IEDC Annual Conference – Houston (Wednesday Impressions)

Hard to believe it is the last day of the Conference already. Time has truly flown by quickly. Today will be a couple of important sessions and then a long journey home. Here is what I learned today.

Corporate Real Estate Directors Session

This session provided an opportunity to hear the voice of the customer. Corporate Real Estate advisors are important influencers in site selection decisions. The moderator was Ron Starner (General Manager, Conway Data and Site Selection Magazine) and the panelists were Samantha Turner (Senior Real Estate Manager, Weyerhaeuser Company), Charles McSwain (Principle, Charles McSwain Consulting), and Joel Smiley M.P.A. (Manager of Government Programs, SuperValu).

This session has also made me even more convinced that ensuring your community has a strong online and outreach program in place. You need to focus on how to add value to the process. So much of the process is won or lost in the First Moment of Truth. Yet, EDOs are simply not investing enough in strategies to win the First Moment of Truth. As a profession, we have to get more proactive.

I was pleased to see some of the concepts I have blogged on previously were central to the conversation (examples: Measuring the Impact of Speed  and How to Win: Time-to-Market or Incentives? ). Here are my take-aways from this session.

• Cost reduction as a site selection driver has shifted to optimization. It means an increased focus on the numbers. You need to be sure you have the data to plug into the models. Numbers are scrutinized tightly and sustainable growth is key.
• After site identification, a report is run by the company to assess if the location is in an enterprise zone, Brownfield, or is a distressed property. The purpose is to proactively identify what incentives the property will qualify for. It is a very purposeful exercise. The economic development professional is contacted if there are additional questions.
• New market tax credits net out to about 18%-20% to the company. In retail it is viewed as a very positive tool. California uses this tool aggressively.
• An effective approach is to work with companies and do an incentive review to make certain they are taking full advantage of the available incentives. It can help in retention of companies that are struggling to survive or with companies looking to expand employment.
• The word incentive is a challenge in the media. The tool is actually an infrastructure investment to help reach a deal. Corporations are also very concerned about optics and the emotion around the word incentive is challenging. It would be interesting to describe the funding using different words.
• Improving infrastructure is important, so communicating authentically about the state if the infrastructure is valued.
• Whatever a state can do to include retail as a valued part of economic development in distressed areas is welcomed. The full set of incentives should be made available.
• Baby boom retirement is creating a workforce challenge for many companies.
• Availability of skilled labor is the key thing to talk about. It has become more important than absolute cost.
• Companies look at local, state and federal incentives. It is important to understand the complete picture to estimate the company’s rate of return on the deal.
• Making it easy to partner with Universities is valued. Having a defined process that you can explain and is easy for the company to plug into could be a competitive advantage. The process of collaboration should look like plug and play.
• Business units do a lot of homework to establish a pro forma and take it to the Board for approval. The process is very internalized before a business unit gets the green light to move forward. A short list for due diligence is already set before the company engages in due diligence.
• The longer the process takes the greater the risk a change in strategic plans can derail a project. Speed matters in the negotiation. Get the company committed as quickly as possible.
• Most companies have an internal process to pressure test the pro forma for a deal. The “required” return is preset and aligned through the top. The goal then becomes to find a location that meets the deal parameters. It can take 18-months to get through the internal process, before a team ever speaks to you, so the willingness to compromise in negotiating a deal with a community is limited. Understanding the emotional drivers of the team talking to you is important in your approach to the negotiation. The more business like the negotiation the more comfortable the company is.
• There is an expectation that the floodgates on investment are about to open.
• Operational productivity and minimal drag on the P&L is very important. If a deal is marginal, it likely won’t be done.
• Corporations are trending toward outsourcing the heavy lifting to companies that do the screening phase. The corporate real estate director becomes the process owner and communicator with the senior management team.
• From a marketing perspective, using your community CEOs as a conduit for learning is important. Chasing the corporate real estate manager may not be a good idea since they are not involved until told to do a deal. Networking is key. What is your networking strategy?
• Communities should have an economic development master plan to set a vision for why you are pursuing particular industry or gap filler in your plan. Gap analyses will peak the interest of capital investors. Feeling like selecting your community is part of a real growth plan increases the comfort level of the investor.
• Be more transactionally focused in your contact (specific site, specific question).
• Get involved in helping customers improve their professional skills. Go to conferences, get on the podium (or sponsor a prominent speaker who can use your community as an example in their talk), provide value add educational material, and network. Net, you need to become proficient at influencer marketing. Your customer is receptive to new thoughts when they attend seminars and conferences within their profession.
• Time value is a real consideration in the negotiation process.
• A key role EDOs can play is to be objective, be truthful, simplify the process, and be knowledgeable about the financial evaluation a company goes through so you can help facilitate that process.

Site Selection Consultants Forum

Obviously, this group is an important customer. Listening to their needs and thinking though how to meet those needs is key to success. This is always a well-attended session at the Conference. It is a shame it is always the last session on the last day though. This year’s session did not disappoint. There was more discussion on the importance of international flight access than I would have anticipated. This is definitely food for thought and a potential concern for mid-market locations. Here are my specific learnings.

