Episode 18 – Top Ten Mistakes Companies Make in Site Selection
Rick Weddle: So, before we get started with the next episode of “Site Selection Matters,” I want to introduce you to Andy Levine, who is chairman of DCI and the host of a podcast called “The Project: Inside Corporate Location Decisions.”
Andy Levine: Thanks, Rick. Let me quickly tell you a word about “The Project” podcast. In each episode, we go behind the scenes of a single corporate location decision, and we interview a key corporate executive involved in that decision. And we also interview an economic development professional who will help facilitate the deal. It’s told in an NPR-like storytelling format that provides tremendous insight into corporate location decisions.
Rick: I know you’ve had a number of Guild members on the podcast, Andy, who are some of the folks you’ve interviewed?
Rick: That’s great. So, I hope you’ll subscribe and check out “The Project: Inside Corporate Location Decisions.” Andy hosts the show with his DCI colleague, Patience Fairbrother. Okay, let’s move on to the latest episode of “Site Selection Matters.”
Welcome to “Site Selection Matters,” where we take a closer look at the art and science of site selection decision making. I’m your host, Rick Weddle, president of the Site Selectors Guild. In each episode, we introduce you to leaders in the world of corporate site selection and economic development. We speak with members of the Site Selectors Guild, our economic development partners, and corporate decision-makers to provide you with deep insight into the best and next practices in our profession. In this episode, we have as our guest, Mark Williams, president of the Strategic Development Group, provider of site selection and location incentive negotiation services to corporations. Mark is also a past chair of the Site Selectors Guild.
Today, Mark will talk with us about the top 10 mistakes in site selection. More specifically, Mark will share his observations of companies making site location errors that have enormous, short and long-term cost consequences. Join me as we welcome marketing in “Site Selection Matters.” Mark, before we run through the list of mistakes that companies make, I’d like to talk a little bit about the larger issues in site selection. By that, I mean issues that companies must work through before deciding to hire a professional site selection consultant. I’ve heard you say that companies need unbiased experts to guide them. Could you elaborate what you mean by that?
Mark: Yes, Rick, first, thanks for having me on the Guild’s podcast. And to answer your question, bias in a site selection project is a very bad thing, bias that would lead a company to a site that is not absolutely in their best interest. So, in the marketplace, generally, we see two kinds of bias that concern us. One is an internal bias with a company where there may be an executive team that’s formed to find a site that they need to expand their production. And that team may be predisposed to a certain region or a certain state without adequate data to back that up. So, the first bias is internal, which can often lead to a less than favorable site selection decision. The second bias that’s of concern is somewhat external, the company may retain someone or some firm, not a Guild member, of course, but some firm, and that firm, their advice may be driven by something other than a pure fiduciary duty to have the client select the optimum site.
So, for example, if they might receive a commission on some sites and not on other sites that they may be driven to pick a site or lean toward a site where their financial reward is greater in that sense. There’s a lot of discussion in the marketplace about incentives. And incentives should always come into a project towards the end after sites have been shortlisted and the remaining sites will absolutely work for a client. So, having a site choice or recommendation from the outside that might be based on incentives or some other factor is a problem. And that’s why you need to hire qualified competent site selectors.
Andy: Hey, Mark, that issue of bias. You know, I’ve been on the other side of this business for a lot of years and always thought, you know, that you always hear that companies have a bias towards this side. Don’t you see it go both ways? They might start with a bias in favor of a location but they could also start with a bias that makes it hard for you to recommend a location if they don’t think that’s a good site. Have you seen it both ways?
Mark: Yeah, absolutely. You know, executives have opinions. And often those opinions are formed based on some snippet of information they’ve heard, they’ve read, they’ve learned from a colleague. So yeah, we’ve seen it work both ways. They either favor or don’t favor a site before they have full information. And we’re gonna talk about mistakes and, you know, one of the first mistakes is lack of alignment in that executive team in terms of knowing what drives a site selection success, what the most important factors are. Whether that’s utility usage, or labor, or logistics, or, obviously, probably some combination of these, but what are the weights of each?
