Why Companies Should Outsource Site Selection

Here’s a past blog that explains what and why I do what I do. I hope you all had a Merry Christmas and will have a Happy New Year. I’ll see you down the road in 2015.

Barberbiz

Peter Drucker is a historic figure, a business consultant whose writings contributed to the philosophical and practical foundations of today’s modern corporation.

And yet he pleaded that it was his lack of knowledge that served him well in helping companies find their way. This quote from him has always stuck with me.

“My greatest strength as a consultant is to be ignorant and ask a few questions.”

Now I can truly identify with that statement. The only difference is that I’m not shy about asking a lot of questions, having been a former newspaper reporter.

It is Drucker’s views on the need for companies to outsource certain business functions that serves as the basis for Barber Business Advisors. He is why I do what I do.

While advising General Electric in the 1980s, Drucker had a huge influential effect on CEO Jack Welch. Drucker’s advice was simple and to the point:

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Digital Battlefields of the Future

A couple of months ago, my credit union sent me a new credit card in the mail because I had made a transaction at Home Depot.

Apparently my personal information had been compromised. Home Depot had been hacked. Hence the new card. I suspect this will not be the last time this happens to me. Or to you.

On Friday, another big box retailer, Staples, announced that hackers had broken into its computers and stole data on 1.16 million shopper’s credit cards and debit cards. Like the Home Depot and Target hack attacks, cyber criminals now know shoppers’ names, card numbers, expiration dates and card verification codes, all of which can be sold on a black market.

Staples apology sounded like a familiar refrain for any company that loses your data: “Staples is committed to protecting customer data and… has taken steps to enhance the security of its point-of-sale systems, including the use of new encryption tools.”

That begs the question, of course, as to why Staples hadn’t installed these new encryption tools sooner, given that the Target hack in late 2013 should have been a wake-up call for the entire retail industry.

Staples now joins the lengthy list of national retailers whose payment systems were attacked by hackers in the past 12 months: Albertson’s, Home Depot , Michaels, Neiman Marcus, P.F. Chang’s, Target and SuperValu.

Beyond Mere Vandalism

Last week, the FBI officially pinned blame on the government of North Korea for a cyber attack against Sony Pictures. The Sony hack saw many studio executives’ sensitive and embarrassing emails leaked online.

The hackers threatened to attack theaters on the opening day of the offending film, “The Interview,” and Sony pulled the plug on the movie, although there will be a limited release to some independent theaters on Christmas day.

President Obama told CNN that he doesn’t consider North Korea’s hack of Sony Pictures “an act of war” but rather “an act of cyber vandalism.”

The president said both foreign governments and hackers outside government present cyber threats that are now unfortunately part of the modern business landscape. The Sony attack amounted to not just an attack on a company’s pursuit of doing business but also an assault on free speech.

“If we set a precedent in which a dictator in another country can disrupt through cyber, a company’s distribution chain or its products, and as a consequence we start censoring ourselves, that’s a problem,” Obama told CNN.

“And it’s a problem not just for the entertainment industry, it’s a problem for the news industry,” he said. “CNN has done critical stories about North Korea. What happens if in fact there is a breach in CNN’s cyberspace? Are we going to suddenly say, are we not going to report on North Korea?”

President Obama went on to say that “all of us have to adapt to the possibility of cyber attacks, we have to do a lot more to guard against them.”

The president is correct in saying that the attack on Sony does not constitute a true act of “cyberwar” because it wasn’t aimed at a critical piece of infrastructure or economy. But to label it mere vandalism may prove to be wrong, as I believe the very survival of the company could be at stake.

A Chilling Effect

And that should concern us all very much. The cyber theft of proprietary data has the potential to put virtually any companies around the world at risk or at the very least a huge competitive disadvantage.

Indeed, I could argue that cyber attacks could prove to have a chilling effect on what companies devote to research and development and even strategic moves such as mergers, acquisitions and expansions.

When a company cannot safeguard its internal data, consumers, investors, and employees, too, will lose confidence, and the whole corporate foundation is thereby comprised. That’s not good. Not good at all.

But it goes even beyond that. We could be getting a glimpse of what war or at least an aspect of war could look like in the future.

An Adversary Problem

It’s becoming increasing clear that government-sponsored “hacktivist” groups are mounting attacks against financial institutions, private companies, infrastructure and our military every single day. There were almost 61,000 cyber attacks and security breaches across the entire federal government last year, according to a recent Obama administration report.

