By Mark R. Smith, Contributing Writer
This article is about the folks in the finance office. And those in the legal department or in human resources. Or perhaps the workers in a call center that just came back onshore.
To be succinct, this article is about back office; to be more precise, the back office of what the world is hoping soon becomes the post COVID-19 era.
However, exactly what they will be is being defined and may look a little different from industry to industry, from city to city.
Moving forward, that will include the old, yet seemingly new, wild card of remote work. Just how much of a factor will it be? That’s to be determined, but it’s key to the new mix.
To start, know there “were a couple of trends pre-COVID-19,” said Larry Gigerich, executive managing director with Indianapolis-based Ginovus and a board member of the Site Selectors Guild.
“One concerned the logistical chain and was about receiving finished goods and raw materials from offshore locations. Even before the pandemic, companies had been looking to bring those functions back stateside,” said Gigerich. “We’re also seeing that human resources, finance and legal divisions, for instance, don’t need to be embedded with headquarters that are looking for lower-cost domestic locations for those disciplines.”
That’s due in part to COVID-19, he said, “but also due to cost, public transportation issues and plans for office density.”
Gigerich also pointed out that certain cities are seeing an uptick in leasing. “On the eastern side of the U.S., we’re seeing more activity in Atlanta, Charlotte and Nashville,” he said, “and out west, we’re seeing it in Dallas, Denver and Phoenix.”
One example of the above occurred in 2019 when The Discovery Channel moved its headquarters from Silver Spring, Maryland, to New York City, though it left some creative operations in the mid-Atlantic – and moved its national operations headquarters to Scripps Networks Interactive’s campus in Knoxville, Tennessee. There are other emerging markets coming into the mix, “such as Tampa and Columbus, which also offer increasing availability of outstanding talent and attractive cost bases,” Gigerich said.
As for another industry issue, call center location, he pointed to an interesting solution that was realized by Ginovus client Charles Schwab.
“The corporation made a decision a few years ago to relocate an offshore call center, where there were dialect and time zone issues, to Texas. From a customer service and financial perspective, this was a much better situation,” Gigerich said, “and Schwab got the added benefit of that market being bilingual.”
“All told, analyzing back-office functions is primarily driven by three major factors,” Gigerich said.
“The first is talent. What kind is needed, with what experience and how is it overlaid with the pipeline from the education system? Does most of the staff need a two- or four-year degree?” he said. “The second area is real estate and ensuring that the building is well equipped, affordable and has ample adjacent amenities; and the third is analyzing the information technology (IT) and telecom issues, and making sure that the building has satisfactory infrastructure. Companies need access to multiple high-speed telecom carriers, so they have competitive pricing options as well as redundancy.”
The Right Size
Gigerich said that Ginovus is seeing more and more businesses pay attention to these factors, especially as they grow and their needs increase. “The government says that 500 or fewer employees is its definition of a small business, but that’s a pretty large number of employees.
“We, however, think that once a company passes 250 employees, that’s appropriate critical mass for an analysis of shared services functions (human resources, purchasing, finance, etc.) to start to ask where they’ll work and if that might that be in a more remote or hybrid fashion,” he said.
Today, Ginovus is working with a 300-person New York City headquarters and its management team is reconsidering its accommodations. “There are about 50 workers in the company who have to stay in New York for business reasons, but the rest can be relocated,” Gigerich said, from a very pricey real estate market.
“So they’re considering Denver, Dallas or Atlanta for the other 250 that don’t need to be in Manhattan,” he said, “and therefore also won’t require Manhattan-sized salaries in a Manhattan-priced office in a location that typically runs from $60-$75 per square foot.”
“They’ll end up somewhere,” Gigerich said, “where space costs about $30-35 per square foot.”
All at Once
Indeed, it’s been “an interesting ride with COVID-19,” said Eric Liebross, senior managing director with Fort Lauderdale, Florida-based Auxis, which focuses on outsourcing and consulting, with a focus on back office. “Before [the pandemic], companies were mainly looking for optimization and tech improvements.”
And while COVID initially affected the sector, it wasn’t in a long-term way; Auxis saw its business grow during the shutdown, “which surprised me. In certain industries, like hospitality, we saw people pull back, yet others gave us more work,” said Liebross.
The firm saw a slight increase in business over 2019 “and the numbers are up about 30 percent in my sector, which is business transformation and business process outsourcing,” he said. “Given the fall spike, I’m not hearing or seeing [a specific market reaction] at this stage, so there has been no affect on our bottom line.”
Auxis’ clients “are, in fact, expanding and we’re getting more opportunities,” said Liebross. “I think last year they realized that they don’t need to have workers just outside their doors” to be productive. That “had been viewed as a control issue, but their outlook has changed.”
So those companies “are now seeing elements of various functions, such as accounts payable, as something that isn’t customer-facing and can easily be outsourced,” he said, “with office staff working on higher value activities like financial reporting and analyzing variants to prepare for future transactions.”
At the same time, they’re having issues finding people to work at the lower-end jobs. “Organizations are struggling to find the right mix when [analyzing] optimization. That speaks to the need to move it elsewhere, which we saw happening before the pandemic.”
