Washington State: Planning for the Defense Sector’s Future

June 1, 2016

By: Ashton Allison, consultant, TIP Strategies
USS Abraham Lincoln Returns To Washington

USS Abraham Lincoln Returns to Washington [Image 2 of 2] by Seaman Jerine Lee via DVIDS (Public Domain)

In 2015, TIP Strategies was selected by the Washington Department of Commerce as the lead contractor for multiple phases of the state’s $4.3 million US Department of Defense, Office of Economic Adjustment (OEA) grant. The grant was awarded as part of OEA’s Defense Industry Adjustment program, which encompasses a range of planning activities designed to mitigate potential impacts of federal spending cuts on the defense sector.

The initial “Planning & Communication” phase of the grant focused on formalizing the Washington Military Alliance (WMA), a coalition of defense-related stakeholder organizations in the state. Completed in December 2015, this phase included the preparation of an organizational strategy and communications plan for the WMA, along with an inventory of stakeholders and assets. Our 2015 work for the Department of Commerce also included a review of an economic model of the state’s defense industry contracts prepared by a separate firm.

Earlier this year, TIP kicked off projects encompassing three additional phases of the grant. The work will be completed by September 2016 and includes a military and defense contractor services pilot program as well as two closely related projects: a statewide strategy and an implementation and sustainability plan.

  1. The pilot program—currently underway with management consulting firm, Kepner-Tregoe—will assist the state with the design and testing of potential economic diversification strategies specific to the defense services supply chain.
  2. The statewide strategy represents the culmination of OEA-funded planning efforts. When completed, this project will provide a clearly defined roadmap for ensuring the short-term and long-term success of the state’s military and defense sector.
  3. The sustainability plan will integrate the various grant-funded activities with existing state, local, and federal initiatives with the goal of transitioning the effort from OEA-funded support. The report will include an analysis of the alignment of the statewide strategy with Washington’s target industry and talent-focused initiatives, an assessment of the capacity of relevant partners to aid in its implementation, and a review of the state’s business support infrastructure as it relates to the defense sector.

Once all phases of the grant are completed, the results will provide a framework for sustaining the health and vitality of the state’s defense-reliant economy amid potential budget reductions. Taken together, the statewide strategy and sustainability plan will provide a comprehensive blueprint for military and defense contractors and related support organizations to anticipate and mitigate potential losses through effective planning and strategic decision-making.

TIP has conducted numerous projects funded by OEA, including several aimed at convening stakeholders, diversifying the economy, assisting private businesses, retaining displaced workers, and developing sustainability strategies. We have also worked extensively in military-dependent communities throughout the country, and have direct experience with leveraging and supporting this valuable sector.

Waxahachie, Texas: Implementation Success

April 4, 2016

By: Alex Cooke, senior consultant, TIP Strategies

Waxahachie Texas Chamber of Commerce

Image courtesy Waxahachie Chamber of Commerce Economic Development Council

On April 1, 2016, TIP senior consultant Alex Cooke attended a luncheon hosted by the Waxahachie Chamber of Commerce Economic Development Council to celebrate the community’s successful implementation of its economic development strategic plan. Located just 30 miles south of Dallas on IH-35, Waxahachie is a vibrant, tight-knit community that is rapidly emerging as a destination for new investment and talent within the southern DFW Metroplex.

Jon Roberts and Alex Cooke worked closely with the City of Waxahachie, the Waxahachie Chamber of Commerce, and the Economic Development Council to craft the plan, which was finalized in March 2012. The plan offered strategies to diversify Waxahachie’s economic base, to improve its image along IH-35, to become a regional center for health care and higher education, to serve as an alternative to northern Metroplex cities for high-level investment and jobs, and to enhance the community’s authentic downtown and overall quality of place.

