Why Employee Mobility Services Don’t Fit in the Multi-Process HRO Suite

A look into the relationship between employee mobility services and multi-process human resource outsourcing (MPHRO).

Employee mobility services, which include relocation and assignment management, are Human Resource (HR) activities that are typically outsourced by most employers, especially larger corporations. It seems logical then that these services should be included in a Multi-Process Human Resource Outsourcing (MPHRO) offering in the same way that payroll, medical benefits, and other HR-related functions are included. This was the conclusion that ReloAction, a mobility services company, strongly advocated in the early 2000s. As a result, in 2004, ReloAction was purchased by Exult, Inc., one of the first MPHRO companies. That same year, Exult was acquired by Hewitt Associates (now Aon Hewitt).

Surprisingly, five years later, Hewitt sold the mobility services business back to the original ReloAction owners, becoming NuCompass Mobility. The divestiture was not a marginal decision. The strategy had failed. Hewitt did not want to be in the employee mobility business. What happened? Why didn’t this “logical marriage” work out?

By understanding the background of the mobility industry and examining the qualities that make mobility a unique HR function, we can identify why this strategy didn’t work and explain the lessons learned from that experience.

A Very Brief History

In the 1960s, the employee mobility industry began providing limited service to corporations related to disposing of the employee’s current home. Corporations had in-house staff that coordinated household goods shipping, arranged temporary housing, and reimbursed relocation expenses. In addition to these services, many large corporations offered “Home Sale” assistance, where the corporation would purchase the employee’s current home to facilitate a more convenient relocation.

However, corporations didn’t want to deal with the technicalities and risks involved in purchasing, managing, and re-selling employees’ homes. “Third Party” service companies were created to provide this service. The corporation paid all of the third party’s costs, including real estate commissions, property carrying costs, and administrative fees. Importantly, the third party was strictly a service provider and took no part in the loss or gain on the real estate transaction.

In the late 1970s, corporations also began to outsource the other functions previously provided in-house. This was the era in which corporate restructuring sought to eliminate or outsource “non-essential” tasks. The mobility industry was solidified when IRS Revenue Ruling 72-339 fundamentally changed how employee’s homes were sold. The Ruling created tax benefits for homes sold through a third party company, using two separate transactions. Third party companies became known as Relocation Management Companies (RMCs); and by the late 1980s, larger employers were outsourcing most of their relocation functions to RMCs.

Enter MPHRO

In the early 2000s, the MPHRO business model emerged. Major HR functions, such as payroll, benefits administration, and HR administration were outsourced to multi-process HR outsourcing firms. One of the first such companies was Exult.

ReloAction began working with Exult in 2000 to provide mobility services to clients of Exult’s HRO business. This arrangement worked so well that Exult eventually purchased ReloAction in early 2004, and later that year, Exult was acquired by Hewitt. Today, it is common for large corporations to use the MPHRO model for its HR functions.

Mobility Not a Good Fit for MPHRO

Before discussing the reasons why we believe that employee mobility is not a good fit for MPHRO, we need to provide a couple of caveats. First, to the best of our knowledge and research, there are very few examples and no empirical data on this subject. We are presenting our own observations, judgments, and opinions based on our experiences in both environments.

Second, there are no villains in this story. All of the parties involved were optimistic about the potential outcomes and made concerted efforts and investments to achieve success. The fact is the arrangement just didn’t work.

There are seven characteristics of employee mobility that cause it to be incompatible with the MPHRO model. Importantly, no single factor alone makes the difference; rather, it is the combination that tips the scale.

1. Mobility services are provided to a limited employee population

Most HRO services are provided to a corporation’s entire employee population. Every employee receives payroll, the majority of employees enroll in healthcare plans, and most use other benefits offered by their employer.

Mobility services, however, are provided to only a small percentage of the employee population. Only employees that are asked to move permanently or go on international assignments qualify for assistance. Even companies with thousands of employees may relocate only a small percentage of employees each year. Providing services to the total employee population requires a different service delivery model, technology systems, workflow, and staffing than when providing services to a very limited population. Supporting different systems and models becomes difficult and costly.

2. Employee mobility requires specific knowledge and expertise

Relocating an employee is not an ordinary task. It requires an evaluation of personal circumstances, a substantial budget allocation, and higher management approvals.

There are few crossover skills that can create efficiencies or cost savings for the MPHRO. HR Generalists don’t usually have experience in employee mobility. Interestingly, during the Hewitt years, there was practically no employee crossover between the mobility group and other Hewitt operations. The required experience and skill sets were not easily interchangeable.

