Are metropolitan business plans effective?

B rookings has discovered a new path to economic growth. Or have they?

Their new tool: Metropolitan business plans. (Download a briefing paper.)

Unfortunately, creating business plans for metropolitan regions is not all that new. In the spirit of sharing what we know, here is my take on metropolitan business plans.

First, some background.

In 1983, I participated in a small consulting team, led by Ira Magaziner, that sought to develop a business plan for the state of Rhode Island (which, in reality, is one big metro region). At the time, I worked in Magaziner’s corporate strategy consulting firm, Telesis, an offshoot of the Boston Consulting Group.

The premise underlying this entire effort was simple: We can take the same strategy and business planning disciplines that business applies and use them to guide economic policy at a regional or state level. In reality, we developed not one business plan, but many. We bundled them together as the Greenhouse Compact.

On the surface, this approach makes sense. We can think of a regional or state economy as a portfolio of businesses. So, the same strategy disciplines that we applied with our private sector clients––General Electric, Volvo and Ford Motor Company––we could apply to Rhode Island’s economy.

There is only one problem. This approach does not work very well.

Here’s why.

A traditional business planning process is costly, complex and slow

Regional and state economies operate within a political economy that is far more complex than any business. The notion that we can distill regional economic strategy to practical business plan is easy to say, but not so easy to do.  Sadly, the world is just not that simple.

Economic development, by its nature, involves collaborative co-investment. Different constituencies must come together and, in a very practical way, come up with an investment plan based on shared value. Putting this process through the rigors of traditional business planning takes too much time and costs too much. In sum, the process is not easily replicable, scalable or sustainable across regions.

First of all, who will do this work? Most economic development organizations are not staffed with professionals skilled in the disciplines of business development. That means these plans need to be guided by an outside consulting team. And that can be expensive.

So, in the case of the Brookings project three metro regions each spent about a year to develop their business plan. There’s no way to tell unless you are on the inside, but let’s assume that the total Brookings budget for this project is $1,500,000 or $500,000 for each business plan. Multiply that out across regions, and you begin to see the problem.

At Purdue, we are compiling the first comprehensive database of regions across thecountry — for planning, economic development and workforce development. The last time I checked we were north of 500 regions. (The government lists 374 metro regions, which is the universe that Brookings is targeting.)

Let’s assume that if we scale this approach, we can get the business planning cost down closer to $100,000 or even $60,000 per business plan. Where does this money come from? The problem, of course, is that we are not talking about just one business plan per region.

To trigger regional economic transformation, we don’t need one business plan (or even a handful).  We need dozens.

No one, I think, is arguing that the three business plans prepared by teams led by Brookings will transform Portland, Minneapolis-St. Paul, or Northeast Ohio. Take, for example, the plan developed by Portland, which appears to be the most developed. In this plan, they project that their Building Energy‐efficiency Testing and Integration (BETI) Center will create 1,000 jobs by 2025. A laudable goal, but 1,000 jobs (even with an aggressive multiplier) will not transform the region. This project will, if successful, provide an anchor to a new cluster. But one new cluster does not transform a region either.

The real questions this: How can one project trigger others?

The lessons we learned in developing the strategy of transformation for Oklahoma City come to play here. For seven years, from 1994 to 2001, I worked with the Greater Oklahoma City Chamber of Commerce on their strategy, Forward Oklahoma City. Now, years later, commentators are pointing to Oklahoma City as a model for the country. How did we do that?

Regional transformation: We can replicate the lessons from Oklahoma City

Let’s step back. How does regional transformation take place?

The challenge of transformation comes in building a balanced portfolio of scalable, sustainable initiatives. In Oklahoma City, we built this portfolio with a series of initiatives, each with their own business plan. We started with seven Chamber-led initiatives and an equal number of initiatives led by the City. As we built out these co-investments, we demonstrated how representatives from government, business, education and philanthropy could each contribute.

Effective economic development investments push out market boundaries by creating new pools of shared value.

Sound economic development is publicly valuable (a political determination) but not yet privately profitable (a market decision). It’s in this inherently complex and confusing mixture of politics and economics that we must develop coherent, focused strategies that generate sustainable returns.

The challenge for regional transformation is not  developing a business plan, but developing dozens of collaborative business plans quickly. This process comes from creating fast cycle co-investment strategies based on promising pilot investments.

Economic development investments fall into two types: 1) publicly-led, privately supported investments (like anchor investments in a new research facility); and 2) privately-led, publicly supported investments (like new regional innovation cluster organizations).

Each of these investments needs a plan that clearly outlines the source of funds that will generate returns on the investment. These returns are different, based on the investor. A public investor, using bond financing, looks for returns different from a non-profit cluster organization seeking to generate sustainable operating funds. And these two are different form private sector investors looking for competitive risk-adjusted returns.

The challenge for regional transformation is not  developing a business plan, but developing dozens of collaborative business plans quickly. This process comes from creating fast cycle co-investment strategies based on promising pilot investments.

Can we create the civic disciplines to create these plans quickly? The answer after years of experimentation: “Yes”.

Traditional business planning can too easily blind us to political realities

A narrow focus on business planning carries risks for metro regions. Business logic and political logic are different. Both come into play in developing transformative strategies for regional economies. Sound economic development strategies work on the frontiers of new markets where both politics (defining common interests and the public good) and market dynamics share the stage. The sad truth is that politics can too easily play a destructive role in the economic development game. We see this reality in the “incentive wars” that deplete public treasuries, while adding little new value.

