Economic Externalities, the spreadsheet and Relocation Support

November 7, 2013

I recently came back from the Worldwide ERC Conference in Dallas, and there were a number of companies with whom I spoke who were concerned with an increasing number of relocations that are getting lump sums instead of relocation support. It is far from universal, and there are still many companies that use lump sum as just one element in their tiered relocation programs, but it is a growing trend.

The Growth of Lump Sums

When a corporation turns its employees over wholesale to lump sum packages for its relocations, it is not just that the cost conscious have come out to play. While lump sums clearly solve cost problems, it is not necessarily logical that they always create cost savings. It is quite possible that, in some instances, pre-calculated lump sums cost a company more than would the actual relocation costs. This is in a minority of cases, but it is nonetheless true that lump sums do not logically necessitate cost savings.

In addition, lump sums are quite likely to drive expenses elsewhere as stealth costs (business trip as opposed to house hunting trip anyone?)

Having said that, there is no question that cost containment is driving the growth of lump sums, as well as cost predictability, and of course reduced internal administration.

I would also argue that the growth of lump sum packages are a direct result of the victory of the spreadsheet as a form of discourse in corporations, from buying services to analysing costs out of context.

I will get back to this in a second.

Economic Externalities

First, onto the notion of Economic Externalities: Wikipedia defines an externality as a cost or benefit which affects a party who did not choose to incur that cost or benefit. For example, if I manufacture polymer products, and pump waste into your backyard and you have to clean it up, I have passed a significant cost onto you that you did not choose to incur. In other words, I am making profits without realizing some of the true costs of my production; I have sent them onto someone else. And there is no field in my spreadsheet to capture this cost. How can I have a field in my spreadsheet about a cost that is not mine?

There has often been hope that transferees with lump sums will use those funds to buy the services of either a relocation company or a destination service company (or All Points’ which is both – shameless plug). I love my industry, and I believe in our services, yet, if it was my own money in the form of a lump sum or otherwise, I wouldn’t buy my own services. Why? Because the main thing that my money would save me is… productivity for my company (an economic externality to me). If I make phone calls to movers from my desk, what is that to me? That is my employer’s time. What if I can’t find a rental home, or don’t know how to switch over my driver’s license? I can always go out for a long lunch, or describe the situation to my manager, and I will leave work early. You can’t make me pay for a service that saves someone else’s time. Speaking of saving someone else’s time, let’s see how quickly we can double the productivity loss. Let’s go back to my office, and I still don’t know how to switch over my driver’s license: I walk down the hall to Human Resources, and I ask someone there, “Hey Cindy, do you know how I go about doing this?” Bingo – I just doubled the productivity loss for the company (I am taking my time and Human Resources time). And that cost didn’t show up in anyone’s spreadsheet.

Living in the Excel bubble

The spreadsheet denudes the value of relocation (or any service or product) by its very nature. That’s its job: to simplify. It deconstructs any service value or product value down to its cost. Down to numbers. Comparing costs is incredibly important, and these types of procurement procedures and business analyses are crucial to today’s business. But I am a believer in the deeper psychological and cultural change that occurs when a certain media format dominates our consideration of products and services. The more and more the spreadsheet prevails in its lure of the mind’s attention, the more we believe in the over simplification it makes of life. Wouldn’t it be great if the math were always as simple as a comparison of numbers? Our attitudes and beliefs have changed to believe that this simplification is possible. The Annalesschool of history called this mentalité: an almost cultural way of thinking or way of looking at and interacting with the world. And what the school said about mentalité is that it does not change easily. Its pace of change can be (at times) glacial. What I am saying here is that in the business world the overly powerful media of the spreadsheet has become a form of mentalité.

You think I am wrong? We hear everywhere that we are in a war for talent. There is no doubt that this is true. But if this is true, then why isn’t superior relocation service and super benefits packages growing compared to laissez-faire lump sum relocation packages? More attractive relocation packages should be a natural result of the war for talent, in order to entice that talent. So why is lump sum growing more rapidly than robust support packages? It is because of the twin heads of economic externalities (the productivity loss noted above) and spreadsheet mentalité. I believe that the spreadsheet and its sweet simplicity have won over too many disciples in a monocultural sort of way (i.e. it is one thing to look at costs/cost predictability as important elements in a company’s relocation benefits decisions, it is another thing to look at it/them as the ultimate element(s) of a company’s relocation benefits decisions).

Lost productivity just doesn’t fit in a spreadsheet. Relocation services and the support that comes with it are productivity gainers – they gain the productivity for the employee relocating and the productivity of Human Resources. These are invisible to the spreadsheet.

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