A Better Way: Ten tips to improve your economic development program

November 20, 2015

 Tip Four: Choosing approaches

Strategy is about making choices and trade-offs

— Michael Porter

In economic development approaches are the general lines of attack an EDO undertakes to carry out its mission. They constitute the bulk of an organization’s day-to-day work load.

Last week’s post discussed the importance of keeping the number of approaches to a minimum. Today’s column suggests a method for choosing those few approaches.

SDG recommends a three-step process to determining your approaches.

  1. Evaluate your community’s economic needs
  2. Choose the two most important problems that an economic development approach can help solve
  3. Formalize the approach, allocating staff time and funding to the problem

Step One: Evaluate your community’s economic needs

Your EDO’s approaches should reflect your community’s needs.

For example, Basic Employer Recruitment (BER) is the most common approach as communities attempt to replace the basic jobs lost as companies close, relocate or are bought out by distant firms.

However, the U.S. unemployment rate in October 2015 was 5.0 percent and many Midwest counties had rates at 4.0 percent and below. If your community is at “full” employment perhaps BER is not the most needed approach.

Because EDOs are in the economic development business, BER will always be important, but many EDOs overspend on recruitment.  You need to determine every year what the EDO will do to develop your community’s economy.

The organization with realistic approaches that solve important problems in the short term will be more successful in the long term.

 Next week: Step Two – Choosing specific approaches

 

 

A Better Way: Ten tips to improve your economic development program

Tip Three: Focus on a few approaches

“Simplicity, simplicity, simplicity! I say, let your affairs be as two or three, and not a hundred or a thousand”

 – Henry David Thoreau, Walden

In SDG’s previous tip, we recommended focusing an Economic Development Organization’s (EDO’s) day-to-day work on strategic approaches. Today’s post deals with keeping the number of your approaches to those that your organization can realistically support.

The number of approaches an EDO has should cost no more than 70 percent of its time and money. For example, those EDOs with one or two staff professionals and a modest budget will be more successful if they focus on no more than three approaches.

The other 30 percent of the EDO’s resources will be consumed by general activities such as local communications, liaison with regional and state allies, board and committee meetings, and responding to unexpected opportunities and challenges.

Of course every EDO must respond when an important issue suddenly arises. Many professionals tend to take time away from their approaches when a surprise shows up. A more effective method is to maintain your staff time/budget focus on your dedicated approaches. Skimp on local communications and meetings for the short term, using the other 30 percent of resources to tackle the unanticipated event.

It also takes discipline to refuse to chase a wider range of approaches. Some board members might want to add an approach even though they know there is no staff time or money available to support it. The CEO should stand adamant and remind the board that new approaches require new resources.

“Simplify, simplify, simplify” – Rather than doing mediocre work on a lot of approaches your EDO will be more successful by doing great work on a very few.

SDG’s next suggestion will show how EDOs can identify which approaches to use.

A Better Way: 10 tips to improve your economic development program

 

Over the next several weeks, we will posting suggestions on the SDG website (www.sdg.us). This is the second installment. The first ran Oct. 27th.

Tip Two: Focus on approaches 

Every economic development organization (EDO) should have a written strategy. In turn, that strategy should have goals, measurable objectives, and a few strategic approaches.

In economic development approaches are the general lines of attack that an EDO will undertake to carry out its mission. Common approaches include:

  • Basic Employer Recruitment
  • Basic Employer Retention & Expansion
  • Export Promotion
  • Small Basic Employer Development
  • Recruitment of Non-Basic Employers
  • Retention & Expansion of Non-Basic Employers

These approaches constitute the bulk of an organization’s day-to-day work load.

In our experience, an organization’s strategic approaches should serve as the structure for all operations. And the approaches an EDO chooses should be the main focus for both staff activities and board oversight.

SDG’s next tip will discuss the number of approaches an EDO might want to take on.

© Strategic Development, Inc. 2015

 

A Better Way: 10 tips to improve your economic development program

Over the next few weeks SDG will suggest 10 ways economic development groups might improve. Suggestion one is below:

Suggestion One: Service over Sales

Rethink your focus. Most economic development professionals consider themselves and their organizations as primarily focused on sales. But few actually sell –
• They aren’t realtors
• They rarely own the land they promote.