3. Mobility is expensive and costs vary significantly

The Worldwide Employee Relocation Council, an industry association, estimates that in 2012, the average cost to move a current-employee homeowner was $91,528 and for a current-employee renter, $24,714. An executive move can cost up to $200,000, but the relocation of a college new hire might cost only $10,000. Employees filling the same position, at the same salary level, can incur very different costs depending on their personal circumstances and home ownership status.

These characteristics necessitate different decision making and budgeting processes than are required for other MPHRO services. Usually, the costs of the latter are built into the monthly expenses of organizational units, based on the number of employees, salary level, or both. But mobility costs need to be addressed separately. How many relocations or assignments will there be in the next year? How much should be budgeted for each one? How do changes in real estate markets affect potential costs? Does the cost of a particular relocation affect the decision to move, or hire, the employee?

The RMC helps corporate clients make these kinds of decisions on a frequent basis. This role requires a very different relationship to the corporate client than that established to support other MPHRO services. A close working relationship with the RMC is required due to the individual and personal situations related to a specific relocation or international assignment.

4. Cost management and fee arrangements are unique in the mobility industry

There are many ways to pay for MPHRO services. One common method is to charge a set fee based on the specific number of employees served during an identified period of time. Another approach is to charge a set fee based on the level of service provided, i.e., a monthly fee for a specific HR benefit. These pricing methodologies result in predictable revenue streams, making it easier to staff and determine profitability levels.

It doesn’t make sense to charge for mobility services using either of these, or similar, methods. Typically, RMCs are paid for the specific services they provide on a transactional basis. A college hire won’t need very many services, and the RMC service fees and related costs will be small. Conversely, an executive with a family, plus a home to sell in the old location and a home to purchase in the new location, costs significantly more.

Importantly, depending on the mix of services provided, an RMC may not even charge the corporate client a service fee, because its compensation can be obtained from the supply chain. For example, a referral fee is often paid by a real estate agent that handles a home sale or home purchase. However, even in arrangements where the corporation is not charged a service fee; there is still a wide variance of direct costs that must be paid based on a particular move. This type of “variable cost target” requires a different contractual and billing relationship for mobility services than for typical MPHRO services.

5. Relocation involves a banking function

RMCs handle a lot of money on behalf of their clients. This is not a well-known fact. Most RMCs fund all or a large percentage of the relocation expenses incurred by a relocating employee. Depending on the contractual arrangements, some clients pay the total cost at the end of the process.

For example, when a RMC purchases a home from an employee, it is common for the RMC to use its own funds. The RMC must then carry the financial burden until the home is sold to a buyer, only billing the corporate client when the home closes.

No other MPHRO service involves this kind of funding. Making special arrangements for a limited function is not easily accomplished and it’s inconsistent with delivering large scale, repetitive HR functions to the entire employee population.

6. There is risk in owning real estate

Related to the banking function is the requirement for the RMC to “own” real estate. In some cases, the RMC will take title to the property; but in other cases, it may not. From the standpoint of potential costs and risk to the corporate client, the RMC owns the home on behalf of the corporation. Most corporations outsource relocation because they don’t want to manage this process or account for real estate on their financial statements.

A company that provides MPHRO services, which includes relocation outsourcing, needs to understand and mitigate the risks of owning real estate, and expect the balance sheet to reflect such ownership. This is generally not something an MPHRO business wants to do.

7. Relocation services have a long lifecycle

The complexity and lifecycle of a relocation or assignment is very different than typical MPHRO services. RMCs are hired by corporate clients to help an employee and family negotiate through a disruptive time of their life, quickly and efficiently. However, the relocation process takes time. And the more complicated the personal life of the relocating employee, the longer it takes.

In a U.S. domestic relocation, most relocation policies allow up to one year for employees to complete all of the activities involved in relocating. At a minimum, a single renter might be able to complete a move within 60 days. But a homeowner, with a family, takes an average of 6 months to complete a relocation. The duration of an international assignment can last for several years.

During the mobility services lifecycle, a variety of unique and non-repetitive services are provided depending on where the employee is in the process. No two relocations or assignments are the same. The consultants who provide services must match the timing of the service to the needs of each employee and the employee’s family.

Final Thoughts

We were once strong advocates for including mobility services as part of MPHRO. When the opportunity presented itself, all parties did everything they could to make it work. But in the end, mobility services didn’t fit well with the way other HR services are outsourced, especially on a large scale. Looking back now and reviewing each of the factors involved, it is very clear that mobility services outsourcing is simply incompatible with MPHRO.

If mobility services become more standardized over time – for example, offering a single payment to the employee who then self-manages most aspects of the relocation, it may be time for another look at being part of MPHRO. But, even then, there will be significant challenges.