In addition, we have to confront a reality of our democratic system. Complex collaborations are tough to design and implement. At the same time, any small group can pull these agreements apart without too much difficulty. This week’s budget showdown provides a good reminder.

The challenge we face as a country goes deeper than the application of business planning disciplines to economic development. We need to build new capacity — in region after region — for doing complex thinking together. We need new disciplines for translating powerful ideas into next steps. These new disciplines provide the foundation for open innovation in which ideas cross traditional organizational boundaries to create shared value.

In Oklahoma City we learned that economic transformation comes from big ideas and small steps, relentlessly taken. In sum, it’s not about the plan, its about the process creating strategic action plans.  Oklahoma City works because we developed a process for collaborative investment and created proof points on the value of this civic process with specific projects.

Collaboration in the loosely joined networks that characterize a regional economy is not easy. Effective collaboration — collaboration capable to completing sophisticated projects with complex plans — depends on a shared basket of behaviors and disciplines. When this foundation is built within a region, leaders can dramatically boost their economy’s capacity to innovate. That’s what we achieved in Oklahoma City.

Sadly, though, in most regions, we operate in a world in which people actively protect their boundaries and fail to take the initiative to cross organizational or political boundaries. The increasingly polarized and ideological character of our national and state politics does not help. Our political leaders in both parties are pursuing short term political strategies that are undermining our economy’s productive capacity.

The real challenge for transforming regions: Igniting open innovation

We can see the future in places like the Oklahoma City metro; in regionally engaged universities like Purdue and the Purdue Center for Regional Development’s highly successful workforce innovation initiative; in new clusters rapidly forming, like the Milwaukee Water Council; in adaptive, lean entrepreneurial support organizations like the Charleston Digital Corridor.

Over the years, I have worked in each of these places and can share some insights into why these initiatives are working to trigger regional transformation. They share a number of important characteristics.

  • First, they create an agile collaborative process to produce clear outcomes. Creating a simple, repeatable and adaptive strategic discipline — Strategic Doing — encourages leaders to start with a series of pilots to figure out what works. With a disciplined, light weight strategy process, they can then make adjustments on the fly.
  • Second, these initiatives work with a network mindset. That means they focus not on protecting boundaries but on strengthening and connecting cores. This shift in mindset comes from a relentless focus on the basics of solid collaboration: information-sharing, transparency among the partners, professional criticism, and, above all, a focus on “doing the doable”.
  • Third, these initiatives are defined by strategic outcomes tied to metrics. In the old industrial economy we are leaving, metrics provided a mechanism for management control. In the network economy we are entering, metrics serve a different function. They help us learn what works.
  • Fourth, these initiatives develop strategy with simple rules. We cannot manage the complex political economy of economic and workforce development with elaborate business planning or strategic planning approaches. We need a simple strategy discipline that we can apply regularly at a low cost. Adaptive strategy is based on following a discipline defined by simple rules.
  • Fifth, these initiative focus on developing “link and leverage” strategies. We have found that step change improvements in the productivity of investment comes from a collaboration process built on finding alignments and opportunities to create shared value.
  • Finally, these initiatives create coherence. In today’s world, visual mapping is becoming more important than vision statements. We need less formal planning and more agile strategy. The challenge is to create coherence from the multiple perspectives that diverse parties bring to a collaboration. It turns out that we can start with some simple, easy to understand strategy maps.

In sum, if business planning were all we needed to transform regional economies, our team in Rhode Island would have been successful years ago.

No, the challenge we face is different. How do we build resilient, competitive economies using new network-based tools and insights? How do we create civic disciplines of complex thinking, so that we can do sophisticated projects together? How do we guide our networks with agile, low cost strategy disciplines that translate ideas into action so we can learn quickly? How do we go beyond identifying clusters to activating these clusters into productive, innovating networks?

Here is a glimpse of what is possible with agile, network-based strategies. In workforce innovation, Purdue and its partners received a $15 million investment from the federal government. We converted this investment into sixty initiatives in four strategic focus areas. 80% of these initiatives continued past the initial funding. Each initiative passed a stage gate process to determine that it had a good chance to be replicable, scalable and sustainable. Each initiative had multiple metrics, reviewed monthly. The entire strategy required 1.5 additional administrative staff. Finally, we exceeded our targeted goals by 2.5 times.

That’s what happens with “link and leverage” strategies tied to an agile investment process. A step change in the productivity of federal investment.

These are the new approaches on which we have been working at the Purdue Center for Regional Development: in career pathways, regional innovation clusters, re-engagement networks for displaced workers. The good news: We are building on some breakthroughs.

Ed Morrison is Director of the Purdue Agile Strategy Lab. He is also an adjunct professor at the University of the Sunshine Coast in Queensland, Australia. For the past five or six years, he has been developing new, agile approaches to strategy in open, loosely joined networks, a discipline he calls Strategic Doing. Prior to starting his economic development work, Ed worked for Telesis, a corporate strategy consulting firm. In this position, he served on consulting teams for clients such as Ford Motor Company, Volvo, and General Electric. He conducted manufacturing cost studies in the U.S., Japan, Mexico, Canada, Italy, Sweden, and France. Ed started his professional career in Washington, D.C., where he has served as a legislative assistant to an Ohio Congressman, staff attorney in the Federal Trade Commission, and staff counsel in the US Senate. He holds a BA degree cum laude with honors from Yale University and MBA and JD degrees from the University of Virginia.

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