“This is a global problem. We don’t have a malware problem. We have an adversary problem. There are people being paid to try to get inside our systems 24/7,” Tony Cole, vice president of the cyber security firm FireEye, told CNN.

Some attacks aim to inflict that damage on a massive scale by breaching nuclear plants, energy firms and other infrastructure, or defense contractors and the military. Other cyber attacks go after commercial entities like banks and manufacturers, and their employees who carry valuable information on their laptops and smartphones.

Spilling the Beans

Back in July, the Department of Homeland Security replied to a Freedom of Information Act request on a malware attack on Google called “Operation Aurora.”

Rather than releasing information on Operation Aurora, the federal agency erroneously released more than 800 pages on the Aurora Project, a 2007 research effort by Idaho National Laboratory demonstrating how easy it was to hack elements in power and water systems.

The Idaho National Laboratory used a computer program to rapidly open and close a diesel generator’s circuit breakers out of phase from the rest of the grid and explode. This vulnerability is a serious concern, as utilities commonly rely on publicly available equipment and common communication protocols to handle links between different parts their systems.

This common equipment and protocols makes networks easier to run, maintain, and repair, but it also makes them vulnerable to a cyber attack. And as was demonstrated in the Northeast black of 2003, the failure of even a single generator can cause a cascading failure of an entire power grid.

Past and Future Cyber Attacks

The pro-government group Syrian Electronic Army (SEA) in 2013 launched multiple types of cyber attacks against governments and media both perceived to be against Syrian President Bashar al-Assad.

Targets included the New York Times and The Associated Press. The compromised AP’s Twitter account posted a message saying President Obama had been injured in an attack on the White House, causing a brief dip in stock markets, erasing $200 billion in value.

Admiral Michael Rogers, the head of the National Security Agency and the U.S. Cyber Command, has warned that China and perhaps two other unnamed nations have “the ability to launch a cyber attack that could shut down the entire U.S. power grid and other critical infrastructure.”

Other critical infrastructure includes like dams, gas pipelines and transportation systems, the very cogwheels of our economy.

Now I’m not trying to scare you. I am simply telling you is what the experts are saying. And it’s that the United States, preciously because we are so technologically advanced, maybe more vulnerable to cyber attacks than any country in the world.

In the end, this threat to our infrastructure could prove to be a much bigger than having our credit card information being stolen. We could be looking at the face of war in the future, waged digitally online to render not just a company but an entire country virtually dead in the water.

In the meantime, expect the cyber attacks to continue, Frank Cilluffo, director of the cybersecurity initiative at George Washington University, told NBC.

“From here on out, every form of conflict will have a cyber element in it,” he added. “Companies are at the front of this war and they’re not necessarily prepared.”

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm based in Plano, Texas.

If your company needs an optimal location for future operations anywhere in North America, we can help. If your community needs to improve its competitive standing, we can help.http://www.barberadvisors.com

If you liked what you read here, invite me to speak at your next meeting.

© Unauthorized use is prohibited. Excerpts and links may be used with permission.

A Comeback in the Making

I have to think that the best sales people are optimists. They believe they will ultimately win out in convincing others to buy because they are offering a superior product or service and have the message to go with it.

Now they may be deluding themselves. Their product or service may not actually be all that good, but if they convince themselves that it is so, they come off as credible and authentic.

People like authentic, even from eccentrics and misguided kooks.

Economic developers, those charged with selling states, regions and communities, are generally an optimistic lot. And some are truly driven to doing good for a constituency. Few are kooks.

If and when economic developers do come to visit me in Dallas, I am interested in hearing from them on how they go about selling their communities. What are your target industries and why? What workforce training programs do you have in place? What is your inventory of buildings and sites?

It’s also good to put a name and face with a particular place for future reference.

In recent weeks, I have met in Dallas (or rather Plano) with economic developers from New Mexico, Louisiana, Arkansas and Michigan. I spent an entire morning, as part of a panel discussion attended by other consultants, at a downtown Dallas hotel with a gaggle of economic developers from Michigan.

That state in particular has captured my imagination by the sheer breadth of change in a relatively short period of time.

Michigan’s Turnaround Story

People love a story with drama, and I am no different. Michigan and its largest city Detroit were once on top, then hit bottom, and are now in the midst of a comeback. It’s an almost hymnal story of what once was lost but now that is found.

Now the cynics among us, and I plead guilty, would argue that Michigan’s turnaround was inevitable because of an improving national economy and an auto industry rebounding. That certainly helped.

