First Person: Creating a Pipeline for Site Selection
When it comes to site selection, constant monitoring of market trends will allow a company to balance its space with the total costs to occupy the space
Kruklinski: Site selection is not a process that is done overnight. It takes a thorough approach that involves input from a variety of experts — this can amount to a sizeable team working behind the scenes and typically takes a year from start to finish. Sometimes it can take a little less than that as we saw with Amazon’s HQ2; other times it will take longer. Keep in mind that what we saw with Amazon is only the publicly visible process — there is often much more research, planning, etc. occurring out of public view. And the Amazon HQ2 site selection process is a rare case. Most site selections are not as detailed, newsworthy or, in the case of New York, controversial. The duration of a site selection really depends on the complexity of the task (i.e. small office vs. multi-story building) and internal or external factors, such as budget, trends in the market, business operations, and availability.
AD: Who should be on the site selection team?
Kruklinski: It should be a team with representatives from a diverse range of company divisions, including subject matter experts, employees, and management with decision power. While management is the obvious choice, you should also include staff from operations, real estate, human resources, and finance to define the site needs. In the end, the business leaders who will occupy the space need to support any major site selection decisions.
AD: Will key employees be willing to relocate? Has the labor pool at the new location been assessed?
Kruklinski: Those are very important questions. You should engage with Human Resources to conduct an analysis of where people reside and how the commute will be impacted, and do your best to keep key employees in the loop at some point in the process. HR’s expert input is required to help determine if the potential future site can support the growth requirements of the business by having access to the necessary labor pool.
In the event that relocation is chosen, the site you select will become the workplace for many of your employees for years to come. Think about how the move will affect their lives, and therefore the success of your business. A new geographic location may affect employee wages, benefits, and taxes. Prioritize roadways and public transportation access, as your site will be unsuccessful if employees can’t get to work easily.
AD: How does a location search affect a company’s customers? Its suppliers?
Kruklinski: Any search must consider proximity to your most common customers and suppliers. That’s why your site selection team must include members from the business who understand the company’s customers and suppliers and the impact of any potential relocation. Site selection is about balancing multiple variables — there is no one-size-fits-all solution; there are multiple possibilities based on business priorities.
Examining a company’s customers and suppliers is especially critical in this era of extreme weather, when any delay in work can impact your bottom line. Business continuity is a key element to consider. Even if you stay away from designated flooding zones, are there structures nearby that could present risks to your facility during a heavy storm? Can you access the site during a disaster, or at least quickly get footage from security cameras? During Hurricane Harvey, for instance, it wasn’t the rising river but the nearby levees that were unexpectedly opened that caused flooding in the area.
AD: What kind of ROI should a company expect when choosing the new location?
Kruklinski: The site selection process is an important investment in your business. Avoid cutting corners and engage experts as needed. The return is having a location that supports business needs and can accommodate future growth.
AD: How do simulation technologies help the process?
Kruklinski: Siemens has used technologies like occupancy sensors to determine how many employees we have in a building at a given time. At one of Siemens’ U.S. offices, for example, we found that we had fewer employees on-site during peak hours in a particular area. Armed with this information, we can improve space functionality and utilization when we design a new space. When we look at new locations, we create multiple financial models and test-fits. Considering the business requirements and employee needs, we determine through multiple iterations the optimal seating configuration and occupancy costs.
AD: How do market trends affect the final location decision?
Kruklinski: It is imperative to thoroughly understand market trends before selecting a site. Data can provide comprehensive information on the market and help property managers and brokers parse through the information. Knowing what is happening in a particular area, such as a boom in tech production or a dip in unemployment rates, is crucial to making informed decisions about your site. However, you should be wary of short-term trends. Events such as recent site closures or economic incentive packages are important but shouldn’t be the driving force behind your decision.
AD: Is it wise to maintain confidentiality or should a company publicize its search like Amazon did?
Kruklinski: I think that process made sense for Amazon, but I wouldn’t recommend it for the typical site selection process. A site selection at Amazon’s scale and scope has different needs than what most businesses will encounter. Publicizing can lead to resentment from cities that went all out to win your business. And, as we are seeing with New York, there is potential for negative press should the decision have to be reversed. Furthermore, negotiation is an important aspect of site selection. It may be difficult to get the best deal for both your business and the city when all the details of the selection process are available for competing forces to view.
AD: Although the typical company is nowhere near the size of Amazon, what lessons can other companies extract from Amazon’s search for its HQ2 location?
Kruklinski: Site selection isn’t an exact science, and during the course of the process, your needs and assessments may change. As such, you should go into the process with an open mind. What your needs are at the beginning of the search may not ultimately reflect what is best for your business in the end. And they may still evolve even when you think you've finalized all the details.
AD: So what is the ultimate goal of site selection?
Kruklinski: The goal of corporate real estate site selection is to balance the space needs of the business with the total costs to occupy the space. While site selection could be a desktop exercise using a variety of real estate tools, the key to success is to engage directly with business stakeholders, owners, property managers, and brokers and to understand the market. And this is not something that we do on an ad hoc basis. Siemens conducts over 20 site selections per year across the Americas and site selection is a major part of proactive real estate portfolio management. We constantly monitor trends in the market when it comes to space, cities, and locations and align with our business to understand our needs. This allows us to create a long-term pipeline for site selection.
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