Service with a post-pandemic smile

Office & mixed-use development
Has the pandemic dealt a blow to the BSS, which before the outbreak was booming in the CEE region? Or will it emerge from it stronger, as it did in past crises? Quite possibly. and the switch to home office could – paradoxically – give it a further boost

The business services sector (BSS) first took root in Poland and the CEE region around 25 years ago, since when our part of Europe has firmly established itself as Europe’s go-to location for companies planning on outsourcing their operations. It may not rival in scale, say, India, where something like 2.7 mln people are employed in the sector (compared to 750,000 to a million in the CEE region), but Central Europe certainly beats it in terms of growth, having the advantages for Western companies of pools of talented and educated people with the required language skills, time-zone synchronicity and cultural affinity. According to the ‘Association of Business Service Leaders (ABSL), Poland, which last summer had around 338,000 people employed in more than 1,500 BPO, SSC /GBS, IT and R&D centres, has been experiencing annual growth in the range of 10–15 pct in terms of employment.

But the question that many people might be asking at this precise moment is whether the growth of the sector has been put in any kind of jeopardy by the pandemic-induced switch to remote working.

Bouncing back

In the opinion of Elias van Herwaarden, the EMEA head of location strategy for occupier services at Colliers, this is simply not the case, judging by how the sector emerged from previous crises, “During the SARS outbreak in 2002–4, many people thought we would all end up having to work exclusively remotely, but of course that didn’t happen. This time global BSCs got back to work very quickly – and CFOs even saw that the only part of their businesses that was working properly were the BSCs,” he points out. Similarly, BSS came out stronger from the global financial crisis, as companies chose to diversify their operations and build greater resilience into them by outsourcing. So what has the impact been this time? “When the first lockdown was announced in Poland last year, within a fortnight 70 pct of employees of business service centres in Poland had switched to remote working. But as we have found out, not everything can be done remotely. If you’re a bank, for example, you don’t want sensitive data to be handled over the kitchen table. Globally, the number of jobs created in this sector was 66 pct down last year – but this still meant that it was the same number as in 2016,” says Elias van Herwaarden.

Face-to-face with the new reality

Following the outbreak of the pandemic, obviously the sector wasn’t in an ideal situation, because centres had to adapt to the new way of working. There was something of a learning period that had to be gone through, but in fact most centres experienced an improvement in performance after switching to home office. However, security is clearly a major issue for some industries and businesses, since sensitive data cannot be processed securely at home. And, as people in the sector have discovered, face-to-face interactions are still necessary in many ways. “The kind of work done in centres is not static – it’s not like everyone in them is making Big Macs to the same recipe. There has to be standardisation and harmonisation between different centres. Brainstorming needs to happen. But these transitions have been slowed down by the pandemic. Be smarter, be faster, be better – is always the motto. But you need a group of people for brainstorming and this has always been traditionally done physically and is proving to be more difficult than pre-Covid. Operations have also been affected – those companies that set up centres during the pandemic have found that these things have been taking more time,” explains Elias van Herwaarden.

It seems, therefore, that the office is far from dead in this sector. Aggressive lease renegotiations have certainly not materialised. And even if the pandemic encourages companies to temporarily consider decreasing the size of their office space, such a trend could go into reverse once the economy recovers and the battle to attract the best talent resumes. But what we have discovered is that a lot of things can be done outside the office and so it is the way they are going to be used that will mainly have to change, and this will be true of the business services sector as much as it will be elsewhere. “I think the word ‘office’ has even become a bit of a misnomer. It will now become more like a social space for employees to innovate together and for team-building. So there will be less of an office feeling than in the past. But people do actually want to come back to the office. Maybe two or three times a week, but still so that you can be the boss of yourself. Firms need to understand this going forward, and use the office as a place to foster employee engagement, since one of the main problems with remote working is that employees feel less engaged with their companies. They might think to themselves: all I can see are faces on a screen – maybe I could work somewhere else,” adds Elias van Herwaarden.

