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12 mistakes to avoid in the site selection process
Implementing an effective corporate location strategy
Successful companies have discovered that using corporate location strategy as a competitive advantage can help yield additional financial gains. Learn why the analytical site selection process shouldn’t be short-circuited by a few statistics, an available property, or hastily accepted incentives.
- Navigating the complexities of the site selection process
- What are the critical mistakes of site selection?
- Avoid site selection process mistakes
- Get in touch
- Join the conversation
Navigating the complexities of the site selection process
Site selection is a process that applies both analytical and qualitative techniques to determine the most favorable location for a business operation. Historically, companies have taken widely different approaches to corporate location strategy, analysis, and asset deployment, with varying degrees of success. Some prefer an abbreviated methodology, while others examine every detail—utilizing outside consultants and experts to maximize returns and minimize risk—and use location analysis as a competitive advantage.
Few corporate decisions have as many immediate and long-term implications on tax structure, cost of goods sold, supply chain, labor force, and overall operating success as the choice of location. Now, several factors have emerged to make site selection increasingly complex. These include: Fast-track expectations, globalization, strict environmental legislation, tightening labor availability, scarcity of certain labor skills, and utility consolidation.
With each degree of complexity comes a new set of considerations requiring a higher degree of analysis to avoid risk and make the right location decision. The accessibility of location data on the internet may give the appearance that the site selection process can be simplified and accelerated.
Unfortunately, applying data without context and experience can lead the search for the most optimal facility location down a path lined with risks, delays, hidden costs, and even fatal flaws. At every step in the process, a host of errors can be made that will compromise the final location selection.
What are the critical mistakes of site selection?
Here are some of the critical mistakes that can occur during the site selection process. These errors can often undermine corporate location strategy and analysis and lead to risk, higher cost, and unfavorable operating conditions.
- Unprepared site selection team. An effective team will possess core competencies in the areas of human resources, cost accounting, logistics, tax, engineering, construction, and in some cases, environmental issues. Neglecting to assemble the right mix of stakeholders and experts early in the process increases the risks of project delays and poor location selection.
- Lack of executive consensus. Many teams make the mistake of only sharing the final results of the analysis with their executive leadership, which can lead to the original assumptions, rationale, methodology, and solution being challenged. Including corporate leadership early on and throughout the process helps promote buy-in and understanding of the long and highly analytical process of most site searches.
- Incorrect search area. Site selection usually begins with a general region of interest due to transportation issues, human capital needs, or other market dynamics. Problems will arise and valuable time will be lost if this geography isn’t carefully validated with the new facility’s overall operating objectives and criteria.
- Narrowing the search area too rapidly. After the search area is determined, companies are often tempted to quickly eliminate large chunks of geography to accelerate the process. Whole states or countries might be eliminated that, with some analytical consideration, could have been favorable alternatives. This can be avoided by correctly prioritizing the project’s critical location factors—those aspects of the desired solution that can be quantified and measured.
- Failure to consider all the issues. No two location searches are identical: Each has its own unique set of critical location factors, specifications, needs, timing, and risks. A common error during the site selection process is to consider only easily quantified aspects such as labor costs, real estate, or taxes.
- Incomplete labor market analysis. Unemployment and average hourly earnings statistics, the “usual suspects” in any labor study, are only general indicators of workforce availability and cost. But the market for employees in any area is affected by dozens of other factors that should be quantified and interpreted during the site selection process.
- Failure to consider community trends. No location exists in a vacuum: Towns, counties, states, and regions are in a dynamic state of evolution that affects most aspects of business operations. Labor and real estate markets, utility services, political factors, community image, and demographic characteristics can and do change from year to year. Evaluation of statistics is important, but datasets don’t capture the dynamics and context behind the numbers.
- Poor or absent technical site review. Every year, projects experience unforeseen circumstances, such as adverse geotechnical conditions, floodplain issues, and various permitting hurdles that could have been avoided. It’s crucial to understand and measure environmental risk, timing, obstacles to development, and geographically variable construction costs.
- Breach of confidentiality. Project confidentiality protects owners from unwanted attention and distractions, both external and internal, that can influence the outcome of the study. Management may be sensitive to premature, out-of-context leaks that can reach Wall Street, competitors, land speculators, and employees. This means that the site selection team must take precautions to not reveal the corporate identity or nature of the business to third parties who may not have the firm’s best interests in mind.
- Failure to capture negotiable incentives. The state and local economic development community is in the business of attracting and retaining jobs and investment. Nearly every jurisdiction has some variation of legislated incentives that are available to any qualified business locating in the area. Often overlooked or underachieved are discretionary incentives that could be available.
- Acceptance of overvalued incentives. The negotiation strategy must account for the specific needs of both the operation and the corporation itself. A common mistake is to negotiate and accept state corporate income tax credits that appear to offer annual savings of millions of dollars while later analysis reveals that the firm will owe no such tax in the first place.
- Poor implementation of incentives. Once the deal is signed and the announcement is made, there’s still work to be done. The implementation and transition team must not forget the effort expended and agreements struck during negotiations. Many state and local incentives will require “care and feeding” to ensure that all available benefits are captured.
Avoid site selection process mistakes
The internet is a source, not a solution, for the hundreds of pieces of information required to measure the costs, conditions, and risks associated with site selection.
Leading a site selection process requires a unique set of capabilities. The team must have the ability to logically analyze myriad factors, the savvy to negotiate and build consensus with management, and the judgment to remain unbiased throughout the process. Knowledge of logistics, human resources, real estate, tax, financing, infrastructure, construction, incentives, and environmental considerations has become more important as the complexity of corporate location strategy increases.
If, while armed with these competencies, the site selection team can avoid the mistakes highlighted above, they’ll be better able to deliver a location outcome that can position the company for many years of success.
Get in touch
Deloitte’s Location Strategy practice helps companies across industries address some of their most complex and challenging location and footprint issues. From country analysis to detailed labor market and site due diligence, our practice brings rigor, objectivity, and multidisciplinary analytics to corporate location decisions. Let’s talk.
Darin M. Buelow