Economic Development

Dec. 21, 2004
'Critical success factors' -- a site-selection key.

An aircraft manufacturer conducting a search for a new production site has one crucial criterion: The location must have at least 300 "clear air" days a year to allow visual landings on an adjacent airstrip. Another plane maker, however, couldn't care less about weather: It currently is seeking a site beside a "Category 1" airfield that enables both visual and instrument landings. Similarly, a "must" for one precast concrete-wall manufacturer, to whom low product-distribution costs are a top priority, is a location within 500 miles of its customers. Yet a rival firm is willing to locate anywhere in North America -- as long as the community has a major airport to allow installers to travel conveniently to job sites. As these examples show, differing needs prompt companies in the same industry to seek differing site locations. Their choices depend upon their unique critical success factors -- CSFs, we'll call them -- that can make or break a business. Here are several requirements firms commonly identify as "critical," but probably aren't:

  • Availability of labor. In reality, there always is plenty of labor -- depending upon how you peg wages, train employees, and manage staff.
  • A right-to-work state. Companies often believe that a state with a right-to-work law will assure them a union-free operation. That's erroneous.
  • Airport accessibility. Although the closeness of a major airport is a surrogate for a high quality of life, rarely does this factor actually dictate whether a project succeeds or fails.
  • An existing facility. Those planning projects on a fast track mistakenly believe that retrofitting an existing building will save time compared with new construction. Often retrofitting takes longer.
  • Proximity to suppliers. Companies find that existing suppliers will follow them to the new site; if not, they can find new ones.
A common mistake firms make is believing that only a handful of sites can meet their requirements. That's often not so, as Akzo Nobel NV, a Netherlands-based conglomerate, discovered. In seeking a site for a 1,000-acre salt mine and processing plant, it identified more than 40 sites in Ohio alone that met its criteria. What are the some of the most important CSFs? Often the most crucial is timing -- whether or not permits can be obtained for a site within the project's time frame. Another is infrastructure. But eliminating a site just because it currently lacks necessary roads, sewer lines, and other necessities can be a lost opportunity. QVC Inc., a home-shipping subsidiary of Comcast Corp., found it is able to occupy an otherwise unusable site for a new distribution facility in Edgecomb County, N.C., because of state and local efforts to extend infrastructure. A third is environmental permitting. The success of a project often hinges on the length of time it takes to get a permit. Sometimes it's not possible to get a permit at all; some manufacturing processes, for example, are banned within 100 miles of certain national parks. Among less apparent CSFs:
  • Corporate strategy. A company may choose a site because it wants to enter a new market and be identified as a "player" in its industry. Or it may use a site to avoid trade restrictions or to expedite currency transfers.
  • Credibility. Some firms use a "reasonableness" test. They ask themselves whether a selected site will prompt shareholders and analysts to question their intentions and decision-making ability.
  • Risk minimization. Sometimes the cost of a project, its risk, and its margin for error are so important that a company must narrow its search to only the most obvious sites.
  • Quality of life. A vague term, but it can significantly impact a firm's ability to recruit and retain staff. It's surprising, for instance, how important a good hotel and restaurant can be.
Identifying these and other CSFs early in the process will not only save you time, but also improve your project's probability of success. The time spent is a critical success factor in itself. James A. Schriner, based in Princeton, N.J., is director of location strategies for Fantus Consulting, a division of Deloitte & Touche LLP. His e-mail address is [email protected].

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