Thus corporate culture along with the loyalty and engagement of employees are all put at risk by home working. But the more social way of looking at the office is nothing new this sector, where such features as ping pong tables etc. were introduced long before others, as Elias van Herwaarden explains: “For the BSS, therefore, things haven’t changed, but the lockdown has accelerated a few trends. Think of automation, which has extended the reach of BSC processes and the use of remote work. The future of real estate and the use of the office will be different. Some BSCs were already on that track and some are further down it than others.”

A problem shared

In his meetings with business services leaders where the topic of how to adjust to the new situation was discussed, a few perhaps surprising ideas have been floated. “One idea was the sharing of resources. Cherries and potatoes don’t need to be picked in the same season – so you don’t need two employees, just one very versatile one. Some have taken the idea of sharing of resources even further – why not share the real estate? If we need to cut costs, why not share the shareable? But isn’t sharing real estate impossible? No. Why should it be? We thought doing business over the kitchen table was impossible before the pandemic,” says Elias van Herwaarden.

Some other trends that predated the pandemic have been accelerated by Covid. One of these is the shift away from the main cities where the BSS has taken hold – in Poland: Kraków, Warsaw and Wrocław – into secondary and tertiary cities, in terms of new locations for centres. “The bulk of BSCs are still in tier-1 and -2 cities, which easily take up 60 pct of the new jobs created in the sector each year. But last year in Central Europe, the figures for tier-3 and -4 locations vastly outnumbered tier-1 and -2,” emphasises Elias van Herwaarden. The reason for this is the need to get nearer to the talent. “Coca Cola and Cargill, for instance, have centres in Sofia but also later opened locations in Varna, 450 km east of the Bulgarian capital, to tap into the local talent. Why just grow your centre in Kraków when you can also open a satellite centre in a tier-3 city? As an additional dual-hub example: BP opened its shared services centre in Budapest in 2009, and set up a secondary site in Szeged eight years later?” he adds. This is the ‘spoke’ approach, the multiple site/multiple country strategy that 22 companies in our region have now adopted. Also, for the employees, the question might arise: why rent a flat more expensively in Kraków, when you can rent an entire house in Rzeszów at the same cost. And there are certainly pools of educated and qualified talent in such places.

The drive towards the greater resilience that can be achieved by opening more than one centre elsewhere in the country or region has also been given a shot in the arm due to Covid. “The BSS did its own hunting for toilet paper after the outbreak of the pandemic, so to speak. So if – God forbid – lighting strikes twice and we have another calamity like the pandemic, the work can be moved around. So resilience is now being built into their footprint. Everyone was very happy when State Street opened a centre in Kraków ten years ago, but they’ve since also opened in the TriCity. Vodafone opened centre in Bucharest, but some of the processes they carried out there have now been moved out to other centres in places like Budapest, although their global centre of excellence for automation is still in Cairo. If one of our clients opens one centre here, there is a very good chance that they will open another somewhere else in the country and build a network of centres. Only the most mature companies do this. For example, PepsiCo, which opened five centres in a relatively short time span of two-to-three years. There are companies out there who feel they are ready to go full-BSC in this way, which makes this a very interesting sector for those who are looking to invest in this kind of real estate,” explains Elias van Herwaarden of Colliers.

Turbo charged for the future

In his view, just as with the SARS-1 epidemic and the global financial crash of 2008, the present crisis could even “turbo charge” the GBS, SSC and BPO scene. And, although this might seem paradoxical, despite the fact that Covid has proven that many things can be done from home. It was the so-called ‘death-of-distance’ that occurred in the 1980s and 1990s that gave birth to outsourcing and the business services sector in the first place – through the removal of trade barriers and increased globalisation. The advent of the internet and now the switch to the home office it has enabled have been dubbed the death-of-distance 2.0. More remoteness in work, though, only seems to energise this sector. Distance might be dead, but as we’ve established the office isn’t. It’s more the case that hybrid forms of offices that are more socially-oriented will be adopted. BSCs will continue to open – and given the projected growth figures for the sector in Poland and the CEE region, even with some post-pandemic revision, its future in our part of the world is still very promising indeed.