To guide the implementation of the plan, community partners organized five task forces, each responsible for leading the execution of the plan’s strategic goals. These task forces included medical, education, marketing and image, downtown revitalization, and land development. Waxahachie Mayor, Kevin Strength, credits the plan’s successful implementation with almost $500 million in new community investments. These investments include the Baylor Scott & White Medical Center ($180 million), a new high school ($125 million), and a highway beautification/expansion project ($175 million). Congratulations to the leaders, businesses, and citizens of Waxahachie for all of your efforts and achievements.

East Central Michigan: In Pursuit of Excellence

April 1, 2016

By: John Karras, senior consultant, TIP Strategies

Downtown Saginaw Aerial

Downtown Saginaw Aerial by lora_313 via Flickr (CC BY 2.0)

In 2014, TIP Strategies worked with the East Michigan Council of Governments (EMCOG) to develop a Regional Prosperity Strategy for the eight-county East Central Michigan Prosperity Region (PR-5). One idea that emerged during the planning process—which engaged more than 300 business, community, and academic leaders—was the creation of a Center of Excellence (CoE) that would leverage the region’s higher education assets and industry strengths. In 2015, EMCOG tasked TIP with exploring potential areas of focus for a CoE with the goal of identifying a concept that could serve as a catalyst for job growth and investment while supporting the success of existing companies.

CoEs can take a variety of forms, but normally involve partnerships between colleges/universities and the private sector in order to spark innovation and knowledge creation within a narrow topic area. The participation of a consortium of partners, including higher education, industry, and others (such as government and nonprofits) is one of the three “ingredients” common to successful Centers identified as part of our work. The participation of multiple colleges and universities was also a common factor among CoEs studied for this work. And finally, the most successful CoEs are focused on a specific area of research, a particular industry segment, or a solution to a narrowly defined problem.

From an economic development standpoint, the objective of establishing a CoE is to build on regional higher education and industry strengths to support the growth of existing businesses, attract new investment, and draw in talent with specialized knowledge and skills. As a result, Centers of Excellence can have a number of benefits, including:

  • Offering an important source of leadership and vision,
  • Generating national and international recognition for a region,
  • Serving as a repository for best practices, and
  • Providing support and training for entrepreneurs and current and future employees in relevant industry sectors.

With the assistance of a task force comprised of more than a dozen of the region’s academic and business leaders, TIP helped EMCOG explore the possibility of creating a CoE in East Central Michigan around four potential concepts:

  1. Advanced Materials/Plastics: Exploring waste-heat-to-energy conversion and other products, processes, and technologies for the plastics manufacturing industry to spark innovation, cost savings, and spur the growth of a new industry cluster.
  2. Agriculture/Craft Breweries: Pursuing agri-tech entrepreneurship and innovation to support the growing craft breweries industry, potentially including shared processing facilities to serve multiple businesses across the region.
  3. Health Sciences: Aligning the region’s health care industry, workforce training efforts, and health sciences innovation programs to improve urban and rural community health.
  4. International Workforce: Enhancing the experience for international students through better connections to the region and its businesses, efforts to align workforce training programs, and marketing to international communities.

The resulting Centers of Excellence Action Strategy provides an overview of each concept along with a catalog of regional assets, best practice examples, and steps for implementation including immediate (next 100 days), short-term (through 2016), and long-term (2017 & beyond) actions. Each concept has a unique path for implementation and a distinct proposed structure. All four concepts were designed to address specific problems or to respond to a specific set of opportunities. Yet, despite their differences, each concept shares three key elements:

  • The steps for implementation are focused on efficiency and quick results.
  • Collaboration is the driving philosophy behind each concept.
  • EMCOG’s participation as a convener and support organization will be essential in moving each concept forward.

Lubbock, Texas: Building Innovation

March 24, 2016

By: John Karras, senior consultant, TIP Strategies

Texas Tech University, Lubbock, TX

One recent project that has yielded significant positive outcomes is the strategic plan [PDF] TIP completed for the Lubbock Economic Development Alliance (LEDA). Since the plan was finalized in March 2015, two of the five priority projects TIP identified have already been partially implemented: 1) attracting catalyst R&D investments into the community in partnership with the Texas Tech University system and city leaders; and 2) establishing a community college campus in an under-served portion of the city.