But I also believe the state’s bookish and pragmatic governor, Rick Snyder, deserves more than a little credit in changing a culture of economic development in that state.

His leadership and vision has turned a losing ball club into a winning ball club. Economic developers in Michigan are now true believers or at least the ones I have met.

They are convinced they have a better product to sell, with lower taxes, improved worker training programs, and now they have right-to-work status to hang their hat on. (That was a shocker.)

And like their governor, they have not written off Detroit, but rather want to see it succeed and regain the status of a city with a future.

Saving Detroit

Gov. Snyder did not shy away from the mess that was Detroit. Decades of decline, exacerbated by a city government characterized by incompetence and corruption, was fast turning one of America’s greatest cities, a cradle of the nation’s manufacturing might, into a nightmarish hellhole.

In March 2013, the same month that Michigan became a right to work state, Snyder appointed Kevyn Orr, a Washington bankruptcy lawyer, to become Detroit’s emergency manager.

Orr had a daunting task. He took over a city with $18 billion in debt, where half the street lights were out and residents complained of having to wait nearly an hour for police to arrive after dialing 911.

Detroit subsequently filed for Chapter 9 bankruptcy on July 18, 2013, which was (and remains) the largest municipal bankruptcy filing in U.S. history by debt, exceeding Jefferson County, Alabama’s $4 billion filing in 2011

Two Big Announcements

There were two big announcements in Detroit last week. The one garnering widespread national news coverage was that Detroit had emerged from bankruptcy after just 20 months. The bankruptcy closeout was hailed by Gov. Snyder and city officials as an opportunity to begin anew.

Also last week, Little Caesars Pizza announced that it would build a new eight-story, 205,000-square-foot headquarters building in downtown Detroit, the first such project in a decade. Construction will begin in the spring and be complete by the end of 2016.

The headquarters expansion will happen on a vacant lot next to its current headquarters inside the Fox Theatre. An additional 600 jobs to the downtown are expected.

The Little Caesars building is part of a sprawling 45-block downtown “District Detroit” renovation effort unveiled over the summer. It includes a $450 million hockey arena for the Detroit Red Wings, construction of which began in September.

The Heavy Lifting Begins

So it’s very clear that good things are happening in Detroit, and the bankruptcy has certainly not deterred capital investment from happening in the downtown. If anything, Detroit’s emergence from bankruptcy sends a signal to the business community that the city is slowly but surely getting its act together.

But now the heavy lifting begins, as the city faces pressure to control spending while tackling problems that arose during the decades of urban decay.That was not lost on Mayor Mike Duggan.

“We still have enormous challenges delivering the services in the city every day, but at least now we are no longer a city that’s in bankruptcy,” Duggan said. “So we’re going to start fresh tomorrow.”

A Tough Call

Duggan said that the reorganization plan, which allows Detroit to shed $7 billion of its debts and to spend about $1.7 billion to remake its dismal city services over the next 10 years, “gives us the tools to have a chance to succeed.”

The restructuring plan also calls for the pensions of non-uniformed public employees to be cut by 4.5 percent, with cost-of-living increases eliminated. Police and firefighters will see cuts in their cost-of-living increases.

For Snyder, Detroit was a problem that simply had to be addressed, for the good of the city and the state.

“It was a tough call to decide to go into bankruptcy, but again, we set an aggressive timetable. And the good part is, it turned out very well. It was a difficult situation,” Snyder said in an interview with Time magazine.

“And I always want to recognize that there are retirees making sacrifices, other people making sacrifices. But for the circumstances we were in, this is a very constructive, positive outcome that really positions the city to start a new chapter and grow.”

Only Minutes Apart

Not long after Detroit filed for bankruptcy back in 2013, I walked in one of its blighted neighborhoods. I guess it was a neighborhood. Maybe I should call it a former neighborhood. For it was there where I flushed a wild pheasant from what was essentially a wild grass pasture where houses once stood.

It was a very odd sensation. Here I was in the city limits, but it felt like a no man’s land, where a great battle had had been waged and the people had fled the horror, with only a few straggling back.

But not far away, really only a few miles, I witnessed a very different Detroit, where growth and energy was quite evident. This is what I saw in downtown Detroit, especially along a seven-mile spine of Woodward Avenue, the haunt of young professionals.

And this is where Little Caesars will build its new headquarters building. Judging from the vitality that I saw, I am not surprised.