But what we find is when clients aren’t aligned…and this is a big part of our first step in working with clients when they aren’t aligned around what drives a successful project, the projects can be disorganized searches are occurring in areas that don’t matter, time and money is wasted, and they may end up in the wrong place. So, this alignment is a very good method of eliminating that bias. We go through an exercise with our clients at the very beginning of a project to talk about what they think and, you know, if they have a bias, we may talk to them about it. If they say they wanna be in one place or not in another place, we’re gonna ask them why. And we’re gonna reason through with them, you know, the basis of their impressions to make sure they’re rational and make sure that there’s data and experience to back that up.
Rick: Mark, jumping right into those mistakes, and these can be costly mistakes, would you say that maybe that lack of alignment…because that’s where it all starts. Would you say that maybe that’s the most significant mistake you could make from the outset?
Mark: It’s the most significant mistake because it’s the foundation of the project. And if you don’t begin the project with the end in mind, it’s kind of a wandering, difficult prospect. And we really think that for us as a firm, and for other members of the Guild who go through similar processes, we think the ability to help a client at the very beginning of the project reason through what’s driving the site selection process is critical. Often you see companies that haven’t been represented by qualified site selectors. And they start the project, they don’t know what the factors that are most important to them, they have biases, are driven by those biases. Often the searches take much longer, they’re much more expensive, they may end up in the wrong location, or they may lack the essential components or resources like labor that they need to make it successful. So, that’s how that goes.
Rick: Do you find, Mark…Let’s unpack that a little bit because you mentioned relative weights and working with the management team. Do you find from time to time on projects that a company’s management team might not all be in agreement about what’s important for the project, and that the role of the site locator, the professional in your role is to, kind of, help them get all that trued up because they might not be seeing it the same way?
Mark: Absolutely. We, in these cases, are often facilitators. There can be a variety of opinions. And it’s important to have…it may be a hard discussion in the beginning, but it’s important for this team, this executive team from the client to agree on those parameters that most drives success. They even may weight those parameters. If we don’t do that, if we can’t get that done, then the project in most senses is flawed from the outset. And again, that’s what happens when you don’t have an experienced site consultant working with these clients. They get off on the wrong foot to start with and once it’s broke, it’s pretty hard to fix.
Rick: Mark, I want you to take us through some of these common mistakes that you’ve seen companies make or that you help companies avoid. But also, as you go through some of them, could you tell me, are there some common themes or threads that run through these critical path mistakes?
Mark: Yeah, so the mistakes that are referred to, Rick, I just mentioned the lack of alignment. I need to be clear; I think these are mistakes that often occur when corporations don’t have the guidance of a qualified site selector. The data indicates that probably 50% or so of site location projects of various kinds are not run with qualified site selectors. Companies may do them themselves; they may have a lawyer involved or an accountant, but 50% aren’t. You know, these are mistakes that often happen when the qualified site selector is not there. So, alignment was the first one.
Another one that seems pretty simple as maintaining confidentiality. We see often companies get out on the field on their own, and they know that they need to keep their identity confidential for a variety of reasons. It may not be time to tell their employees what they’re doing. They may be making a product they don’t want their competitors to know about. But often, we see them revealing who they are, what their names are. Keeping confidentiality is really part of the site selector skill set in terms of how that’s managed. And what we often see when it’s not managed is information gets out about who the company is, that could have employee issues related to it, they’re gonna have, you know, contractors calling them, they’re gonna have a lot of competitor issues are going to be other ones. So, confidentiality, or lack of keeping confidentiality, is another one.
I’ll just jump into one more, Rick, and then you can unpack these, but selecting a site with poor logistics is often a real issue. Particularly, you know, if you take the automotive industry, if a site is in the wrong place relative to suppliers and customers, even if, you know, it adds a $45 or $75 cost per car, if they’re producing 450,000 cars a year, the millions of dollars add up and over the life of a plant, it becomes billions of dollars. So, poor logistics are not analyzing the logistics of suppliers, customers, other things are a real concern and issue.
Rick: You know, and that’s a mistake that you just keep paying for on every unit you produce. If it’s in the wrong spot, you’ve got a cost factor that’s gonna stay with you over and over as long as you’re operating that facility.
