of Deloitte Consulting
Minnesota a good location for
business but could do more to drive investment
A Civic Caucus
Focus on Competitiveness
Interview March 21, 2014
John Adams, Dave Broden (vice
chair), Steven Dahl, Pat Davies, Paul Gilje (coordinator), Matt
HIghfield, Sallie Kemper, Dan Loritz (chair), Dana Schroeder. By
phone: Amir Gharbi.
According to Matt Highfield and
Steven Dahl of Deloitte Consulting, Minnesota is not considered very
business-friendly by business location consultants or many businesses.
On the other hand, he says, the state is not considered
business-unfriendly, either. Highfield says Minnesota is not known as
an easy state to work with on permitting, licensing or speed of
movement on decisions. In addition, the state does not offer
competitive financial incentives to companies considering moving or
expanding here. He points out that many southeastern states have been
very successful in attracting businesses because they compete
intensely with each other and must be very aggressive in their
He makes the point, however, that incentives
don't make the wrong location the right location. The worst-case
scenario, he says, is if a company can't find the workforce it needs,
especially in knowledge-based industries. He points out that the Twin
Cities stand out in that area, with a high-quality, highly educated
Highfield discusses the importance of a
quality education system to prepare workers at all levels for today's
and tomorrow's technically skilled jobs. He comments that students
with technical skills learned at technical and community colleges can
not only find good careers, but also are more likely to stay in
Minnesota than graduates of, for example, the University of Minnesota.
And he says more must be done to interest junior and senior high
school students in science, math and other technical careers.
Issues to address
Prior to the meeting, Steven
Dahl and Matt Highfield were asked to be prepared to discuss the
following issues: whether the role of site selectors is as significant
on the Iron Range as in the metro area; what makes a city or area a
good place for business to expand; what things they are looking for on
behalf of their clients: the workforce, educational institutions,
transportation, etc.; whether they focus on new or existing
businesses; whether Minnesota is an attractive place to expand, locate
and invest; the role of financial incentives in location decisions;
the role of organizations like the state's Department of Employment
and Economic Development (DEED) and Greater MSP; what Minnesota's
positives and negatives are for business location; and what can be
done to improve the negatives and augment the positives.
Steven Dahl is a
national financial management and business transformation leader and
Midwest region leader for Deloitte Consulting LLP's Public Sector
practice. He has been with Deloitte for 25 years and is the company's
lead client service partner for the state of Minnesota.
Dahl has extensive experience in process,
organizational and system assessments, as well as business and
technical strategy with qualitative and quantitative supporting
business cases/financial models. He graduated summa cum laude
from the University of Texas at San Antonio and was a scholastic All
Matt Highfield is director of real
estate and location strategy at Deloitte Consulting LLC. He started
his career with Deloitte Consulting, became managing principal at
Cushman & Wakefield Global Business Consulting, and then served as
senior vice president at Jones Lang LaSalle, Inc., until he rejoined
Deloitte Consulting in 2012. He has 16 years experience in assisting
large corporations in global location strategy, occupancy strategy and
site selection. His experience spans multiple industry sectors in the
U.S. and internationally.
Highfield's specialties include labor market
assessment and stratification, competitive market assessment,
incentive negotiations, real estate assessment, infrastructure
assessment, human resources strategy and market entry strategy. He
received his bachelor's degree from Macalester College and his
master's degree from the University of North Carolina, Charlotte.
The real estate and location strategy practice of Deloitte is the
largest dedicated location strategy practice in the world.
"It's a discipline you have to focus on and remain committed to if
you're going to become good at it," said Matt Highfield. "There's an
infinite number of geographies and an infinite number of project
profiles and you learn by experience. Deloitte has invested in this
practice and it's been around for almost 100 years." He said the
company has 30 people who work in the field.
By the early 2000s, 50 percent of Deloitte's
location strategy business was global. When Highfield first joined
Deloitte in 1997, the majority of the work was domestic. In the late
1990s, there was an increasing amount of activity that was global in
nature, such as service centers, call centers and offshore
manufacturing. By the early 2000s, he said, 50 percent of Deloitte's
location-strategy business was global.
Deloitte has a five-step process in its
1. The discovery process: We spend
time with clients understanding what they are, what the profile of
their project is, who their customers are, their cost sensitivity
and how we're going to make the location decision, Highfield said.
2. The assessment phase: We take a
long list of locations and apply filters and screens developed in
the discovery process, he said, so we can focus on a smaller number
of locations, using demographic analyses, cost analyses,
infrastructure, access, etc.
3. The validation process: We go
into the field, he said, interviewing other companies, inspecting
real estate, meeting with local, state and national officials. We go
anywhere from one to 10 locations, spending two to five days on the
ground at each location.
