Services in Atlanta. "We will even provide a cost analysis, and then advise our clients to do what makes the most sense for them." The difference between dealing directly with a vendor such as Atlas Van Lines or with a third-party relocation company such as Prudential is working with a service provider rather than a service arranger. This can place the service provider in a unique position, because a third-party relocation company can become both a client and a competitor.

"If a company outsources its relocation functions then the service arranger could very well hire us to perform the transportation services," said Mumma. "But at the same time the outsourcing company may be one of our clients. It makes for some interesting scenarios."

By using a third party, a company adds an extra layer of communication between itself and the relocating employees. Communication is the vital link and can keep a relocated employee from becoming a "dislocated employee." When selecting a relocation service provider or arranger, an HR manager must be certain that communication links with employees are not severed.

"You don't want to have long communication lines, you truly have to be accurate," said Mumma. "The longer the communication line, then the more chance you have of communication being garbled. It's just like that whisper game you played in elementary school, where you sit in a circle and you whisper in the person's ear next to you. It goes around the circle and when it gets back to you, the story is completely different."

Mumma said that the key is to be sure that the service provider or arranger preserves the employer's corporate culture. Employees will feel good if the company works with them. Employees are generally secure with their corporate culture, which creates a real sense of community.

"The first thing we do with a new client is examine their relocation and employee policies carefully. We have to be very familiar with an employer's corporate culture," said Andy Gadoci, senior vice president, strategic marketing for PHH Homequity, located in Wilton, Conn. "We build a relationship with our clients and learn to operate within their culture. For example, Mobil and Phillips are both oil companies, but they're very different as to their corporate culture. It's essential to know the differences and be flexible enough to work with both equally well."

Outsourcing relocation services also means a loss of control to HR managers. Loss of control has both its good and bad sides. Many times HR departments are happy to shift the burdens of relocation to someone else. It means that they can refocus their resources, but it can also lead to downsizing of departments and some managers could end up losing their jobs.

"Our job is to enhance the operation of the HR department and provide the best service and benefit possible to the employee," said Gayle Glew, president of Windemere Relocation, a regional real estate relocation broker in Bellevue, Wash. "The HR department exercises as much or as little control as they want over us, we simply just fit in to their system. If we do our jobs right, then we are transparent to the employee."

But loss of control is not the problem, as Gadoci sees it. He believes that HR managers who are overly cautious and try to retain too much control over the relocation process are the ones who are in danger of losing their jobs.

"My advice to any HR manager is to be knowledgeable and be prepared to make a case for outsourcing or against it," he said. "HR managers who put their heads in the sand and don't inform their companies are probably placing their jobs in jeopardy. You must take a look at what you can and cannot do and make the appropriate recommendations, otherwise the company will probably come in and make wholesale cuts. I have seen it happen before. You have to take a proactive stance and show your employer that you're not afraid to manage the process." INSIGHT

The 10 most popular destinations for corporate and government employee relocations:

1. Atlanta 2. Houston 3. Chicago 4. Dallas 5. New York 6. Washington 7. San Francisco 8. Philadelphia 9. Denver 10. Los Angeles

Source: 1993 PHH Homequity Report on Employee Relocation, Wilton, Conn.

INSIGHT

Elements of service that an employer should consider when making a choice between dealing directly with the service provider or dealing through a third party:

* Cost of service * Control * Communications * Elimination of administrative burden * Reporting

Bill Leonard is a staff writer with HRMagazine.