An economic development pro’s real business is service: almost all of her or his goals revolve around providing accurate information to the client. Economic development organization (EDO) activities usually include:
• Prospect/client awareness of “community” assets
o Central location
o Available and affordable workforce
o Shovel-ready sites & facilities
o Incentives
o Quality of life
o Ability to serve as liaison to local, state, and federal resources

If your organization becomes known for providing the best information that your prospects need, you’ll likely be far more successful than those EDOs that are focusing on making the next sale.

© Strategic Development, Inc. 2015

Mayoral Elections and the Missing Campaign Issue of Economic Development

Next month many states will hold elections for mayors. A mayor tends to have a greater set of governmental powers than, for example, town council presidents and county commissioners. For cities, selecting the right candidate for mayor can make the difference between those communities that continue to improve and those that do not.

In the various mayoral campaigns that I’ve been following relatively few candidates – incumbent or challenger – are talking much about the economy. This is an odd phenomenon, given the importance that a healthy economy plays in a healthy community.

For the past several decades U.S. citizens have become increasingly worried about economic security. The loss of 14 million U.S. manufacturing jobs (we gained back about two million of those), is the prime reason for that concern. Although the recession of 2007 is long over, many individuals have never recovered from it.

One might see a connection between the loss of economic stability and the increased outrage that has replaced civility in political discourse among so many.

Our cities today face many important problems: crumbling downtowns, old infrastructure, social justice issues from racism to homelessness, among other concerns. And many mayoral candidates are addressing at least some of these.

However, the topic of economic development seems to have been lost in the campaign shuffle.

Relatively few mayoral candidates tell their constituents how their policies will stimulate the creation of jobs with middle class wages. And citizens should be asking their candidates how they will improve the local economy.

In the communities where economic development is on the campaign agenda, both candidates and constituents may find that a properly focused economic development strategy can help cities improve a wide range of “other” problems.

Marketing Is Essential, but It Can’t Replace Investment in Assets

Every economic development organization needs a marketing/communications plan. It’s the best way to reach prospective clients, community leaders, and residents. However, a marketing plan cannot replace public investment in key assets.

Recently a newspaper serving a major U.S. city noted that while the community needed to invest more in safety, education and transportation infrastructure, it was unlikely that new funding could be found. The paper’s recommendation? the city should reposition its brand.

Rebranding might be a great idea, but in the competitive field of new business recruitment, a community’s economic assets determine success. Ignoring high crime rates, low educational attainment, and poor transportation infrastructure and focusing instead on a new marketing campaign is an easy  recipe for long-term decline.

What then should the local economic development organization do? After all, it neither builds roads nor funds schools. The LEDO should create and manage the marketing strategy. But at the same time, it needs to be working closely with public and private sector leadership to find creative ways to make meaningful improvements in local resources.

Thayr Richey

Don’t Get too Excited about Reshoring Manufacturing Jobs

There’s been a lot of chest-thumping about manufacturing jobs returning to the United States from Mexico and the People’s Republic of China.

According to recent headlines, as companies such as GE develop technologically complex products, they need highly-trained U.S. workers.  Some manufactures also say rising labor costs in China are leveling the playing field.

However, while some production is being brought back to the U.S., this reshoring will likely create relatively few new manufacturing jobs.  For example, Apple announced this week that it was going to “try” to bring back “some” Mac production.

Two factors drive decisions to reshore: First, overall manufacturing costs remain much lower in developing countries, although the labor cost in parts of China has increased.

Second, U.S. manufacturers will want to keep their Asian operations in production in order to serve burgeoning markets there.

In fact, the need for automation is a major obstacle to creating more U.S. manufacturing jobs.  U.S. makers need to have fewer worker hours per widget to keep their prices low. This translates into fewer workers in American plants. These jobs might require more skills and might be better-paying, but they will replace larger numbers of blue-collar employees.