4. Negotiations: This starts at the
very beginning of the location decision process, he said. Many
incentive programs have a but-for clause, i.e., but for these
incentives, this project will go someplace else. The state
undertakes a due diligence process to verify that a project is
competitive. You must validate that you've truly entered into a
competitive comparative process, which is always the case.
5. Implementation: The company has
selected the location. Then the client must undertake incentives
administration and myriad other activities associated with putting up
a new facility. We may provide assistance in areas like IT, finance or
human resources assistance, Highfield said.
Incentives don't make the wrong location the
right location. An interviewer asked how competitive Minnesota is
in its foundational assets, like education, a skilled workforce,
infrastructure, etc., and in its tax levels to pay for those things.
"We tell clients they have to make sure they have the right operating
climate, because incentives go away," Highfield said. "If they're
spending $100 million on a plant, the incentives will help, but they
must, first and foremost, be able to find the right operating
Deloitte's location strategists look at
things from three different dimensions:
1. The noneconomic factors: the
availability of labor, physical infrastructure, access, etc. "We take
things that are qualitative and turn them into something quantitative
in order to differentiate locations and find the best fit," Highfield
2. The loaded cost: looking at just
taxes, labor costs, real estate costs or the cost of electricity
doesn't give the whole picture. "It's like a cake," he said. "You
take all the ingredients and you must bake it all together to see if
it is right. The same applies to gathering the total cost of
operations and ownership and determining whether a location is
competitive or not."
3. The risk: operational,
political, natural disaster and financial.
The lowest-cost location does not always
win. The worst-case scenario is not that the cost of labor is too
high, but that a company can't find the labor at all. "The worst
case is when you can't find the labor at all, especially in
knowledge-based industries," Highfield said. "That's where the Twin
Cities area tends to stand out and shine. No one doubts that the Twin
Cities has a high-quality labor force, but the landscape is a
competitive one, there are other high quality markets, and costs in
the Twin Cities are not considered low."
Minnesota isn't necessarily considered very
business-friendly. But on the flip side, it is not "business
unfriendly." Highfield said the "not very business-friendly" view
is from the perspective of both the consultants and many companies.
But the area continues to see success in certain fields, like medical
devices. "Certain industries are very knowledge-driven and they like
to cluster and the momentum of a community in a certain sector can
override lack of incentives and higher-than-average operating costs,"
he said. "The life sciences, particularly medical devices, are a prime
example of this."
"Like all states, Minnesota must support
private companies," Highfield continued. "Site selectors help clients
build their business case. You can put yourself out of the game by
being too expensive and appearing to offer limited support. Companies
want to feel they're wanted. Ultimately, they say 'How can you help
us?' And a state like Minnesota is saying, 'We really want you, but we
have nothing to help you build your business case.'"
An interviewer asked what factors determine
whether a location is business-friendly: permitting, licensing or
speed of movement on decisions. "Minnesota isn't renowned for being an
easy state to work with in any of those areas," Highfield responded.
"It's getting better and there are some very responsive and talented
people with Minnesota's Department of Employment and Economic
The Economic Development Board of Singapore,
known as the best economic development agency globally, recruits out
of industry and hires industry experts. An interviewer asked
whether people working for different Minnesota economic development
organizations know enough about manufacturing to understand the
business they're dealing with. Highfield pointed to the Economic
Development Board of Singapore, which "is renowned as being the very
best economic development organization globally. They have a different
level of funding from everybody else. They're organized around
industry. They have huge budgets, industry experts and recruit out of
"Minnesota has some very skilled, very
passionate economic developers," he continued. Some of it has to do
with industry alignment related to funding and some with deal flow, he
said. If there aren't a lot of deals in a certain industry, then DEED
and other economic development agencies can't set themselves up along
industry lines. "I've never had a sense that DEED does that," he said,
"but there are some very, very capable people at DEED who work
effectively across industries.
What DEED has at its disposal when it comes
down to negotiations is limited. An interviewer asked how DEED
compares with other economic development organizations and what DEED
could do to improve its capabilities. Highfield said he had a very
positive experience with DEED on a recent project. But, he said, what
DEED has at its disposal when it comes down to negotiations is very
limited. He noted that the Minnesota Investment Fund administered by
DEED is now better funded, but there is still a limit of $1 million
for any one project, without significant scrutiny and involvement of
Greater MSP, the Minneapolis St. Paul
Regional Economic Development Partnership, is getting the Twin Cities'
name out there and doing a fine job of educating people. Highfield
said Greater MSP is a marketing organization. "Having an organization
like that is almost table stakes nowadays for a community of the Twin
Cities' size," he said. "Greater MSP is doing some good things under
CEO Mike Langley."
