Episode 39 – Stay or Go Decisions for Companies
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 key 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, Bob Hess, Vice Chairman for Global Consulting with Newmark. Today, Bob will talk with us about the daunting task of stay versus go location decisions for companies. More specifically, we’ll talk with Bob about the dynamics of such important corporate decisions, their relevance to communities, and the challenge of responding correctly when facility retention is on the table. Join me as we welcome Bob Hess to Site Selection Matters.
Bob, the premise behind today’s discussion is the challenge that a single facility stay versus go decision presents for both companies and their location communities. Take a minute, if you will, to explain exactly what you’re talking about and what you mean by a stay versus go decision.
Bob Hess: Well, thanks, Rick, for the opportunity to talk about this. In my career, which is 30 years plus, this has probably been the most common form of researchable problem that I’ve been involved with and I would bet many people in the location consulting business would say the same.
Often, they’re very, very confidential, so I guess the best way to talk about what we mean by stay versus go would be an example. Many, many decades ago, remember the UPS headquarters, they were in Connecticut. And at some point the UPS had to decide whether it needed to stay in Connecticut or go somewhere else for lots of reasons, customer issues, access issues, changing issues already regarding talent.
The community’s changing, the markets are changing, so companies are always looking at the issue of, in a single facility with inside of a footprint, though, a footprint or a portfolio of facilities, lots of triggers there, push and pull factors, obsolete facility, leases that expire, it could be capacity issues, even image issues, companies are always looking at, is this facility aligned with my business? Is it meeting, you know, our cost and quality objectives? And there’s border wars, there’s plenty of issues around, you know, people that are…you have a facility at one side of the border of one state or the other and there’s a lower cost structure there.
So whether it’s different asset types, all these companies are looking at, should they stay or should they go? Is the grass greener on the go side? And by the way, is there enough compelling evidence for the company to see in a new location, to manage all the business disruption that typically would result from a relocation or a go decision?
Rick: Looking forward to unpacking that whole set of questions you laid out there, Bob, but let’s start out by saying, sharing or discussing the types of facilities that you might see most often impacted by such a decision.
Bob: Great question. So let’s start with the ones that are really visible in the marketplace. I mentioned the UPS back in the ’90s. What about Boeing? I remember the Boeing headquarters project, that was very, very visible. They decided to make that pretty well known in the marketplace what they’re doing. Should they stay in Seattle or should they go somewhere else? Okay. They made the decision and they landed in Chicago.
Reference to the recent Toyota project, you know, leaving California, their headquarters to Plano, Texas. So headquarters is one function that’s always looked back because there’s top-line revenue issues, business climate factors there that are regarding talent, business climate. Where’s the best place to access customers, airports?
Call centers are constantly looking at this in terms of the changing labor supply-demand dynamics, sustainability. If you’re going to hire 1,000 people at a call center, is this location able to handle that? Manufacturing is another asset type. I think that’s probably one of the most common, quite frankly. And then less so distribution and supply chain because that’s more like a giant algorithm. There’s a lot of math in doing e-commerce planning, facility planning, distribution planning, you know, for warehouses and fulfillment centers. But those are the things that come to mind, headquarters, call centers, shared service, back-office, and lots of manufacturing, Rick.
Rick: And huge impacts on communities. Bob, what are the challenges? This is a complex set of situations and decisions as you look at it, what are the challenges or ramifications that you see embedded in these types of decisions?
Bob: The first that comes up in the boardroom, and I’ve sat with many presidents of these companies where I’ve been involved in advising them and certainly, my colleagues too, where they’ve said, “Bob, this is one of the toughest decisions I’ve ever made for the company.”
Thinking of a recent client where I was at Starbucks with the president of this division, and this revolves why it’s so difficult regards talent, talent attrition, attraction, retention. So, if you do decide to relocate a headquarters like we talked about or even a smaller operation, you’ve been in a community for 40 years, maybe your brand is embedded in that community, but there are push and pull factors that are making you look at other options, there’s going to be some attrition. There’s going to be some talent and that’s really hard. That gets into lots of policy decisions. It’s personal, it’s political, it’s emotional.
And I’ve just sat with these presidents, sometimes, the organization, the shareholders, the stakeholders, the shareholders, and the parent company has always asked us to look at our options. By the way, companies are always looking at their options, especially in COVID-19, everybody’s doing scenario planning. But in these stay versus go decisions, every few years, you got to reevaluate, “What’s my cost structure, my quality structure? Can I get the talent? Is the community aligned and growing with me appropriately?”