• Right to work can be important in the consideration depending upon the specific industry. There is a negative correlation in job growth and unions.
• Certified sites get a mixed review, but as a tactic is becoming more popular. The challenge is there is no uniform standard to be able to compare across geographies. It increases comfort but is not a replacement for due diligence. It is a good marketing and internal preparation tool so you can respond thoroughly to a short dated RFP. You can use certification in proactive marketing.
• Speed to market is huge. Clients want to get to a return as fast as possible. Many major deals speed to operation is a deal maker or breaker. Schedule risk is a point of evaluation with almost any deal.
• Site selection consultants are involved in less than 40% of deals.
• There are communities that do not give incentives (eg Fairfax County). These are situations where legislators feel the business climate is attractive enough to be competitive. Incentives tend to become an important consideration when your community has made the short list and you need a financial differentiation. The best position is to differentiate your community on some other basis so incentives don’t matter. The decision is all about cost. Companies often want a level playing field, so if the competition got an incentive then there is an expectation of an incentive. Europe has gotten out of the incentive game. It would be interesting to see how they accomplished that. In the US it is considered a necessary evil. Companies see incentives as a fiduciary responsibility to their shareholders. The general consensus is the use of incentives is on the uptick. Reducing up-front cost so management goes forward with a project is key.
• Innovative strategies – Texas 4A and B program, Nevada is looking at creating industry specific incentive tools, guaranteeing a building process permit within a specific period of time (eg if not approved in 30-days then automatically approved), creating collaborative/co-location spaces for companies (Louisiana has done a good job in the film industry to create a collaborative asset set), creating co-location opportunities for start-ups, putting people together is where most of the innovation is occurring, actively visit top tier employers and ask “How can we help you be more profitable?” and act on it, deliver insight into the real estate community on potential changes that can influence a siting decision (e.g. property that may become available), deliver information site selectors can’t get from anywhere else.
• Use gap analyses and pitch a specific business case in a proactive way to specific companies that can close the gap.
• Over the last 5-years there is a noticeable increase in HQ activity to move from small cities to cities where managing a Global businesses. Direct international flights are key. There seem to be an increase in the aerospace industry. Optimization of global footprint has increasingly become a focus for larger companies. The high tech industry continues to be robust. More companies are starting to look for strategic linkages. M&A represents a significant percent if the deal stream.
• Best way to get feedback from site selection consultants when you lose a deal – a direct phone call or meeting is a good way, there is an understanding that Boards are asking for this information. Going the extra mile in-process to be helpful will facilitate getting constructive feedback. The key trigger that gets you a priority is the need to respond to a Board. Recognize, in some cases the feedback may be confidential.
• Building office space on a University property is an intriguing concept. But, the location would still need to meet the other project conditions. Getting Universities and companies to work collaboratively is important. There are a number of examples of this tactic working, particularly for R&D.
• Broadband is critical and even growing in importance. If you fall behind in broadband, it puts your community at a significant disadvantage.
• Energy intensive projects are a growing trend. Competitive energy costs are becoming absolutely critical to successful community development. Not only is current cost important, but so is projected usage (amount of reserve available). More and more companies are looking for uninterruptible power and dual feed electric power. Natural gas is transformational and will support growth of high energy use industry growth. Beyond quantity, energy quality is important to these users.
• Biofuel opportunities have declined dramatically because of the price point on oil.
• Technology infrastructure and skilled labor is increasingly important. Often these projects compete globally since proximity to market isn’t as important.
• Having fiber to a site is not enough. You need multiple providers. You need to assess robustness of both short and long haul services. You also need to understand the service providers and where their POPs are.
• There is dissatisfaction with the alignment of workforce development and the labor needs of the high tech industry. You need a plan that delivers against industry needs 5 and 10 years out.
• There is a trend toward online education and it will only grow. Communities should figure out how to take advantage of it (e.g. SchooX).
• In the US, there is projected to be a decline of 1 million workers every year for the next 10 years.

Discussion

At the start of the IEDC Conference I set a personal goal of blogging my learnings each day. It was a way for me to stay engaged and to give a little back to those of you unable to make the trip to Houston. I am pleased to say I met my goal (yippee). Hopefully you have found some value in reading about what I learned.

I also set a goal of assessing whether the Strengthening Band America Project was meeting a need in the profession. Thanks to everybody who sought me out to say hello, and the number of attendees who told me they read the material, I am convinced it is meeting a need.

My third objective was to get a sense for the willingness of the profession to entertain adopting the degree to which the American Dream is being achieved as a valid performance metric. I was genuinely and pleasantly surprised with how open everybody’s mind was to learning more. For the balance of 2012 and through 2013, I will be working with the professors at Xavier University to explore the application of the American Dream Composite Index in economic development. I know the value will not be fully realized until the Xavier Team can generate the index at the get and major MSA level. But, while they work on that I will work on developing the analytical framework you can use to use the metric in strategic planning. Ideally, by the 2013 annual IEDC Conference everything will come together. Maybe we can even get the Xavier University professors to lead a session at that Conference (drop Jeff Finkle an email and let him know you’d like to see it on the agenda in 2013).

Consequently, I am returning home even more enthusiastic about the Strengthening Brand America Project and committed to continue trying to provide educational value.

If you can take a minute, leave a comment with the top 1-2 things you learned from the Conference.  It will benefit everybody to read what you learned as well.  I did not get to every concurrent session.  If we can come up with a list of learnings, everybody will have a set of great notes.  In business we call this documenting the “Ah Ha’s”.

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