Factors in choosing a new location for a shared service centre
One of the interesting aspects of being involved with shared service centres is the choice of location for a new one. This happened a few times when I was Vice-President for Strategy & HR for Shell’s global business service network and, although it wasn’t the original plan, since then I’ve also been part of location discussions in Russia and Kazakhstan.
The fact that I know so much about the many factors that should be taken into account when choosing a new location, is in great part because of the kindness of Josefien Glaudemans, who shared some of her vast knowledge and experience with me. So although this blog is in no way an advertorial, I have no hesitation in recommending both her and the company in which she is a Partner, Buck Consultants International, specialized in international location strategies & site selection, if your company needs to think about a new building, and not just service centres!
So what are the factors to take into account? Well, there are a large number and their relative importance (or weighting) will be different dependent on the company, their strategy and the type of organizational entity that will be housed. But generally there are three main buckets of such factors: cost, quality and risk.
People tend to think of this first and indeed it is the basis of many decisions. And for shared service centres, labour costs and real estate costs are the top two operational costs. But there are other costs to bear in mind, not to forget potential gains to offset those costs. So the list might look something like this:
· Running costs people: salaries etc.
· Running costs real estate: rent etc.
· Running costs year on year: telecommunications, travel etc.
· Start up costs people: recruitment, training, relocation etc.
· Start up costs real estate: design, fit out, equipment, connectivity etc.
· Close down costs (as in many cases a new shared service centre means loss of jobs elsewhere): severance, retention etc.
· Financial advantages (as in many cases municipalities/countries might offer financial inducements for companies moving in): tax incentives, recruitment & training subsidies etc.
Although cost always used to be the deal breaker or maker, life has changed in the last ten years and the quality of both talent available and the quality of life itself in the new location, have become much more important in these decisions. So the quality list might look something like this:
· Workforce: potential numbers, qualifications, skills, unemployment rate etc.
· Competition: competitors, staff turnover etc.
· Languages: which ones, availability, quality (including accents) etc.
· Employment framework: unions, workers councils, strike record, ability to hire & fire, flexibility, engagement, motivation, employee loyalty etc.
· Accessibility: public transport, car (both especially for staff), international (for the company itself)
· Life itself: quality of life, housing, schooling (maybe international depending on expat decisions), language, culture etc.
· Real estate: quality, availability, rules around renting, leasing, environmental impact etc.
Risks are important, even if they may be the most difficult to gauge and to weigh up in any final decision, especially if – as is often the case – a ‘foreign’ country is being considered for the new shared service centre. So various risks could be:
· Financial: exchange rate, banking system, ease of currency movement etc.
· Economic: degree of development, inflation, GDP per person etc.
· Political: stability, view of (foreign) business, type of government, potential conflicts or tensions etc.
· Transparency: corruption, bureaucracy, ease & transparency of doing official business, legal framework etc.
· Natural disasters: climate, earthquake etc.
A final thought:
Given my original research background many years ago, I am obviously a strong believer in the data that comes from such an exercise. Maybe it’s purely a factor of the companies for which I have worked – and even Shell was not immune – I have seen well founded proposals changed at the last minute to other much less logical locations by ‘the business’. And often for personal rather than real business reasons. And not even because of failed stakeholder management on mine (or others) part(s)! I can only say that within a fairly short time, many of these poor decisions have become clear to everyone and have had to be rectified at a real cost of money, time, efficiency and business performance.
There will still be many choices to make if you follow such a full analysis as I learned from Josefien, but you will make a well researched, multi-factor and low risk decision with a high probability of success, meeting your specific company needs and strategy!
Buck Consultants International: bciglobal.com
Josefien Glaudemans: email@example.com