Why the C-Suite Should Focus on Incentives
As governments at all levels increase their use of incentives, companies must figure out how to best capitalize on these offerings to increase their competitive advantage.
Rebecca Truelove, Business Incentives Partner, Ernst & Young (Q2 2014)

{{RELATEDLINKS}}An ancient Chinese proverb says “May you live in interesting times.” For those in the credits and incentives (C&I) business, these are indeed interesting times. In July 2013, Ernst & Young LLP (EY) conducted its second biennial survey of primarily tax and finance executives from Fortune 1000 businesses to assess how these businesses identify, evaluate, negotiate, and optimize credits and incentives to enhance their competitive advantages in the global marketplace. The results from nearly 800 respondents to EY’s survey reveal that sophistication among businesses regarding the availability of C&I is growing, and the profile of those who are most active in this regard is becoming clearer. Those companies that most successfully pursue and secure C&I tend to be more thoughtful, disciplined, and collaborative in their approach and methodology. Their C-suite is engaged, their processes are focused, and their people are proactive. Their approach is undoubtedly worth evaluating and, where appropriate, implementing.

Before delving into the survey results, it is worth considering some qualitative insights obtained from discussions with corporate clients, executives, and Frontline EY professionals engaged in C&I services:

  • A mixed U.S. economy is creating opportunities. For some, a lackluster economy means lower sales and tighter margins and more competition, leading to consolidation and cost-driven relocations. For others, growth trends are emerging, leading to a need to expand in place or identify new sites. Both circumstances create a compelling reason for companies to look more closely at C&I opportunities that might be available.
  • Some jurisdictions are sound; others are under duress. Even in a tepid economy there are pockets of strength. Business executives have noted that while some jurisdictions have significant resources and flexibility, others are cutting back. In all cases it is important to know what to emphasize and what questions to ask. In that way, it may be possible to identify solutions that support the circumstances of each company’s fact pattern. Indeed, many state and city agencies want to find a way to make things work.
  • Competition between states and even cities within the same state is on the rise. Elected officials and local leaders know the value of new jobs. As a result, many of them are taking steps to promote their locations. Many have or are creating purpose-built entities to help companies navigate doing business within a state and facilitate access to C&I opportunities.
  • C&I competition is now global. Local regional and national governments the world over are recognizing the need to do more in terms of making “theirs” a more attractive place to do business. As a result, steps are being taken not only to expand the range of opportunities but also to streamline application and compliance processes.
  • Global competition cuts both ways. It is one thing for a U.S. state or city to present a comprehensive C&I package to convince an existing U.S. business to stay or expand. But today, such offers are being presented more aggressively to non-U.S. firms seeking a U.S. foothold. In short, cities and states are recognizing that they are no longer competing solely against each other — but also with the world.
What characterizes a “very active” company in the C&I space?
Almost 8 percent of companies responding to the EY survey describe themselves as “very active” in pursuing C&I, and these very active companies behave differently from others. Understanding the differences can help improve your own company’s performance in benefiting from business incentives.
  • Very active companies are much more likely to describe their approach to obtaining C&I benefits as collaborative. Collaboration across business functions and geographic units is critical to any C&I initiative. It is only through a comprehensive view of the business that required data can be collected, rational negotiations organized, missteps avoided, and optimal choices executed.
  • Very active companies tend to devote greater resources to C&I opportunities. Eighty-three percent of companies surveyed devote less than one full time employee to C&I initiatives. By comparison, 61 percent of very active companies devote one or more full time employee to such efforts. This allows the more active companies to pursue opportunities to a far greater degree than the other companies.
  • Very active companies make greater use of external resources. Sixty-five percent of executives have used a third-party consultant to assist with C&I initiatives within the past two years. The figure rises to 71 percent among very active companies. Benefits cited include access to technical expertise and depth of resources.
  • Very active companies are investing in technology. Nearly half of executives say their organizations have no tools to track or analyze C&I activities. Many others use basic spreadsheets or outsource their tracking and analysis. It is worth noting that the use of customized tracking tools has almost doubled since the 2011 EY survey (it was 17 percent in 2011), and that 47 percent of companies that are very active in the C&I arena are now using a customized tool.
  • Very active companies are improving international coordination. Among organizations expressing some awareness of C&I opportunities, 72 percent are focused primarily on domestic operations. In contrast, 53 percent of very active companies have this focus; many understand that a broader global perspective is beneficial. Survey findings suggest that significant opportunities to optimize global C&I initiatives exist in all companies, even the most active.
How, exactly, are the very active companies successfully pursuing incentives?
To evaluate the opportunity to develop a more focused and coordinated approach to capturing value from credits and incentives in line with the “very active” model outlined above, it is important to first understand the current internal profile of ongoing credits and incentives efforts. This internal assessment could begin with a review of where the company footprint is likely to grow and similarly where it is likely to contract. Then, knowing the landscape for potential incentives triggers, what, if any, are the current capabilities and processes in place for identifying and evaluating credits and incentives opportunities, and are the right departments and stakeholders aware of the value potential and the processes to pursue them? A good indicator of the groundwork for future success in this area could come from the level of confidence as to whether these stakeholders are informed regarding the credits and incentives currently being enjoyed and how well they are actually being utilized.

When reflecting on this assessment, if there is a sense that there are gaps in the ability of the business to implement a credits and incentives approach modeled on the very active companies, businesses may want to give some consideration to prioritizing which resources should be added to support this initiative: ideas could range from modifying job descriptions to include credits and incentives to making proactive investment in tools, technology, and external resources.

Lastly, on a personal level, it would be critical to determine what level of executive sponsorship may be needed from you or your office to successfully create within your organization a more informed, collaborative, and successful credits and incentives approach. Based on feedback from EY executives, clients, and government economic development officials, taking the time for active reflection and implementation in structuring a more focused and coordinated approach to capturing value from credits and incentives will position your organization to achieve much more value in both one-off and recurring savings. This, of course, will translate into overall stronger group performance and greater earnings per share.

In Sum
The competition to attract, retain and grow businesses is on the rise. As local, regional, and national governments the world over do more in the credits and incentives space to become more attractive places to do business, executives should consider how their business organizations can best be structured and positioned to capitalize on the expansion of such government incentives. Based on the 2013 EY biennial tax credits and incentives survey, executives that are interested in obtaining greater value from credits and incentives would do well to lead their businesses to emulate companies who describe themselves as “very active.”

According to the survey results, these companies tend to derive greater benefit across a wide range of both statutory and negotiated or discretionary credits and incentives opportunities. Making the most of opportunities like this requires more than mere awareness, but also a commitment to a systematic and collaborative process equipped with adequate resources. This can drive tremendous value but must be done in the context of an acknowledged quid pro quo: the acceptance of credits and incentives forges a “partnership” between governments and businesses. If a company pursues and accepts an array of tax credits and business incentives, it needs to follow through on its commitment to the local community with investment, jobs, and corporate giving. It is only through such partnership that credits and incentives will be a prosperous cycle in the long run for companies and the communities where they operate. Implemented at the C-suite level for greatest optimization, such a partnership will pay proven dividends for companies that make the differential investment for success.

In short, companies who focus on C&I — and, in particular, those with an engaged C-suite, a disciplined, collaborative process, a global perspective, and a willingness to devote resources and technology to support their corporate goals and objectives — can enjoy a significant competitive advantage that can lead to greater success in the marketplace and set the stage for future growth and success.

Note: The views expressed here are those of the authors and do not necessarily reflect the views of Ernst & Young LLP.

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