And of course, there’s all issues regarding customers and changing dynamics of suppliers. Everything’s changing on the earth, right? All of these variable costs and conditions that we talk about in the Guild, this is a classic situation of one facility that’s being impacted by all of these forces, external or internal of the company.
By the way, there’s internal issues in these decisions, too, around…regarding policy. And, you know, there could be issues of leaks and existing workforce and customers. That’s why they’re so sensitive. They’re so confidential. There’s always code names because it’s impacting a lot of people’s lives in the company, in that facility, and in that community.
Rick: Bob, you mentioned talent, and obviously that’s a hot word for any kind of company, any kind of operation right now. But when a company makes a decision that it has to go, let’s say it comes on the go side of the decision process, is it more difficult today to get top talent to move with the company if they’re moving an operation?
Bob: That’s a great question. There’s a lot of organizations that look to do some predictive modeling around that. In one stay versus go study recently, the president of this advanced manufacturing operation said, “Bob, can you do some predictive modeling?” So how many people would go, and at what skill level and why? Of course, that depends on other things on the other end, quality of life, well, you know, are you going to go to a state with no personal income tax? By the way, that’s an interesting situation where I had a project looking at Oregon and Washington, where in Oregon you did and the Washington side, you didn’t. So people got an immediate raise.
I mean, there’s a lot of factors for dealing with home ownership, apartment, demography, the psychographics of the profile, business climate issues, the company’s culture, and the type of policies they have in place to make sure the employees would get a package and be treated well. There’s a whole business on the relocation group move side of the business that’s involved in these stay versus go studies.
A big part of that, and a lot of times why these companies don’t go, Rick, I mean, talent is the number one driver, typically. Sustainability, capability, presence, accessing it, but a lot of times why they don’t go is they can’t handle the change, the capacity for change. They just can’t do it right now. It’ll disrupt their customer base. It’ll just be too political in the newspapers. And that’s what these Starbucks meetings with the presidents I talked about, are about, like, “Wow, I’ve got to manage through this.” That’s why the decision to go has to be very compelling on the top line, the bottom line, and for all impacted stakeholders.
Rick: Very, very, very interesting. I don’t want to get into anything any confidential, but do you have any specific case studies or examples that you could share maybe that accentuates the stay-go decision in the boardroom?
Bob: Yeah, I think it’s finally time for me to share this. So several years ago I had a chance to work for the Nike organization and, you know, Nike has a huge North American headquarters campus at Beaverton, Oregon. And long story short, we got called into this situation and it was a stay versus go. Should we stay in Beaverton, Oregon or go somewhere else?
No, we’re not talking about the entire headquarters, but they were gonna add over 1,000 new people. Actually, the projection was north of 3,000 and a billion dollars onto their campus. So issues around business continuity came up. Are we too many eggs in one basket? Is there a risk around that? Are we too arrogant that we could actually hire 6,000 more people long-term, 3 mid-term, and 1,000 near-term in this community?
And so that one was a real interesting study. They ended up staying and rebuilding on that campus. You could look it up in the newspaper. They have a fantastic several buildings that they’d built, but it was a really complex study. We spent 13 months working with the client on that, dealing with all the issues, interviewing stakeholders in the company, coming up with all the criteria and the researchable problems, the decision framework for this. I mean there’s a lot of biases, by the way, in these companies when they make these stay versus go decisions. So that was a big one where we looked at several Western U.S. markets.
I also want to mention one recently that was in the new…Wilson Sporting Goods, 100-year-old company that was in the suburbs of Chicago and that they were feeling these pressures of the urban core strategy. Where can they get the best talent, software development? They wanted to change the mix and mission. And a lot of times what triggers these stay versus go studies is a new CEO. A new CEO come in and say, “Why am I in this building? It’s obsolete for where I see the future of this company to be technology-wise, talent-wise, how my customers see this. It’s not a showcase facility.”
I have one example, I’ll end with this, where it was the Denver project and it was $12 million to get out of the lease. And the CEO said, “If you can get it down to 4 million, we’re going to go.” So the strategy in that project was to get the lease penalty from 12 million to 4 million, and they had built a new headquarters south of Denver and this was just within the Denver metropolitan area.
And that’s one more thing I’ll mention to you on the community side is some of these studies are not multi-state, you know, the big stories of Boeing, and UPS, and Nike, things of that sort. They are within the same metropolitan area. Urban core, suburban, edge city, you know, where they put those facilities. So intra-metro, and there’s lots of issues around public transportation and other factors that are in the news today.
