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Putting the Location Decision into a Business Context

Find the right place to do business first and the best site will follow.

Nov 06
(page 2 of 2)
Make a qualitative-quantitative trade-off.
While many companies refer to the process they seek as site selection, most consider the same qualitative/quantitative give and take when ultimately selecting the "right site." However, many site selection efforts fall short of delivering the "best place to do business" because they do not appropriately consider and weight the total long-term operating costs of selecting one site over another.

Real estate service providers, developers, and economic development professionals often find themselves confused by the final location decisions made by companies. The consternation often stems from not being privy to the complete view of the company or the "prism" through which it ultimately views a location or a site. Companies are sometimes accused of not making the best deal or leaving money on the table. However, it is not uncommon for our business location clients to spend more time discussing labor and regulatory environments, demographic trends, and competitive pressures when comparing one market against another. It is also not uncommon for companies to select a higher-cost real estate deal based on the potential lower operating cost in another business area, or the need to preserve flexibility of occupancy in a market or region. Other factors such as community support and long-term prospects of an area for business growth rarely get communicated back to local market professionals when final decisions are made.

Industries that rely heavily on specific resources, commodities, or site-specific attributes like port access rightly factor these necessities into their location decisions. Businesses considering how to maximize retail exposure have different locational considerations. Successful call center locations are highly reliant upon a relatively low-cost labor force in the immediate area. And determining the best place for a headquarters location presents other considerations including community assimilation, impact on corporate brand, etc.

While each type of business may have very different considerations, they all must ultimately weigh the benefits of qualitative attributes against those more easily quantifiable cost-related attributes tied to overall cost structures of operating in a particular business location. The chart on page 36 illustrates the decision options in a comparative matrix that allows a company to visually consider the differences presented by various location options, providing a framework for discussion by a company and its various stakeholders.

Form follows function.

The sine qua non view of the architect states that form should follow function, and thus it is with selecting the best site for a business activity. An optimal physical site, in the absence of a compelling business case, will rightfully get short shrift during the location analysis process. But when satisfactory business locations or markets have been determined, physical sites should be scrutinized for their ability to support the business requirements as effectively and efficiently as possible. Site selection implies identifying the best physical spot for the conduct of a specific business function. A disconnect exists between characteristics of the optimal site, or the best deal, and the holistic mindset that may decline the most efficient real estate deal in favor of a site that will provide either a lower cost operating structure or one that will minimize the occupancy or move-in risks.

When approaching the process of business location selection, companies that spend time at the beginning of their search determining and prioritizing those business attributes that are most aligned with their own key business success factors will use an appropriate frame of reference in which to evaluate the appropriateness of one location or market versus another. When the place or market has been identified, that is when true site selection begins. As the saying goes, "There is more than one way to skin a cat." So too there is generally more than one location option in a market(s) that will deliver the specific locational and physical site attributes sought. Each of these alternatives will usually come at slightly differing deal terms. It is at this point that "selecting the best site" appropriately becomes the task at hand.

Remember why you're there in the first place.
The ultimate decision of which site will best fill a company's specific requirements must be the result of first considering the best place for the company to perform a specific function. Unless the strategic context for why the company chooses to be there in the first place is incorporated into the site selection process, the final decision cannot effectively satisfy the location attributes that will lead to business success. Understanding this view, a company will find itself in a position to approach site selection from the business location perspective first; then the best physical site for the job will follow.

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