Location strategists look closely at the
education system and whether the training it delivers meets the needs
of the client. In response to a question about how location
strategists assess how well educational institutions are preparing
people for work, Highfield said, "We dig down into the structure of
the education system and whether the training delivered locally meets
the needs of the client. For example, Minneapolis Community and
Technical College (MCTC) has made investments in its biotechnology
program. This assessment is often done in parallel with incentive
discussions, as many communities rely on such institutions for
delivering incentivized technical training to current and future
North Carolina has a disproportionate number
of biotech companies.
attracts them and creates expansions is that they keep producing the
type of talent they need, because they've focused on it and invested
in it over an extended period of time," Highfield said.
Having training programs in place is one
thing, he said, but communities need to generate interest in the
discipline. He noted that North Carolina has buses, actually biotech
labs on wheels, that make the rounds to junior and senior high schools
to get kids interested enough to go into the life sciences, including
biotech training. "Not everybody has to have a Ph.D. to work in a
drug-production facility," he said. People need basic training about
operating in a clean-room environment, among other things. North
Carolina, he said, has biotech-training programs for high school
students and at community and technical colleges and is committed to
filling the pipeline of employees for employers from top to bottom.
Much of the success is centered on the North Carolina Biotechnology
nonprofit organization, funded by the State General Assembly that is
dedicated to biotechnology development in the state.
The Twin Cities punches above its weight as
a location for decision centers and headquarters. An interviewer
asked which pieces of Minnesota's diverse economy are the strongest
and will attract the most interest in the next 10 years. "Nineteen
Fortune 500 companies have their headquarters here, which is a
disproportionately large number," Highfield said. "However, the
majority of those companies were started in Minnesota. I suspect the
state would struggle to attract a large number of headquarters
operations in a greenfield scenario, due to the tax climate and,
candidly, our weather, which is a more important factor than most
people would think in these decisions."
The medical device industry does not appear
likely to diminish here. However, Highfield said, there are
convergences among industries that the Twin Cities needs to stay on
top of. For example, there's a convergence between biotechnology and
medical technology in using medical devices to deliver drugs. "Those
are the types of areas the Twin Cities is
The days are likely past for the Twin Cities
to be a location for lower-end manufacturing. Highfield commented
that the face of manufacturing is changing and in the future it will
have less to do with people's hands and more to do with people
operating computers alongside robots in advanced-manufacturing
settings. "The state of Minnesota needs to make sure it's positioned
to take advantage of those developments and trends, and that it is
training the right people in the right way," he said.
Businesses seek to benefit from some type of
training-related incentive to locate in Minnesota or around the
country. An interviewer asked whether Highfield, if he were
governor, would choose to spend money on education or on incentives to
get companies to locate here. Highfield responded that most states do
well in incentivizing people with customized training, which accounts
for both. "Most companies want training programs to be on their
terms," he said.
He gave the example of a company Deloitte
worked with that needed several hundred engineers. The location the
company chose offered to pay for some of the employees to train at the
company's facility in Asia, rather than at the local community
college. The state paid for airfare, salaries prior to being actually
hired by the company, lodging, etc
"You have to put some parameters around such
programs," Highfield said. "You could, for example, mandate that
employees need to be Minnesotans to be eligible. Companies spend a lot
of money on training and they know how much it costs to train
somebody. Having that pot of money be flexible is an incentive, but
it's also a stipend for education. Do you put $10 million into a
community college or spend dollars on training Minnesota workers
abroad, so they bring the skills back? It's one way to spend some
incentive money to educate workers for a company, rather than just
giving them cash."
"Some of it's philosophical," Highfield
said. Some states haven't arrived at that philosophical place where
incentives are bad, he said, but Minnesota appears to be there, based
upon the portfolio of offerings available from the state. "This
perspective must be balanced by the fact that recent surveys at the
local level suggest that Minnesotans are supportive of their cities
providing incentives to improve economic development efforts," he
"When it comes time to talk about
incentives, our state officials tend to talk about our great education
system," he continued. "Well, there are a lot of locations that have
great education systems. If you're a scientist and you want good
educational opportunities for your kids, there are myriad
opportunities for you to work all over the globe. Companies will
select the locations that have the ability to attract and retain
candidates and that offer a compelling business case."
Even in a diversified economy like
Minnesota's, it's important to have a manufacturing base. "No one
would argue that having a manufacturing base is not important,"
Highfield said. "A diversified economy is clearly the goal, but having
people who make things continues to be important. Locations without
that don't fare as well in the long term. Every $1 spent on
manufacturing creates $1.35 in secondary and tertiary economic
activity, so maintaining a manufacturing base is very important."
