Convinced this town's spectacular setting would inspire his workers, Richard Liebhaber figured build it, and they will

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Convinced this town's spectacular setting would inspire his workers, Richard Liebhaber figured "build it, and they will come."

In 1991 the chief technology officer of MCI Communications Corp decided to relocate MCI's brain trust—the 4, 000-employee Systems Engineering division that created numerous breakthrough products— from MCI's Washington, DC, headquarters to Colorado Springs

An avid skier he believed the mountains, low crime rate, healthy climate, and rock-bottom real-estate prices would be “a magnet for the best and brightest" computer software engineers. He rejected warnings from at least half a dozen senior executives that Colorado Springs' isolated and politically conservative setting would actually repel the eclectic, ethnically diverse engineers MCI hoped to attract. Mr. Liebhaber argued that new hires would jump at the chance to live in ski country, while veterans would stay longer, reducing MCI's more than 15% annual turnover rate in Washington. The move: he contended. would also save money by cutting MCI's facilities, labor, and recruiting costs. Besides, four other high-tech companies— including Digital Equipment Corp. and Apple Computer Inc.—had recently moved there. "One of the things that gave me more comfort was the fact that these other guys had selected Colorado Springs," Mr. Liebhaber says.

He was mistaken.While many rank-and-file MCI employees, buoyed by generous relocation packages, made the move, numerous key executives and engineers and hundreds of the division's 51% minority population, said no, or fled Colorado Springs soon after relocating.

Living in "Wonder Bread"

"It was like living in a loaf of Wonder Bread," says James Finucane, who is of Japanese descentand whose wife is from Argentina. A veteran senior engineer, Mr. Finucane was considered MCI's top engineer until he took a job with a competitor back east in 1994 "There's no culture, no diversity, no research university, no vitality or resiliency to the job market.

The move isolated MCI's engineers from top management and from marketing colleagues atheadquarters, undermining the spontaneous collaborations that had generated some of the company's most innovative products Meanwhile, the professionals Mr. Liebhaber hoped to recruit from outside proved difficult and expensive to woo, pushing the move's total cost to about $200 million—far more than MCI officials anticipated 'Most of the savings we had hoped for never materialized, " says LeRoy Pingho, a senior executive who oversaw the relocation.

Moving Expenses

When the move was announced, many rank-and-file workers were enthusiastic MCI's relocation policy paid for every expense imaginable. Costing an average of $100,000 per employee, it included up to six months of temporary housing and living expenses, private-school tuition for workers' children and a full month's pay for miscellaneous expenses. And there were exceptional housing bargains -In Alexandria, [Va.,] we had a tiny place on a 50-by-112-foot lot," says Jerome Sabolik, a senior software engineer. "For the same money we got a 3,000-square-foot house on 21/2 acres." Thousands of workers—far more than Mr. Liebhaber expected—took advantage of the offer, undercutting his plans to recruit lower-cost employees In Colorado.

But there was far less enthusiasm among senior managers. James Zucco Mr. Ditchfield's successor and the head of Systems Engineering. stayed behind and eventually left to join AT&T Corp. Also staying put was Gary Wiesenbom, the division's No. 2 executive, who later moved to Bell Atlantic Corp Mr. Pingho, who oversaw the division's financial planning and budgeting, declined to move and quit in 1993.

There was also significant fallout among the division's minority population. Although MCI declines to provide specific numbers it confirms there was a reduction According to former employees who had access to Equal Employment Opportunity Commission data: there were roughly 1,300 African-Americans on Systems Engineering's staff and a combined 700 Asians and Hispanics before the relocation Since the relocation, minority representation has been cut almost in halt to about 600 blacks and a combined 500 Asians and Hispanics "It was a disaster for diversity," Mr. Ditchfield says.

But MCI officials say that despite the reduction, its Colorado division is still more ethnically diverse than other local companies. Given the warmings from senior executives about the move, what additional information should have been sought before making the final decision on whether to move?