Below is a brief summary of early results from these two priority initiatives:

Research & Development: LEDA’s financial commitment to support programs related to entrepreneurship & innovation as part of Texas Tech’s new research park were highlighted in a November 2014 press release [PDF]. Thanks in part to the strategic plan, LEDA has committed over $250,000 to the effort. LEDA’s 2014-2015 annual report [PDF] reveals that their contributions are already yielding results. The research park’s first tenant was announced in February 2015, several months before the park opened. (Chromatin, an agri-science company based in Chicago is moving its R&D division to Lubbock.)

Community College: A South Plains College media release [PDF] details LEDA’s involvement in expanding the college into Lubbock, specifically to an underserved part of the city, which TIP identified as a critical gap in the region’s talent development system to be addressed by the strategic plan. LEDA is committing $1.9 million initially (with another $1 million held for future investment) as part of a coalition of community partners that is developing a major new center for South Plains College in East Lubbock—an area that has experienced disinvestment for many years.

The plan has played a key supportive role in moving these initiatives forward, leading to some investments and job growth. Yet, this is just the beginning. We’re excited to watch as LEDA continues to implement the plan.

North Louisiana Economic Partnership: Impressive First Year Results

March 15, 2016

By: Caroline Alexander, senior consultant, TIP Strategies

Downtown Shreveport, LA

Image credit: Downtown Shreveport, LA by Shreveport-Bossier Convention and Tourist Bureau via Flickr (CC BY 2.0)

In June 2014, the North Louisiana Economic Partnership (NLEP) adopted its five-year strategic plan, developed with the assistance of TIP Strategies. The plan was created to serve as a roadmap for the organization under the leadership of NLEP President, Scott Martinez, CEcD.

TIP’s principal and CEO, Tom Stellman, recently attended NLEP’s Annual Meeting to provide an update on plan implementation and outcomes to the organization’s Board of Directors. Tom was happy to report that the staff at NLEP has been fully engaged and fully committed to the plan.

NLEP’s initial successes include: 1) designation as Accredited Economic Development Organization by IEDC; 2) hosting the inaugural Top Skills Workforce Summit; 3) capturing 212 million media impressions, and landing projects representing over $40 million in new investment.

In the first year, NLEP raised additional funds to support implementation, including additional staff. They also increased stakeholder engagement, adding almost 30 new investors. They modified their by-laws and staffing structure to align with the strategic plan recommendations. With this enhanced implementation structure in place, they set out to achieve the vision laid out in the plan.

NLEP strengthened their economic development marketing campaign and built staff capacity in key industry sectors. They hosted the inaugural Top Skills Workforce Summit and continued to work with partners to improve the alignment of regional education and training resources with employers’ needs. They also put in place the structure for launching a regional advocacy program.

2016: Trends and Predictions

January 20, 2016

By: Jon Roberts, Principal, TIP Strategies

There is something irresistible about making New Year’s predictions. Never mind that things always turn out differently than we expected. It’s an exercise worthy of the effort. From an economic (and economic development) perspective, 2015 was certainly an odd year. The biggest news was probably the precipitous decline in oil prices.

Global price of WTI crude_DailySource: International Monetary Fund, Global price of WTI Crude [POILWTIUSDM], retrieved from FRED, January 18, 2016

The effects of this decrease will continue to be felt in the new year. While good news for consumers, the drop hit oil-producing regions especially hard (nationally and internationally). The ripples are being felt in the renewable energy market and in the automotive industry (with lagging hybrid and electric car sales). It even has significant implications for the reshoring of manufacturing companies (due to the reduction in shipping costs). Of course, the job market in domestic oil and gas producing regions has suffered accordingly.

So what does this mean for 2016? Will prices remain low? My friend Chris Tomlinson of the Houston Chronicle predicted the coming price drop, and I’m persuaded that he’s right. Prices will remain low throughout 2016.

