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Innovation Is Changing Companies’ Locational Needs

In the field of manufacturing, a domino sequence is changing the locational needs of companies. What does this mean for decision-makers and what criteria should be used for evaluating the next wave of sites and facilities?

Q2 2017
With globalization and changes in technology, the world is changing. In manufacturing, we are experiencing a new wave of the industrial revolution: disruptive technologies are leading the way with both the products we are creating and advances in how we are building them. In how we live, we are experiencing a new wave of the urban revolution: urbanization and the increased population of our cities is here to stay; people of all ages, especially the savvy workforce creating new technologies, want to live in cities or their in-town suburbs. Combining these revolutions, the solution is clear: in order to stay competitive in the marketplace, companies need to retain and attract the technology workforce. To do this, location is key. Could it be time to relocate?

How did we get here?
Before looking forward, it is always helpful to look back and understand the decisions that have created current conditions. Manufacturing companies found their start in cities, where there was a ready and able workforce. Infrastructure for transportation of raw goods and finished products was optimum. The headquarters and the factories were co-located for efficiency and prestige. For many years, this was what it took to be successful.

Over time, innovation led to increased competitiveness. Companies began creating research divisions born from ideas discovered on the assembly line. In 1900, this began with General Electric and their GE Labs, with AT&T, Bell Telephone, and General Motors following shortly after. The addition of research components to companies changed the locational drivers — for modern research, cleanliness and concentration were key. On the other hand, cities at the time were dirty, noisy, and vibrating from early machines and transportation infrastructure. Slowly, research facilities moved out of cities into the countryside and, subsequently, many corporate headquarters and main production facilities were relocated there as well.

This relocation strategy gave rise to the corporate campus. These now iconic environments were places for individual corporations to own their places in the world. These campuses remain a major development type today. They are typically situated in a secluded suburban pastoral site, designed like great academic institutions with a collection of buildings organized around a central open space and a single formal entry to the campus. In the 1940s, the corporate campus became the mark of corporate success, and talent followed: people could get out of the chaos of urban life and work toward the suburban American dream.

In order to stay competitive in the marketplace, companies need to retain and attract the technology workforce. Companies across the country bought into the dream. The challenge was the expense of creating the campus, especially for small companies. From this need, the speculative business park emerged. In the 1950s, the Route 128 Corridor in Massachusetts established this model, and with easy highway access, where everyone could have their own mini-campus. Like the campus model before them, these suburban environments further facilitated the American dream and the nuclear family, allowing corporations to continue recruiting and attracting top talent.

These two models were our American baseline for years, and much of the world has followed our example. At each of these moments in time, site decisions were driven by the need to be competitive, beginning with ensuring space for research and innovation and ending with providing an attractive lifestyle for top talent.

What’s happening today?
Today, attracting top talent is still the key to success, and winning battles in the talent war requires a multi-pronged solution. Location and the resulting lifestyle are still critical drivers in the mix. However, today’s top technology worker has a slightly different dream than his/her parents. Experience and a sense of purpose have become the hallmarks to happiness, often over the classic suburban white picket fence. The fence is still important; it has just morphed. Sometimes it is a fence, sometimes it is a balcony or a roof terrace, and other times it is public space or park. The availability of a variety of choices has become significant.

With this wave of the urban revolution, the ideal lifestyle is now centered primarily on central city locations with access to higher densities, in rich, mixed-use walkable environments that have a variety of transit options, quality open space, and the supportive social infrastructure to feel connected to the world. These locations are not always in the heart of the central business districts but they tend to be closer to them than are their suburban counterparts. There is always the exception, but generally this is the lifestyle context that should be considered when thinking about location.

At the same time, companies need to continue advancing technologically. The research-to-commercialization continuum is being strengthen and condensed daily. This means that while lifestyle is important, another key locational driver must be access to and relationships with academic and research institutions. These relationships should span everything from sponsoring research to finding the next big innovation to facilitating a focused talent pipeline.

Today these concepts of urbanism and innovation are coming together in “innovation districts,” conceived by Bruce Katz and Julie Wagner of the Brookings Institute as “geographic areas where leading-edge anchor institutions and companies cluster and connect with startups, business incubators, and accelerators.” While innovation districts are great places to locate, intelligent site selection should mean more than simply identifying a good innovation district near you.

Today, attracting top talent is still the key to success, and winning battles in the talent war requires a multi-pronged solution. What kind of location criteria should be considered?
To achieve the umbrella goal of competitiveness along with the locational drivers, eight simple criteria for site selection should influence relocation decisions or current location evaluation. Unlike some of the measures used in the past, each of these criteria touches on a different aspect of the manufacturing business to create a more holistic way of considering location.

Measure 1: Activity — The site should offer a multi-dimensional environment, including labs, offices, educational institutions, as well as businesses that are not at the core of the business mission but buoy it nonetheless. These may be coffee shops, restaurants, and support services like graphic designers and lawyers. There should also be a social environment, or at least positive momentum toward the creation of such a place, by incorporating the basics on which these places can thrive, such as housing and an existing resident population.

Measure 2: Assets — The site should have significant physical infrastructure such as streets, utilities, transit service, and other amenities to support the robust, walking-centric environments that comprise the lifestyle goals of tech workers. In an ideal location, this infrastructure would be in place and not require a large investment to establish.

Measure 3: Vibe — The site should have a character and identity that aligns with both the desired talent pool and potential clients.

Measure 4: Connectivity — The site should be well connected beyond its immediate context. Elements like regional rail infrastructure and aviation connectivity should be taken into consideration.

Measure 5: Proximity — The site should be physically close to academic and research institutions that could support the direction of the company. Further, locating near other like-minded research activities, startups, and incubators should be considered. Allowing people to gather and cross paths outside of a single company is critical to forming relationships, which tend to result in creative collisions and opportunistic collaborations.

Measure 6: Synergy — The site should be positioned to take advantage of other logical investments and partnerships beyond the direct bottom line, leveraging efforts like city revitalization projects, arts and cultural events, etc. While this might seem tangential to the core business, this is an important driver for the tech worker and can be a tremendous differentiator for a company over time.

Measure 7: Space — The site should be scaled and configured appropriately, and otherwise suitable for the proposed new uses. Depending on the locational needs, space for future expansion might be considered.

Measure 8: Ownership — Combined with each of these measures, the site should also be considered from an overall investment standpoint, studying the real estate dynamics and five-year future of the city/place at hand.

In Sum
Each site is unique and presents its own set of opportunities; these measures are intended to help pull apart that story. When considered as a whole, these criteria can help synthesize critical factors at play in maximizing locational effectiveness. In 2016, GE announced that their corporate headquarters was moving to Boston from the suburb of Fairfield, Connecticut. Does this mean everyone needs to leave the suburbs and move back to the city to be competitive? Probably not. Does it mean that one should consider his/her location before making any big investments? Absolutely.

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