Monday, May 25, 2015

Better Communities through Cat Herding: the New Reality of Economic Development

By Alex Pearlstein, Principal, Vice President

Despite all exhortations to the contrary by people in and out of the business, economic development is still a pretty traditional enterprise. Many economic development organizations (EDOs) still focus most of their attention on external marketing and recruitment, despite that fact that, 1) the number one issue increasingly voiced by employers is a dearth of quality talent, 2) about 80 percent of jobs are created by a community’s existing businesses, and 3) prospect relocations of any size are few and far between these days. I think it stems from a “what will I do all day” mentality. If I don’t respond to RFIs, plan marketing missions, go to trade shows, and manage prospect solicitations and visits, what the heck will I do all day? It’s a valid question. 

My own philosophy is that economic development is essentially the development and marketing of a “product” and that product is the community. EDPros sell their communities, whether that’s to existing businesses considering expanding or relocating, external prospects, skilled talent, entrepreneurs, developers, investors, etc. Just like a business must focus energy on optimizing all aspects of its product, so too must an EDO. So that essentially runs the gamut of any element that affects a place’s competitive position. Education and training, quality of life and place, leadership capacity, diversity and inclusion, infrastructure of all types, entrepreneurial dynamism – you name it. So if economic development is product development and economic developers market those products, then it follows that they should be involved in championing, overseeing, coordinating, contributing to, and advocating for the optimization of the product. Therein lies the rub; you can’t define an occupation as “doing everything” because that person would end up doing essentially nothing. 

It’s probably more useful to think of an economic developer not so much in terms of a person but an entity – in fact, that IS the direction the industry is headed. An economic development entity should be comprised of professionals that work on product development concurrently with product marketing; the nation’s top EDOs do just that. Principally, they have staff dedicated to external marketing, internal retention and expansion, small business development and entrepreneurship, education and training, and policy and advocacy. If they do not directly implement programs in these buckets, then they have partnerships with organizations that do. However, there’s another role creeping into the most cutting-edge EDOs. For want of a better term, let’s call it “product development coordination.” Almost like a hybrid of a company’s HR and corporate strategy departments, this responsibility involves creating a vision, building a holistic network of partners to implement that vision, and then coordinating the multiple moving parts involved in activating and sustaining the vision. 

There’s a super-fancy new term for this process called “collective impact.” While collective impact is currently focused mostly on educational improvement or social services initiatives, I think it will increasingly nose its way into economic development. Why is that? Because the process is all about creating, leveraging, and sustaining effective partnerships to advance challenging efforts, and nothing is more challenging than the cat-herding responsibilities around community product optimization. Of Market Street’s client communities, the best existing example of a (to use the collective impact term) “backbone” organization shepherding a holistic regional strategic process is the Greater Des Moines Partnership’s Capital Crossroads initiative. What a recent mid-course review of the first strategic cycle told us was that economic development collective impact is hard, complicated, oftentimes frustrating, but ultimately rewarding work. Another takeaway was that an EDO needs full-time dedicated staff to effectively manage and coordinate a truly comprehensive, holistic, “product development,” collective impact initiative. So the Partnership hired a terrific staff person to administer strategic implementation. And, oh by the way, to even be in a position to herd the cats, the organization needs to be trusted and respected by the cats. Which the Partnership also had going for it. 

The other big issue facing EDOs in a changing world is one that cuts to their very core: resource development and demonstrating return on investment. Traditionally, ROI equaled job and investment growth and investors were typically companies that benefitted from corporate expansions or relocations: commercial and residential developers and brokers, banks, law firms, accounting firms, planning and engineering firms, etc. Companies that didn’t see business at the table wouldn’t feel the need to pull up a chair through investment in a multi-year economic development program. 

Unfortunately, this “pay to play” model doesn’t work so well in the collective impact economic development world. Nor do traditional ROI measurements of jobs and investment. To be successful in community product development, you need networked partners from all key local public, private, institutional, and civic constituencies. Many of these entities won’t have the resources to invest in building the capacity needed for an EDO to successfully staff its programs and new coordination role. So we’re talking about the need for some leaps of faith here from all potential partners with resources. This is critical because ROI for a holistic initiative must be equally holistic. We’re talking jobs, investment, poverty rates, educational attainment, young professional cohort percentages, high school graduation rates, crime rates – any metric that speaks to community product optimization. Without strategic investments made for more altruistic, community-serving purposes, EDOs simply won’t have the necessary capacity to be product developers/coordinators as well as marketers. 

I think that EDOs will increasingly embrace their collective impact roles and step up to the responsibility of cat herding in the name of better, more sustainable economies and communities for current and future generations. The alternative is the drying up of resource wells for traditional organizations that will have harder and harder times justifying current levels of investments for increasingly diminishing returns.