Rick: Yeah, I am sure that everybody thinks that it’s all about picking up and moving across the country, but I guess the vast majority of such moves would probably be in the same general market area oftentimes, because maybe they’ve outgrown a building or they’ve outgrown an operation or something that has to change.
Let’s look at this deeper if we can, Bob, from a community perspective because that’s where ultimately the rubber meets the road from an economic development standpoint. Obviously losing a major facility location can be damaging to a community, its citizens, its workforce. What should economic developers be doing to understand, anticipate, and maybe even mitigate the risks of being affected by a stay versus go decision?
Bob: Yeah. So, great question. And a lot of times it can be surprising. Obviously, business retention strategies are important for economic developers and it’s more than just filling out forms and working at a distance. You should be in those plans to understand local management, listen to the issues, but sometimes that’s not enough. Sometimes you need to spend more time in their headquarters. You need to understand what market forces that your existing portfolio is going through in terms of issues around technology and talent.
And obviously, mergers and acquisitions is the big one here, Rick, where a merger we would look at duplication of facilities within a certain region and they’ll say, “Wait, well, maybe it’s a consolidation.” So, again, stay versus go can move into consolidation, or relocation, or footprint optimization, or looking at that portfolio. And so, yes, that’s a really important thing for economic developers.
Not to be surprised, like I’ll use the example in Wisconsin many years ago where Mercury Marine was in Fond du Lac, Wisconsin forever. I mean, that’s the history of Outboard Motors. That’s the place. And then they came to the community and they said, “We’re leaving. We’re going south where it’s lower cost and there are business climates.”
And I’m sure that could have been a surprise to the folks in Fond du Lac, but maybe it was. It depends on whether you really, really know your portfolio. Do you know the players? Are you studying the industry? And outside your own specific region, do you really understand these market forces that globalization, and supply chain, and sustainability, everything that’s happening to companies these days and it happens all the time? So it’s a tough job to be an economic developer when these surprises come and then you got to respond accordingly too.
Rick: It seems to me that…and all economic developers try to figure out how do they make their locations sticky, if you will. What can you do that make it easier for a company to move to and harder for a company to move away from? And it seems to me that workforce, and labor, and talent might be one of the larger variables that…given how important it is that accompany not lose the talent that they have in a place, maybe that’s one of the bigger operations or things that an EDO could work on.
Bob: Yeah, those are three major components. I’ll call it the pipeline development strategy of the region. Understanding those skill sets, how those skill sets are changing. Are you moving from a help desk environment to software development, to a digital media?
So, I’ll use that. By the way that was part of the Nike project. There was a large digital media strategy for the company and the digital media folks wanted to be in an urban core. They were in the suburban side of the Portland area so that we were actually looking at urban core Portland, as well as alternate states. So talent needs sustainability, that pipeline, how that’s changing.
One of the issues there, too, is business climate. Now that might be a less of a controllable factor for local folks. What’s going on with state business climate and taxation strategy and, you know, policies that are being developed. You have to look at those issues, but once you can optimize locally, you nailed it. Always be talking about talent. Can you help them with a site? Do they need a curb cut? Do they need a stoplight? Are you constantly understanding supply chain gaps? Can you find a cardboard supplier, you know, that they couldn’t find before? Really getting in there and understanding their supply chain from customer and a supplier, talking to them about their industry and making sure that you’re bringing those components together in your activities with the company.
So, business retention has gotta be much, much deeper moving forward in the world. And that means you’re going to have to know the industries, you’re gonna have to have to talk the language, and you’re gonna have to spend time locally and at the headquarters understanding their needs.
Rick: And, you know, Bob, when you…obviously, sometimes it works and sometimes it doesn’t, sometimes a company does end up making the go decision. Are there any best practices or good things that an EDO might consider when…how do you manage that communication, that PR? You obviously want to keep a good relationship with that company because something might come back around.
Bob: Yeah, I’ll give a good example. So, we’ve done a lot of work for Corning in North Carolina, and this is all out in the press. And they moved their headquarters from Hickory, North Carolina to suburban Charlotte. And that was only like a 40-minute drive.
And the issue with that project, and I have to give the folks in Hickory, North Carolina, a call-out, very professional about how they dealt with this because Corning had many operations in the State of North Carolina. And in our discussions with the community, there were other segments of this company that were expanding in the state and there are certain parts of this community that were maybe better suited for manufacturing than a headquarters.