It’s a reality of the market today. “Companies have to realize that it will be harder to find people to do these kinds of jobs and that salaries to keep the people you do hire will rise,” said Liebross. “The whole dynamic is changing with the rising hiring costs, the remote workforce model, a talent shortage and the push to optimize. It’s all happening at once.”
Others offered similar takes, in “that we’re enduring an odd time,” said Dennis Donovan, principal with Wadley Donovan Gutshaw Consulting, in Bridgewater, N.J., “but I don’t think today’s underlying precepts are appreciatively different concerning back office as we work to transition out of COVID-19.”
“There may be some companies that prefer to go to totally remote setups for back office,” he said, “but I don’t see it happening.” What Donovan sees happening with back office is perhaps the retention of a similar physical footprint for the vast majority of organizations.
“Then, the preponderance of companies will likely adopt a hybrid workplace model. This will entail a workforce that resides in the local market and works in the physical office three to four days a week and at home one to two days a week. There will only be a small percentage of employees working remotely (i.e., out of market),” he said. “This model best balances the needs of employers and employees.”
All told, he sees the sector as strong. “There is great activity in back office since the economy, believe it or not, is doing well,” he said. “The Internet of Things and Artificial Intelligence are helping to automate the more routine processes, so they don’t relate to higher-skilled workers” that require physical space.
As for finding those higher-skilled workers, it’s “getting harder to find qualified labor in cases where companies need them in significant numbers,” said Donovan. “That’s creating cost pressure for companies, due to the dynamics of the labor markets.”
As for the offshoring angle, he thinks most companies that have gone that route will generally continue bringing customer service operations back to the U.S. “due to push back from consumers who don’t understand idiosyncrasies of various foreign cultures and have issues with the language barriers where call centers have been located.”
That’s helped to make identifying a high-quality workforce key to domestic location.
“For some time, even for back office that had higher-end functions that moved toward knowledge workers, there has been a train of thought that downtown areas might be a good location,” he said, “given the population of millennials who want easy access to work and entertainment options, access to public transportation, etc.”
“But the days of voice-related offshoring are pretty much behind us,” Donovan said. “Certainly, in IT, network administrators can be dispersed, but not the customer help desk. If I was running a large company, I’d be very, very careful about where they are located.”
In the case of back office, the question seems to have become, “How dispersed can it be?,” said Mark Deering, partner with MacKenzie Commercial Real Estate Services, in Baltimore. “As a construct, is it taking on a new profile?”
There are a couple of trends of note, Deering said, echoing Donovan. “One is a dialect issue with offshoring. There are numerous corporations who have remote call center activity and there have been a growing number of complaints about customers not being able to understand the accents of customer relation representatives which can also happen domestically in urban areas.”
Another trend is being directly dictated by COVID-19. “We’re in the grand experiment of learning just how much of a company’s workforce can move toward remote working,” he said, “and trying to understand what industries it will benefit long-term.”
“Overall, there is still much uncertainty,” Deering said. “The big tech companies, among others, are going back to the office for numerous reasons, including the construction of billion-dollar corporate campuses. However, here in Baltimore, there are other examples like that of TransAmerica, which is reducing its footprint from 125,000 square feet in downtown and moving into 35,000 square feet in nearby Harbor East.”
The Hybrid Answer
Also, there are numerous workers who, despite the obvious conveniences and benefits, don’t want to work at home. They have various reasons, including dealing with kids and pets – who in the last year hasn’t heard a few barking dogs during Zoom calls? During the workday, the isolation and not being able to separate their work and home lives, as well as the lack of synergy with colleagues and the loss of relationship-building opportunities.
Consider this: How does an up-and-coming employee get noticed with a company and within an industry by working at home?
Deering also thinks the long-term solution will be a hybrid, but without the continuous office presence that had been prevalent before the pandemic.
“How do you function effectively and ensure that your employees are property trained and equipped to provide for the next generation of leadership if they don’t have any presence in the office?” he queried. “My company, for instance, has five offices. Can we work at home? Sure. Can we collaborate as well that way? No.”
“But conversely, if you’re an IT worker or a writer and you’re on the screen all day, why do you need to be in an office? So, I think there will be a hybrid solution,” Deering said.
What it comes down to, he said, is that companies all want to control occupancy costs, and offer a flexible work environment. “One of my clients who said ‘We’re never going back to the office’ early in the pandemic called me back two months later needing more space.”
So this story is developing. “It will happen industry by industry, company by company,” Deering said.
Bio: Odenton, Maryland-based Mark R. Smith joined Expansion Solutions after having written about site selection among the vast number of topics he has covered in the business universe. That part of his career began in 1993 when he joined The Daily Record, a Baltimore business and legal publication, where he delved into the worlds of economic development and commercial real estate, among numerous other industries; in 2003, he was named editor-in-chief of The Business Monthly, another Maryland publication that covers the scene in the Baltimore-Washington Corridor counties.
Concurrently, he’s written at length about the film and video industry for a variety of publications, and about his other loves, including music, sports and leisure.