Michigan’s economy will add more than 132,000 jobs in 2015 and 2016, according to the latest predictions by University of Michigan economists. That would mean that by the end of 2016, the state would have added nearly 463,000 jobs since the summer of 2009.

A Novel Idea

As governor, Snyder sees himself as the problem solver in chief. His philosophy is one of “relentless positive action” and relying on good will to gain trust of others that results in a team effort. Partisanship politics should take a back seat.

“There’s too much ‘R’ and ‘D,’ there’s too much ‘liberal’ and ‘conservative,” Snyder told Time. “We need people to recognize that we’re all Michiganders, and in the country that we’re all Americans, and we should be focused on problem solving.

“What would Washington be like if everyone agreed not to fight or blame one another,” he added. “There’d be a whole lot of time to get work done.”

Now that’s a novel idea. Are you listening Washington?

I plan to be back in Michigan next month for the Detroit Auto Show, where I hope to learn more about Detroit and a resurgent auto industry. I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm based in Plano, Texas.

If your company needs an optimal location for future operations anywhere in North America, we can help. If your community needs to improve its competitive standing, we can help. http://www.barberadvisors.com

If you liked what you read here, invite me to speak at your next meeting.

© Unauthorized use is prohibited. Excerpts and links may be used with permission.

If You Ain’t Got the Do Re Mi

So I missed the party, but from what my wife told me, it was one wang dang doodle, minus any drunken revelry as this was a corporate affair.

Just two blocks from my home in Legacy Town Center, a fufu neighborhood in Plano, Texas, Toyota held a big “Howdy Texas” celebration, as its future North American headquarters will be about a mile away.

Before I left for a business trip to Colorado, I saw a large stage being erected in Bishop Park indicating this was not going to be your typical block party. Held for eight hours on Oct. 27, there was music, food and celebrities. Heck, Dallas Cowboy’s legend Roger Staubach was there.

What was a big win for Texas was a big loss for California, no doubt. Now, I have written a number of blogs critical of California’s business climate. I have to call it like I see it, which is what you want.

And believe or not, I got kudos from a number of economic developers in California. Wrote one exasperated professional: “We all know what the problem is, so how do we fix it?”

A coup d’état of state government is not the answer. That would be quite illegal. Therefore, the ballot box and lobbying will be your only recourse. Good luck.

Now I don’t take anything back about what I’ve said about the Golden State having a dismal tax and regulatory environment. That’s just a fact, Jack. Year after year, polled CEO’s put California in the cellar for business climate, which should tell you something.

The Promised Land

But despite all that, California is the Promised Land for biotech. South San Francisco is the birthplace of biotechnology with most industry observers agreeing that Genentech, founded in 1976, to be the pioneer in the field. San Diego’s biotech legacy began two years later with Hybritech, which would subsequently lead to more than 50 spinoffs.

Today, California is a diverse hub for life science research, development and educational activities, as well as the manufacturing of biopharmaceuticals and medical devices used by patients around the world.

The industry accounts for $258 billion in economic activity in California, supporting more than 1 million jobs that pay $76 billion in annual salaries, wages, and benefits, according to a joint report from BioCom, representing Southern California’s life science community, and BayBio, its counterpart in Northern California.

In its 2014 annual report, the California Healthcare Institute pegs the number of people directly employed in the biomedical industry at 270,000, with an average wage of more than $100,000. There are about 2,600 biotech firms in the state and that number continues to grow.

CHI says nearly 500,000 people are indirectly employed by the industry. They are computer programmers, construction workers, consultants, delivery people, attorneys, and accountants.

So why California? Why has biotech prospered and grown despite the onerous tax and regulatory climate? Well, I think it comes down to brainpower, money and, yes, even the weather. Let’s tackle each briefly.

Brains Galore

California’s biotech industry exists largely because of its universities. According to the 2014 Academic Ranking of World Universities (ARWU), three California schools – Stanford, UC Berkeley, and California Institute of Technology – rank among the top 10 in the world.

UCLA, UC San Diego, UC San Francisco, UC Santa Barbara, UC Irvine, UC Davis and USC rank in the top 100 universities in the world. Together, California universities received more than $3 billion in grant money from the National Institute of Health, with UC San Francisco, UC San Diego, Stanford and UCLA each topping $300 million.

Those research dollars provide a seed for basic research which in turn finds its way to either established biomedical companies or inspires the creation of new startup companies. In short, the schools are providing a future supply chain of scientific talent, scientists who will transform their work into new drugs, devices and diagnostics.