So yes, don’t burn bridges. Things happen like this. You don’t want to lose these jobs and operations, but if you do have a relationship and you approach this professionally and you support the process around that stay versus go decision but also, you know, make sure you touch the right people and approach it right, yes, you could probably end up with a project in another part of the company. So that’s the whole objective, professional side of economic development that I see many, many times from our communities and states and regions. And you never know until something happens a couple of years down the road.
Rick: Well, with mergers and acquisitions, you could be on the winning end of one of those decisions if you’ve made those relationships stay intact and all that.
Hey, Bob, as we move into this next phase of COVID-19 pandemic, and you mentioned that earlier in the comments, and really no one knows for sure what’s going to happen, but could you give our listeners a look inside your crystal ball, if you will, and share with us what you see on the horizon in terms of corporate locations over the next few months or a year or so?
Bob: Sure. So I see three mindsets out there right now. There’s a mindset of, you know, several industries and asset types and parts of the economy that are in peril, you know, the hospitality, the retail side. And, you know, I just want to acknowledge, I feel for what’s going on there. I hope we can come together with a good level of assistance to help that part because those jobs are probably gonna be displaced and displaced forever.
So there’s going to be a big lift for that side of the economy to retrain, and I’ll call it re-imagine and lift them up into new industries. So that’s a big job for economic developers. I know they’re already on top of that right now in terms of workforce development for the future.
The second mindset is the opportunity-minded. There are some active industries, and the Guild itself has identified these areas of life science, and industrial, and food and beverage, and other sectors that are incredibly active right now. And I’ll call it opportunity-minded executives and companies that COVID-19 has created opportunities for them.
I mean, I was just out West where the unemployment rate in places like Salt Lake City and Phoenix is in the fours again. Not 10s, not 8, not 6, but 4. And they were 2.8 before. Incredible amount of industrial development going out there. So there’s the opportunity-minded companies and industries.
And then I’ll call there’s the needle movers. There’s people out there, private equity firms, M&A is back. M&A was flat the first few months, but mergers and acquisitions, read them in newspaper, in “The Wall Street Journal.” So there’s three mindsets out there, the needle movers, the opportunity-minded for that…you know, people that can use COVID-19, I guess, as an accelerant, and then, of course, there’s a lot of folks in peril.
Where all 3 of those mindsets are going to go in the next 6 to 10 months, the vaccine’s going to be a key part of that, but some of those industries are moving ahead and there’s plenty of opportunity for economic developers out there to pivot. I use the word pivot, to pivot to those industries and those asset types and think about the digital world and how things are going to be post-COVID-19. It’s a little bit fuzzy on what that looks like, but I can tell you what, it’s going to be more collaborative, it’s gonna be more efficient, it’s going to be more digital, and it’s going to be more fast-paced than ever.
Rick: So this really brings up a whole new set of skill sets that ED reps are going to have to master and be proficient at. And one of those is flexibility and agility, I think, because there’s still a lot of uncertainty going forward.
Bob: Yeah. And I’ll add one more word to that. It’s the most common word that I’ve heard since March 12th, well, my first day from working from home, and with all the work that we’re doing with our current clients and prospective clients and pipeline is the word optionality.
I’ve heard that word over 100 times from boardrooms, from executives, from clients, from other stakeholders and partners. People are looking at optionality right now. They want options. They want to do scenario planning. And, you know, where that’s going to land, it’s still a little bit fuzzy. But with the right mindset and us re-imagining things and thinking things that we can kind of work through the fog and the fatigue.
Right now in COVID, I know it’s really tough, but let’s fingers crossed, we’ll have a vaccine soon and we’ll be able to look at those new ventures. And the economic development teams out there that are ready for that and can think differently and outside of the box and respond accordingly, they’re going to win their fair share.
Rick: So, keep our options open and keep building new options. So, we have opportunities as we go forward into that. Bob, you’ve given us a lot to think about today. What a great conversation, but that’s really about all the time we have. So let me take a minute and say thanks to Bob Hess with Newmark for talking with us today in this episode of Site Selection Matters.
Bob: Thanks, Rick.
Rick: Thanks for listening to this episode of Site Selection Matters, and a special thanks to Bob Hess for helping us get insight and better understand the important that stay versus go decisions that corporations are making today. What an informative discussion that leaves us with a lot to think about.
Again, I’m Rick Weddle, President of Site Selectors Guild. This podcast episode presents my views and the views of my guests, and they do not necessarily represent the views or opinions of the Site Selectors Guild or its membership. We hope you’ll subscribe to Site Selection Matters podcast on Apple podcasts, on Stitcher, on Spotify, or wherever you listen to your podcast. We look forward to bringing you some great discussions in the year ahead. Until next time, good day.