For Minnesota, with an unemployment rate of
5.1 percent, the issue is not getting people back to work, but
training people for the right type of work and for the next generation
of jobs. "It's the technical and community colleges that are
pushing out people who produce things," Highfield said. "Many states
have put huge amounts of resources into developing that technical
school system. People who come out of tech schools tend to stick
around, due to the fact that they are typically local, less transient
and attending the institution with a specific vocational goal in mind.
They will likely stay and apply their skills in Minnesota. The state
will and must continue to, pump money into the four-year-plus
institutions, like the University of Minnesota, but those students are
in national and global labor markets. This is not an either/or
situation, just the need for a clear understanding of the role the
technical school system plays in economic development."
The aging population is a problem
everywhere. An interviewer pointed out that Minnesota will have
fewer workers in five years and has lots of kids who don't even finish
high school. He asked what the state can do about that shortage.
Highfield responded, "We'd better make sure the labor force is trained
to do what industry wants them to do. So, we need to clearly
understand what that is."
Taxes are an important factor to companies.
An interviewer asked how companies that are looking to the state
to provide stipends for training around the world and to provide a
top-notch educational system feel about funding the state's operations
through taxes. Highfield said the tax rates get factored into any
financial models Deloitte builds and companies look at the bottom line
to see how the models compare.
He said most professional site-selectors
look at the location decision in a very balanced fashion,
incorporating cost, talent, operating climate, infrastructure and
risk. "Taxes are only a small, but high-profile, part of this," he
said. But he pointed out that Deloitte is involved in only "a tiny
slice" of the location decisions that take place every year. If an
engineer, for example, is tasked with making a location decision for a
company, he or she might start narrowing down states by looking only
at their corporate income-tax rates.
Certain types of projects work well in
Minnesota. Highfield noted that the Twin Cities area has a real
value proposition. He said the Twin Cities are not going to win a
heavy manufacturing project where a company is shipping products
around the country because of the region's geographic location in the
U.S. But, he said, Minnesota does well in projects where products are
distributed locally and regionally and where inputs to the production
process are local. He cited fertilizer plants and winter sports
companies, whose market is here in the region. He also pointed to tech
companies that choose to be here because there's a lot of highly
educated talent and a knowledge-based economy here.
"These are areas that Minnesota will
continue to play in," Highfield said. "I'm not concerned that all the
jobs will leave Minnesota. The question is whether the state is going
after the right types of jobs and training its population for them.
Companies reach these watershed moments and must decide whether
they're going to reinvest in the Twin Cities and Minnesota or deploy
their next production lines elsewhere. The state needs to be ready to
support those companies with what they need. For every large, stable
company, there are other Mom-and-Pop shops that need support."
The southeastern United States is prospering
partly because of intense competition among states there. An
interviewer asked if North Carolina is the state to emulate. Highfield
said companies have invested so much in the southeastern U.S. partly
because structural costs are lower there, but also because the
competition among states in the Southeast is so intense that they have
to keep coming up with better practices, more aggressive incentives
and better training programs.
"I don't sense that we have the sense of
urgency or commitment that they have down there," he said. Dahl added
that North Carolina is going through phenomenal growth and will pass
Michigan in population this year.
Companies must understand what they'll get
for their taxes if they locate here. Dahl said a lot of the debate
over taxes is whether companies can understand what they're getting
for their investment. If they're getting the workforce they need, a
safe environment and a good quality of life for the people they're
going to locate here and you can directly tie that to the taxes
they're paying, that's one thing, he said. But if companies are going
to get high taxes without those assets, they won't come here. "Being
able to directly relate and communicate what they're getting for that
money is a huge part of the equation," he said.
"When they come to a state," Highfield said,
"people know what the state tax rate is. It's best to acknowledge that
we have higher-than-average taxes, but here's what you get for it."
Highfield concluded, "Minnesota
is a good location for business. But the state could do more. It tends
to sit on the sideline and doesn't drive investment here. It takes
forethought and investment and I don't know if Minnesota has the
appetite for that."
The Civic Caucus
is a non-partisan,
tax-exempt educational organization. The Interview Group
includes persons of varying political persuasions,
reflecting years of leadership in politics and
business. Click here
to see a short personal background of each.
S. Adams, David Broden, Audrey Clay, Janis Clay, Pat Davies, Bill
Frenzel, Paul Gilje (coordinator), Randy Johnson, Sallie Kemper, Ted
Kolderie, Dan Loritz (chair),
Tim McDonald, Bruce Mooty, John Mooty, Jim Olson, Paul Ostrow, Wayne
Popham, Dana Schroeder, Clarence Shallbetter, and Fred Zimmerman