Mark: That’s a critical point. I mean, some of these mistakes, most, if not all, of these mistakes are forever. And they just keep on going.
Rick: You know, a number of these mistakes or the number of these factors seem to be tied to how well the company or how well the consultant helps them go about their basic due diligence. Is that right?
Mark: Basic due diligence in terms of site due diligence, Rick, or…? Yeah, site due diligence is really critical. You find often that companies, when they act on their own, they get all excited about a real estate decision. So, they’re looking for some land, and they’re very interested in the price of the land. And the fact of the matter is, this site location decision is a lot bigger than a real estate decision. And so, often what we see when companies don’t have a site selector with them is they pick a site, or they’re working on a site, and they don’t do the required due diligence. By that I mean they don’t do the environmental due diligence, or they don’t do the geotechnical due diligence.
And when they don’t do things, these things, what often occurs is they find they have problems. So, they might have saved $10,000 an acre on the site, but they may end up spending another $10 million on geopiles because they picked the wrong site from a geotechnical perspective, or a wetlands perspective, or an endangered species perspective. So, knowing what due diligence to undertake and how to react to that is really critical. And if it’s not done, it can really limit expandability of sites because you just can’t use them, or the initial costs can get out of hand.
Rick: Do you ever see a company, or you find yourself advising a company to maybe look at a site that’s larger than maybe they were thinking? Because it seems like if you pick a site that’s too small, it might be landlocked, and you couldn’t grow or expand over time. Do you ever run into that?
Mark: All the time. I mean, and a lot of times that’s a key part of this alignment process we do, Rick. Some companies are, frankly, used to operating in other parts of the world. And in many cases, they’ll tell you they need a site size which is smaller than we think they might need. So, in this alignment process, we enter into this discussion about why do they think they need, you know, site size X instead of site size Y? The mistake or the challenge that also often occurs is two things. One you alluded to is they need to plan for the future. When a company locates and they invest in a site and they invest in infrastructure, they need to apply that investment across lots of capacity growth. And so, if they’re limited in how much they can grow by the site size, or the fact, again, they didn’t do their due diligence and there’s a large amount of acreage that’s, say, wetlands and they can’t develop, they’ve really restricted their ability to grow.
The other thing companies often run into in terms of site size and not selecting a site large enough is they don’t look at the buffer around them, they don’t look at the kind of development that might occur around them, particularly in heavier industry. So, if there’s not enough site buffer and commercial or residential developments spring up around them, they’re gonna have a problem. And that problem is gonna go on forever. Backup lights, noise, sounds, that kind of thing is an issue. So, site size is really important.
And again, I can’t say with enough emphasis, that decision has to be made in the alignment process in terms of the size and the shape configuration of these sites. Otherwise, the whole site search is flawed because you’re looking for something you don’t need that’s not ultimately gonna suit your needs. Maybe you never figure that out and you’re site-constrained in the future. Or maybe you figure it out after six months, and you more or less have to start your search over again. So, these are the problems we’re trying to eliminate very early in the process so we can start with the end in mind.
Rick: Yeah, you’re gonna have downstream problems if you don’t get that alignment correct upstream, that’s for sure, it seems to me. Hey, Mark, the question of incentives, often considered a big part of the final decision process. Certainly, I think you mentioned earlier, it comes later in the process. This is a complicated area, and it seems to me one where a mistake could be very costly. What are your thoughts on how to avoid problems or how to how to maybe make the right decisions regarding financial incentive packages?
Mark: Sure, you know, Rick, you addressed this, I think Larry may have addressed this in a previous podcast. And, you know, the process he described is accurate. I mean, generally, what you’re trying to do is you can start…it’s like a funnel. You’re starting with a large number of sites, and you’re gonna narrow to two or three shortlisted sites, any of those sites should be able to work from a utility perspective, a labor perspective, etc. And that’s when you start negotiating incentives. To start thinking about incentives prior to that gets into one of the bias issues, frankly, we talked about because you’re gonna be influenced by incentives when that’s not driving the real value of the project. It’s a nice-to-have, it’s at the end, it’s important, but that’s the essence of it.