No one can predict the future, although we keep trying. The U.S. Bureau of Labor Statistics projects a net loss of approximately 73,000 U.S. manufacturing jobs between 2010 and 2020. (Monthly Labor Review, January 2012, http://tinyurl.com/cvg2twj).

However, it is unlikely that the current trickle of reshored manufacturing jobs will turn into a meaningful flood of new manufacturing employment in the U.S.

Our next SDG blog post will look at some promising sectors.

 

Trust but Verify: Confirming Our Economic Development Results

“Trust but verify” was President Ronald Reagan’s phrase he often used when he was negotiating a reduction in nuclear arms with the Soviet Union.

Various complaints that the new job creation claims had been improperly inflated by different states’ E.D. organizations have been made in the past few years. With many states are spending hundreds of millions of dollars to improve their economies it makes sense to have results that can be proven.

The most recent illustration of this problem is the January 23rd report from Michigan’s Auditor, who claimed that the 12,000 new jobs claimed by the MEDC as a result of its Renaissance Zones cannot be confirmed. The auditor finds this troubling, given that the MEDC has abated approximately $820 million in state and local taxes on this program over a 13-year period for businesses in the RZ program.

Michigan’s situation is not an isolated case. This is likely to become a trend that will impact all E.D. programs.

Every E.D. organization – at the local, regional, and state level – needs to be out in front on this issue. Whether you are an E.D. professional or a volunteer board member of an E.D. group, you should be able to verify the results your organization is claiming.

E.D. is critical to every state and every community. Today, however, all economic development organizations need to take Reagan’s approach to arms treaties.

When we use public funds for this important activity, we must be prepared to maintain the public’s trust by verifying our results.

A Taxing Issue for Medical Device Manufacturers

As a major target of many Congressional incumbents and challengers in our recent election, the Patient Protection and Affordable Care Act certainly received its share of complaints. However, beneath the bombast about this new law, there lies a serious problem.

Accompanying the Affordable Care Act will be a new tax on the sale of medical devices. Internal Revenue Code § 4191 imposes an excise tax on sales of medical devices of 2.3 percent of the sales price.

There’s been considerable discussion about this – both within the Medical Device industry and in Congress. MD industry executives complain that since most MD devices are very low-profit items the new tax will cut profits by 50 percent or more. There are bills in both chambers of Congress to repeal this tax: led by Erik Paulsen in the House and Orrin Hatch in the Senate.

There have been threats from the MD industry that U.S. companies will begin making their product somewhere else – presumably to lower the cost of production and thereby minimize the impact of the new tax.

While deciding whether to move manufacturing off-shore is complex, this new tax certainly does not help retain production of medical devices in this country.

Probably the best way to attack this problem is to lower the tax rate and make it applicable to a much larger part of the medical industry. Still, since the tax is now “on the books,” either eliminating it altogether or broadening it to a wider base will be a difficult, uphill trudge.

It is likely that the relatively small MD industry’s cries will be lost in the current uproar over the “fiscal cliff.” Prepare to have your future medical devices made in another country.

Why We Pursue Economic Development

How many times a day do you open a dictionary to find the definition of a word? Most of us rarely use dictionaries (including online ones) unless we’re unsure of a word’s spelling and our built-in spell checker doesn’t have the term.

Professionals in most fields generally agree on how their discipline is characterized and rarely think about its definition.

Economic developers, on the other hand, have trouble defining their own vocation. A common saying in our business is that every economic development professional has his or her own definition of E.D.

After three decades in this field, I’ve given up attempting to define this continually changing business. For me the important issue is not what E.D. is but rather why we do it.

Economic vitality is essential to every healthy community. We have all seen cities and towns that once flourished but are now dead or dying.

  •  Perhaps they served as agricultural hubs before that industry changed
  • Perhaps they were important way-stations between urban areas and were left stranded when the railroad went through 20 miles away
  • Perhaps they are 20 miles from the nearest interstate exit.

These communities lacked an economic reason for existence; their leaders failed to respond to a changing economic structure.

Today all communities still struggle during these uncertain economic times.  Economic development professionals pursue this trade to keep their communities economically relevant.