Outplacement scramble to boost supply

For outplacement providers, investment banking job cuts and individuals' misfortune therefore amount to an unprecedented opportunity for expansion.

Michael Moran, executive director of Penna Meridian, a specialist financial services outplacement provider, reflects upon the recent boom: "The City of London exited 20,000 people a year for the past two years, and the value of the City outplacement market went from being worth 10m (€14m) to 20m."

As demand for their services soared, outplacement providers scrambled to boost supply.

At Penna, office space leapt from 8,000 square feet (740m2) in 2001, to 25,000 sq ft in early 2002. In 2001, BG Careers, an upmarket rival, took on 2,000 additional feet of space, including 12 new workstations and four new consulting rooms. DBM, the US-based outplacement provider, belatedly doubled its London presence with a new "global financial markets" service in March this year.

At the same time, generalist outplacement providers used to dealing with corporate clients waded deeper into the financial services market. At Chiumento, an outplacement company based in London's West End, the percentage of financial services clients tripled - from 5% at the end of the 1990s to 15% today.

Cedar International, another outplacement provider, now does 30% of its business with financial services clients, up from 5% a few years ago.

The result is a substantial increase in capacity that could have malicious ex-bankers chuckling into their CVs. As the rate of banking redundancies slows, outplacement firms may find themselves vulnerably overstretched.

In fact, the slowdown has already taken place. Moran says the market has reverted to its long-term norm. "In the past three months the City market has shrunk. It's now worth 10m again."

Antony Dunlop, managing director of BG Careers, confirms that things are not as good as they were: "Investment banks' demand for outplacement has reduced since the larger scale exercises of 2002. This year has seen a less frenetic series of cost cuts, but the need for outplacement support has continued more evenly throughout the year as a result of ongoing, but smaller restructurings."

Fewer redundancies are no reason to snigger at the outplacement industry's expense, however. Outplacement providers are well aware that they are susceptible to cyclical fluctuations; most ensure their costs are as flexible as possible.

Accordingly, Penna's extra 17,000 sq ft of new office space in Wood Street were owned by Regus, the office rental company that can provide facilities by the day.

Therefore, when the rate of redundancies subsided in July, Penna let its new offices go, and retreated to its permanent base in Ludgate Circus.

"We expanded through variable resources. Most of our people are not full time, and neither is most of our office space," says Moran.

Flexibility is not the only factor helping to keep costs down. Redundant clients can now access services using the internet at home, instead of relying upon an expensive central London office.

Alfie Noakes, managing director of Mark 2 Market, which provides specialist outplacement advice to traders, says customers do not need physical premises in the way they did. When Mark 2 Market started in the late 1990s, Noakes reckoned on 50% of customers occupying desks any one time; that number has now fallen to 25%. Other providers get away with even lower office usage: Right Coutts, an international outplacement company active in the financial services market, says desk occupancy rates are expected at less than 10%.

The City of London outplacement industry is not entirely trouble free, however. UK industry insiders paint a picture of ruthless competition, falling prices, and diminishing profit margins. Few have any doubt as to the identity of the culprits: the finger is pointed squarely at US firms.

"DBM, Lee Hecht Harrison and Right Coutts have bought themselves market share. They are claiming to do everything that UK firms such as BG Careers, Fairplace, and Penna do, but much more cheaply," complains one UK provider.

US firms have a few problems of their own. After a mere two years as its parent, Thomson Corporation has decided to sell DBM. A buyer has not yet been finalised.

Nevertheless, Vic Daniels, head of business development at DBM, admits to ruffling a few feathers. "There has always been a snob value in City outplacement: the more you pay, the better the service. But we have been able to offer customers more for less. We have better technology, stronger management structures, and are very cost-conscious. We are run as a tight, lean and mean outfit."

To counter the low prices, leanness and meanness of their US rivals, UK firms still claim to offer a more comprehensive service. However, differentiating themselves from the US firms can be difficult. Meetings with consultants, online services, and "comprehensive databases", have all become standard fare.

Instead, outplacement providers are clutching at other features to illustrate their uniqueness. For example, Richard Chiumento says his firm, Chiumento, is the only outplacement provider to have achieved Investors in People status, thanks to the time and effort it puts into training its staff.

Unfortunately, Moran makes a similar claim for Penna Meridian.

Not to be trounced, Chiumento says: "Chiumento is the only firm to recruit staff through an assessment centre focused on counselling skills." Yet Penna is similarly circumspect about who it hires: "We only employ consultants with a counselling qualification and we are the only firm to put them through a two-day assessment centre before hiring them," says Moran.

In the absence of clear differentiators, price competition appears set to remain a feature of the industry. Nevertheless, outplacement providers try to be optimistic. They say there are still plenty of investment banking redundancies to come. The relocation of financial services jobs to offshore centres in India, new technologies, and banking consolidation, are among the factors expected to fuel growth in the future.