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Renewable energy and tech-friendly legislation make Arizona a hot spot for data centers By CHERYL HURD

hoenix has its head in the clouds. Digital information—everything from financial and medical accounts to media entertainment and social networks—is now being stored in about 60 high-tech data centers throughout the Phoenix metro area, adding to the state’s growing reputation in the technology industry. Renewable energy, geo-stability and tech-friendly legislation are a few of the reasons for Arizona’s popularity. Chris Camacho, president and CEO of the Greater Phoenix Economic Council, says one of the reasons Phoenix has seen a significant level of data center activity is power availability and competitive pricing. “We have very affordable power costs,” Camacho says. “Our utilities have been very flexible in supporting this industry to ensure we have dual feeds from the electrical standpoint. Having affordable power rates has been critical. The other attributes that are important to this industry as to why we have been successful are the level of infrastructure, that’s generally fiber infrastructure, and latency. We’re very favorable to the West Coast in that regard. So our communities, as well as Cox, CenturyLink and others, have done a great job extending infrastructure to support this industry.”

Demand for renewable energy As data centers continue to propagate, the demand for power increases. A recent survey by Mortenson Construction, one of the leading data center contractors in the U.S., reported 84 percent of responding data center executives, developers and operators believe there is a need to consider renewable energy. Energy efficiency is a top concern and nearly half the survey participants believe improved technology can increase energy efficiency. “Technology companies like Apple, eBay, Amazon and Google, all of the organizations that store massive amounts of information, tend to have leaders who are highly environmentally conscious,” explains Steven G. Zylstra, president and CEO of the Arizona Technology Council. “They would much prefer to use renewable energy to power these data centers rather than power coming from a coal-burning plant. It’s less about the economics and more about doing the right thing.” IO president Anthony Wanger agrees. IO, one of the largest colocation AB | May-June 2015

data centers in North America, has created and patented energy efficient data storage modules and operating software. In 2013, APS evaluated IO’s Power Usage Effectiveness ratings and determined the modules were more efficient than the traditional raised-floor data center environment. In February, IO announced an agreement the company made with APS to be able to offer renewable energy to its customers. “We had a breakthrough,” Wanger says. “We were able to negotiate a rate with APS that allows us to buy renewable energy. We were able to get a rate that reflects the scale of our use, and the option for our customers to simply choose to go green. For about a cent and a half more per kilowatt hour they can buy energy that is 100-percent renewable. It’s solar and wind. We have had terrific customer feedback about it. “It’s important for us,” Wanger continues. “We want to be leaders in dematerialization and we want to be leaders in giving our customers the tools and the choices they need to manage their energy needs. Our very largest customer, Goldman Sachs, is committed to zero carbon. “We have taken great strides in moving our energy over to renewables. I’m not going to tell 1,000 customers what they have to do,” he explains, adding that if he puts it on the menu and incentivizes it, he believes they will choose it. “We are committed to renewables, we are leaders in energy efficiency, by putting it out there, it’s going to be a needle mover.”

Making it happen IO began with three businessmen and a folding table from Costco, Wanger says. The table, signed by the co-founders Wanger, George Slessman and William Slessman, is still in the Phoenix facility as a reminder of how they began. “I always liked to build things. I have always been fascinated by buildings and real estate and systems and machines,” says Wanger, who comes from several generations of entrepreneurs. “I was brought up in the ‘you make your job, you don’t get a job’ mentality. Sit down. Figure it out. Make it happen. That’s the only thing that works for me. “We’ve been really fortunate we have a really solid business with terrific institutional backers and terrific institutional customers. We’ve been able to attract some terrific talent. The way we got here is people. When I say make it happen, it isn’t just the three of us, it’s the entire team. “Make it happen. That really is the moral of our whole story here. These data centers didn’t build themselves. These folks didn’t employ themselves. The capital didn’t raise itself. The customers didn’t identify and sign themselves. This is hard work. He suggests that in order for Arizona to continue growing its reputation in the technology arena, it, too, will take hard work. “If Arizona wants to continue its fantastic growth it’s going to be because it chooses to, not because it happens automatically. I feel very positive about Phoenix and Arizona’s prospects, but I think we have to be careful not to take things for granted,” Wanger says. “It’s a very competitive economy. I think we would be well advised to be purposeful in our recruiting and the way in which we create a climate where risk takers can take risks.”

Trending Wanger and his partners at IO, which now has six locations around the globe, were among some of the early risk takers in the data center industry. “We grew up with the GoDaddy guys. If you go back 10 or 15 70

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years ago, they were in data centers. We were in data centers. There was another guy in data centers and that’s about it,” Wanger says. According to a market overview analysis by CBRE, there are about 60 data centers in the Phoenix metro area today, including colocation operations and those used by individual companies. An additional 21 greenfield sites have been identified mostly in the East Valley for build-to-suit data centers. Even with the explosion of data centers in Phoenix, Wanger says he is seeing a trend toward consolidation. “We are moving away from square footage to more power in less space with shared highly utilized banks of computers,” he says. “I think that the Internet went from 400 markets globally to 200 to 50 markets. I think it’s on its way to being in 12 markets globally. That’s mega consolidation. We are doing everything we can do in our power to make sure Phoenix is on the winner side of that equation.”

