With all the recent focus on Amazon HQ2, companies are not only redefining the role of a headquarters, but they’re also facing another critical strategic consideration as well – the long-term sustainability of their ‘nerve center’ at its present location.
That question has echoed across many asset-types, from HQ’s to manufacturing facilities. Stay vs. Go decisions are strategic and often represent a high risk. A degree of separation can result in a fantastic failure, so special attention to the details is not only important, it's critical. These challenges lie at the heart of a fundamental question decision-makers will face at some point:
“Should we stay or should we go?”
It’s a comprehensive, highly complex question, one fraught with long-term strategic, financial, and human capital implications. And it’s universal; both large enterprises and small companies confront it every day, whether their leaders are actively studying it or not, because, in a stay vs. go scenario, foregoing a decision is a decision.
Standard business planning cycles have companies focused on near-range market forecasts and annual performance, and they often miss the 'road sign' indicators that changes are occurring. Companies should pay close attention to the following factors that typically trigger an exploration of a Stay vs. Go strategy:
Market Dynamics: It’s critical to stay ahead of trends and forecast shifts in consumer demographics or customer geographies (driven by all the same factors). Companies that anticipate trends can often take advantage of first-to-market strategic advantages. A recent healthcare company looked at future demographic trends and determined that a significant risk existed with current service delivery to that market.
Talent Availability & Costs: As the economy continues to expand, talent availability and costs exert increasingly more pressure on companies’ throughput and P&L. A transportation company at a major inflection point due to upcoming retirements, determined that it could not recruit similar talent from the local market and would have to increase wages and salaries to recruit from surrounding markets.
Availability of Next-Gen Talent: A larger strategic question that often goes unanswered is the availability of the Next-Gen talent the organization will need in the future. A transit company determined that, in order to be competitive, they had to shift their business model from an engineering company to a technology-based company. Analysis of trends and the forecasted talent availability in the current market presented potential risk to the business future.
Real Estate Availability & Costs: As the demand for real estate continues to increase, so does the risk to growth plans (available space) and the prospect of higher occupancy costs. An aerospace manufacture could not expand to meet production demand due to lack of industrial space within the market.
Legacy Cultures: In a number of cases, many companies find themselves in a cultural malaise that can be debilitating to innovation and talent attraction. The local culture of a transportation headquarter was preventing the company from making the cultural shift required to move the company into the next generation.
Economic Environment: Companies need to be aware of changing economic factors, such as EDC attraction targets, state & local fiscal strength and tax structures. Recently, a company evaluated the projected fiscal state deficit and the impact of the increased tax burden.
Once a company has decided to pursue a Stay vs. Go analysis, the complexity of the decision can pose significant risks if not framed correctly. First, Stay vs. Go analyses are extremely sensitive issues, given that they potentially impact people’s lives. Care must be taken on both the client and consultant side. On a recent project, I became known as John Q from XYZ insurance company; no Groucho Marx glasses required. In addition to confidentiality, comprehensive decision modeling is critical to ensuring that the strategic intent is carried through to the decision and that there is a defensible business case to present to the Board.
In today’s ultra-competitive business environment, companies cannot risk fantastic failures; they literally can break a business. One outcome is certain, however: a final decision based on a strategic foundation, an understanding of the business’ priorities, and comprehensive research and analysis sets the stage for long-term business sustainability.
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