Now, companies we’ve seen try to do this on their own, you know, they may get incentive proposals from a number of different states. And frankly, they’re written differently, they’re explained differently. They’re, sort of, apples, peaches, and oranges and the companies just don’t understand what they’re seeing. They don’t understand what the tax abatements mean, and they don’t understand what grants mean, they don’t understand what they have to go through to get these things. So, not understanding what the value of incentives really is, is an issue for many companies. And frankly, trying to negotiate incentives before they should is another issue.
Rick: So, how do you button all that down? Seems to me that there’s a due diligence piece on incentives in documenting those commitments that’s as important as maybe the site due diligence early on in there because you really got to button those things down. How do you get into that process?
Mark: You know, Rick, the minute you start the first day and you step off the plane or out of the car on that search is the minute you start that documentation. Because when you’re looking at sites, you’re gonna get commitments, you know, we can get you this waterline, we can get to the sewer line, we can move this transmission line, we can help you with these taxes, we can, you know, relocate this pipeline and give you a grant for that. But only an experienced site selector knows that these things have to be written down as you go. Because at the end of a successful project, there’s gonna be a memorandum of understanding and a series of agreements.
And generally, what we find is that we may have 500 emails at the end of a project where somebody has said something to us in the field that they would commit to and we’ve written it down and got them to confirm it. But those are the items that have to go into an MOU and have to be reflected in agreements. And if one hasn’t had the experience of this kind of documentation, they don’t do it, they miss things, they wonder when it’s all over why their gas pressure isn’t what it should have been, the water flow is not what it should be, so on and so forth. So, there’s a science to this that experienced site selectors have.
Rick: Very, very, very interesting. You know, one of the things that I’ve got to assume is an important area where it could be a mistake, and we haven’t really talked about it yet. But since this is about job creation, and job creation requires workforce to be able to fill a job, we really haven’t talked about the issue of inadequate…or not being able to get workers to the site. Talk a little bit, unpack that a little bit about how important that is to get the workforce analysis correct.
Mark: Sure. I mean, you know, labor has become the number one issue in most every site selection project. And, you know, what’s happened through time, particularly in manufacturing, it’s become much more capital-intensive, meaning companies invest more per employee that they hire than they ever have. And what that means for employees is the skillset requirements and experience is getting higher and higher by the day. So, having a location in a workforce that has a pipeline of people, and trust me, we’re evaluating not just the workforce, you know, in the 20s and 30s, we’re looking at elementary schools and middle schools, but having that pipeline of talent is critical. And what happens to companies sometimes when they don’t have a competent site selector with them is, they get in the wrong place, or the efficient place in terms of labor.
So, what does that mean? Well, that means there could be turnover that’s excessive, and training, and retraining, and quality, or just exorbitant cost. They could locate in an area where they didn’t know that there were other significant locations occurring simultaneously that were gonna deplete the labor pool, and that could be another issue. But like all these mistakes when a location occurs where the labor force is not sufficient and, you know, isn’t there for the life of a project, it’s painful and costly for not 1 year, but 40 or 50 years, the life of the facility. So, labor, increasingly important, the analysis related to it is increasingly important, and site selectors, competent site selectors know how to do this.
Rick: And it’s not something you can probably fix after you make a mistake with it in that regard. Mark, you’ve given us a lot to think about in today’s conversation, what a great discussion we’ve had. But that’s really about all the time we’ve had today. So, let me say thanks to Mark for talking with us today on this episode of “Site Selection Matters.”
Mark: Rick, thanks for the opportunity, and take care.
Rick: Thanks for listening to this episode of “Site Selection Matters.” And a special thanks today to Mark Williams for helping us get inside and better understand the most common mistakes that companies often make in the site selection process. What an informative discussion and one that leaves us with a lot to think about. Again, I’m Rick Weddle, president of Site Selectors Guild. We hope you’ll subscribe to “Site Selection Matters” podcast on Apple Podcasts, on Stitcher, on Spotify, or wherever you listen to your podcasts. We look forward to bringing you some great discussions in the year ahead. Until next time, good day.