“A lot of people move to California for their schooling and will never leave,” said Mark A. Winham, chief operating officer of San Diego-based Millennium Laboratories. ”A biotech industry grew up in the Bay area and San Diego because the universities and research institutes were there providing a talent pool.”

There has developed in California a biotech industry ecosystem that accepts and even expects change, said Gerry Proehl, former president and CEO of Santarus Inc., and whose company was acquired in January by Salix Pharmaceuticals.

“Folks start with one company and it gets sold and those people go on and they start other biotech companies. It just continues to perpetuate itself,” said Proehl.

“I know that when we announced that we were selling the company, we talked to our employees and a lot of them said they had been through this two or three times before. They said it was no big deal and that they would find another opportunity in San Diego.”

Follow the Money

So you got big brains coming up with big ideas emanating from world-class universities that are subsequently spun off into startup companies.

A good indicator of California‘s preeminence in biotech is the money that investors are willing to sink into new startups with the hopes of hitting pay dirt. Welcome to the world of venture capital.

California received about 45 percent all biopharmaceutical and medical device venture capital invested in the United States in 2013, according to CHI. And San Francisco, ranked No. 1 with the largest annual influx of VC dollars last year at $1.15 billion, according to the National Venture Capital Association.

Not surprisingly, many of the VC firms, are based or have offices in San Francisco and San Diego. There they find it most convenient to be represented on a number of California biotech companies’ board of directors, where travel time is thereby minimized.

“Many of these VC firms are in California and are looking in our backyard for investments in biotech companies of the future,” said Todd Gillenwater, president and CEO of CHI. “Many of the partners in the VC firms came from the biotech community in they continue to be a part of it. They understand what it takes.”

To give credit where credit is due, Gov. Jerry Brown’s administration has provided sales and use tax exemptions for research and manufacturing for the life sciences will provide incentives to grow and stay in California.

Gov. Brown signed a bill into law that removes duplicative inspections of biotech facilities in the state, providing relief for companies that are managing some of the highest infrastructure, real estate, and labor costs in the country.

Weathering the Sunshine Tax

But despite the higher costs of doing of doing business and living in California, it is the preferred choice of many in the biotch industry, partly because of the weather and quality of life there. And that cluster of talent and money.

“Some people call it, tongue in cheek, the ‘sunshine tax,’ “ said Jennifer Landress, senior vice president and chief operating officer of BioCom. “There definitely are some higher costs associated with doing business in California, but on the flip side there are a lot of benefits that you cannot replicate in other regions.”

Said Winham with San-Diego based Millennium, “It’s both a lifestyle choice and a business choice.”

An Okie’s Lament

When I think of California, I think of a physically beautiful place, and where some companies have done very, very well, many of which got their starts in humble garages. You may have heard of one. Apple, the largest company in the world, is now valued at more than $700 billion.

But I also think of Woody Guthrie’s folk song, “Do Re Mi,” lamenting the Okie’s Dust Bowl migration to California in the 1930s.

“California is a garden of Eden, a paradise to live in or see;
But believe it or not, you won’t find it so hot,
If you ain’t got the do re mi.”

I’ll see you down the road.

Dean Barber is the president/CEO of Barber Business Advisors, LLC, a site selection and economic development consulting firm based in Plano, Texas. If your company needs an optimal location for future operations anywhere in North America, we can help. If your community needs to improve its competitive standing, we can help. http://www.barberadvisors.com

If you liked what you saw here, invite me to speak at your next meeting.

© Unauthorized use is prohibited. Excerpts and links may be used with permission.

The Canary in Our Mine

No new Barberbiz blog today as the holiday weekend had me traveling (and overeating), but here’s a recent entry that created some buzz. Your views are always welcomed.

Barberbiz

I am frequently asked by economic developers and to a lesser extent corporate execs if my firm specializes in serving any particular industry group or sector in site selection projects.

While I can put together a special ops team that can serve the needs for just about any company in any industry, I do have an unashamed bias toward companies that actually make things.

Manufacturers typically are favored, partly because I can usually understand the potential and the implications of something that I can actually see and touch.

Temperamental Beasts

“So these nasal strips for horses, you have found a market for them?”

“Oh yes indeed, Mr. Barber, and now we are expanding our product line for cattle, sheep, goats and llamas. However, we are finding that goats will often try to rub our products off on a tree or fence post.”

“You know, I’ve always found goats as hard to…

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