From energy let’s move to technology, especially automotive technology. By now we’ve come to realize that some of the biggest breakthroughs are in relatively mundane sectors. Uber and Lyft are nothing more than apps that rely largely on ordinary mobile devices. The implications of these services, however, are wide-ranging. Can we imagine a generation for whom car ownership is of little importance? We can, because they are already among us. Add to that radical breakthroughs in driving-assisted technologies, and the future of the auto industry suddenly begins to look very different from what it does now. Is this a prediction for 2016? Yes it is. But the changes will be incremental. And it’s only when we look back from, say, 2025 that we’ll realize how profound the changes have been.

On a related note, the Tesla battery factory in Reno deserves prominent attention. Tesla’s site selection can be seen as a way to stay in California without paying California taxes. It’s less than a four hour drive from the Tesla HQ to Reno, and a lot less if you are in a Tesla without CHIPs to patrol you (funny how word associations change). What Tesla’s energy innovations mean for 2016, especially in light of low oil prices, makes for interesting speculation. Will there be fewer Teslas sold? Or will the firm’s auto sales be only a small part of a larger battery technology play? Elon Musk is spearheading a move on the energy grid, targeting commercial and residential customers. I think it’s safe to assume that the impact of battery storage in the building industry will be as significant as anything in the automotive realm. Commercial battery storage will make news in 2016, but the implications will be with us for the rest of the decade.

The other inescapable economic story of 2015 was income inequality. The following chart (courtesy of National Public Radio) gives a remarkably broad perspective on the subject:

IncomeGrowthChart-NPRSource: World Top Incomes Database via Quoctrung Bui/NPR, Note: Income is inflation adjusted in 2012 dollars

Going all the way back to the 1920s, we can see that the “rise of the 1%” doesn’t begin in earnest until the early 80s. And it doesn’t exceed the rate of income growth of the bottom 90% of earners until after the year 2000. So the question for 2016, and well beyond, is: What will the chart look like? Will the extremely wealthy get more so? And will it come at the expense of the bottom 90%? The answer to the second question is usually assumed to be yes. But, in reality, the equation is complicated. Income inequality is not inherently negative. If we could achieve a significant reduction in poverty, even if a large disparity remained, would that be a bad thing? The better way to frame the question is how much “inequality” can the economy tolerate? This brings us to Thomas Piketty’s much-discussed thesis. If the rate of return on wealth exceeds economic growth, then inequality increases—and that (implicitly) becomes unsustainable. 2016 won’t bring an answer, but we can safely predict that it will be a pressing topic. Why? Because 2016 will see one of the most contentious elections ever. Among the issues will be income inequality and what to do about it.

One topic, however, will be conspicuously absent from the political debate: the impact of technological advances on the economy. Why is that? Because the relationship of technology to economic growth is difficult for politicians— and economic developers—to address. Technology companies–and the Silicon Valley model–remain the Holy Grail of community leaders. The reality, again, is much more complicated. At TIP, we have been arguing for years that the job growth potential of tech companies is nowhere near what the economic development world assumes it to be. Jerry Davis, a professor at the University of Michigan’s Ross School of Business, makes this point convincingly in an article for Brookings, in which he points to research documenting the growing disconnect between high-valuation companies and job creation. (See table below.) With the exception of Walmart, the top five US corporations in terms of their market capitalization in 2012 employ a fraction of the workforce that firms at the top of the list did 50 years previously.

Top Five Market Cap

Source: Compustat, as published in “Capital markets and job creation in the 21st century,” by Jerry Davis for the Center for Effective Public Management at Brookings, December 2015

Corporate (and stock) valuation is not a function of employment and hasn’t been for some time. Interesting, then, to compare corporate valuations with the income growth graph. To put it bluntly, there is a negative correlation between the use of technology and the need for workers—skilled or otherwise. It may be regrettable that none of our presidential candidates are willing to tackle this issue, but it will be front and center in cities and regions across the country.

Energy, equity, and technology are sure to be pressing issues in 2016. We would do well to rethink the relationship between economic growth and employment growth. Let that be our New Year’s resolution.