Tech magnet Energy affordability, access and renewable options are sited as reasons for locating power-intensive data centers in Phoenix, but there are more. Geo-stability is an important factor when deciding a data center’s location. Arizona is free of natural disasters, making it an appealing locale. “We don’t have hurricanes or earthquakes or tornadoes or floods or any of those things that jeopardize a data center. We are a very sound place from that standpoint,” Zylstra says. Moderately priced real estate with relatively low property taxes and legislative incentives sweeten the pot. “A lot of economic policies in the legislature have supported both enterprise use and colocation centers,” Camacho says. “There was legislation in the last few years that provided a sales tax exemption on server and IT equipment. That was one of the last pieces of the puzzle of being a great market in terms of allowing this market to grow and making it competitive against California and these other states.” According to CBRE, “The financial impact of this law to a 1 MW tenant’s bottom line could be as much as $6 million to $7 million in tax credit savings over a 10-year period.” Camacho continues, “There are tax credits available for companies of a certain investment scale, so, in a certain investment threshold, when they meet that level of capital investment, they are eligible, assuming they are going to use significant renewable energy resources, to obtain a corporate income tax credit.”

The future Locating data centers here is often an introductory step for some of the larger companies to test the business waters and learn about the Phoenix area. “We’ve spent a lot of time working to support colocation operations in the market that are already here,” Camacho says. “And we are working as diligently as we can as we travel outside this market and showcase Arizona marketplace to prospective users. We’ll showcase IO data centers and Digital Realty Trust and others that are in this region with the goal of inducing these tenants to come and utilize colocation space and drive new investment and job creation at the same time. Proximity to California has made it convenient for companies with corporate headquarters on the West Coast to

locate their data centers here. “It encourages them to visit and to learn more about the operating environment,” Camacho says. “Then our goal is to talk further with them about future operational expansion. It could be back office, IT, or technology centers. Data centers and data storage are generally their first foray into evaluating this market on the office side. “Once you become a nerve center where companies store data, then you start seeing a lot of these colocation tenants that are in these major facilities evaluating opportunities for back office expansion which generally comes with more job creation,” Camacho says. CBRE reports a high quality of life and low cost of living have encouraged back shop operations for companies such as Wells Fargo, American Express, PayPal, Yelp and others to locate in Arizona. “Companies tend to aggregate around each other,” Zylstra says. “At some point you get to a critical mass that people recognize and they want to be affiliated with it, connected to it. “The recent Apple announcement is a watershed moment for us,” Zylstra says, referring to Apple’s plans to locate a data

Geo-stability is an important factor when deciding a data center’s location. Arizona is free of natural disasters, making it an appealing locale. center in Mesa. “Apple is the most innovative company on Earth today. It’s the most successful company on Earth. When that kind of company makes a commitment here in Arizona it suggests that we have come into our own. I believe it is an important milestone in becoming known for technology.” As the technology sector continues to grow, it is important to attract quality talent, he says.“ The greater the reputation the easier it is to attract and retain talent and that’s your competitive asset in a digital economy,” he says. Drawing in talent is important, Camacho agrees, but he also says it is important to provide a continuing pipeline of trained talent in IT and technical services through Arizona’s local educational system. “That’s what is going to make this industry successful,” Camacho says. “We can see that pipeline coming through our Maricopa Community Colleges and the four-year systems that can meet the demand. “Even though they are not large employers, there’s a very significant level of indirect technology job creation associated with these data centers. On average, you can provide anywhere from two to four indirect jobs for each of the jobs created within the companies themselves.”

Chris Camacho

Steven G. Zylstra

Anthony Wanger AB | May-June 2015

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The connection between medicine and rocket science Andrew Goldstein was a rocket scientist before he was a doctor. “I was working as an aerospace engineer in Southern California and there was a lot of attention around the Jarvik 7 artificial heart,” said the thoracic surgeon at Cancer Treatment Centers of America. “I read a story about a bioengineer that went to medical school and designed this artificial heart.” The heart was a hydraulic device and Goldstein’s background was in hydraulics. “The console that drove that artificial heart was this bulky thing the size of a refrigerator,” Goldstein recalled. “I said to my friend, ‘I bet I could design an artificial heart better than that. I’m going to design it and go to medical school so I can be surgeon who implants the heart.’” Goldstein said the idea would have just passed as a joke among friends, but a couple days later, the friend called and asked Goldstein if he was really going to become a heart surgeon. “It really was an epiphany that hit me like a bolt,” Goldstein said. “Something really struck me about having the ability to use my engineering background in medicine and using it in a way that has a human touch, which was missing with engineering.” Goldstein went back to school at Brown University and later became involved in a patent for an improved artificial heart, which he implanted into a patient before performing the heart transplant a few days later. “This is one of those rare occasions where you develop a drive and a passion for something and are able to see it through to the end,” Goldstein said. / / / / / / / / / / / / / / / / / / / / / / / / / /

The impact of clinical trials in Arizona

Without clinical trials, new medicines could not be approved and made available to the patients who need them. However, beyond the healthcare benefits that biopharmaceutical research and development brings, clinical trials bring a significant economic impact to Arizona. Based on 2013 numbers, here is a look at the impact of clinical trials in Arizona, according to From Hope to Cures Arizona:

1,311

Number of active clinical trials In Arizona 72

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29,291 Number of clinical trial participants

$237.2

$618.4

The amount invested in clinical trials

Total economic impact of clinical trial investments

million

Impact players • In 10 years, Drs. David J. Jacofsky, John A. Brown and Mark D. Campbell have grown The CORE Institute from one office in Sun City West into an innovative orthopedic and neurological practice with 700 employees in two states and 26 facilities. • Championed by Banner Alzheimer’s Institute, the Alzheimer’s Prevention Registry has enrolled more than 100,000th volunteers interested in participating in studies aimed at preventing the disease. • Tucson-based SynCardia Systems received approval from the FDA to conduct a clinical study of the company’s temporary Total Artificial Heart for use as a long-term therapy. • Phoenix Children’s Hospital will use a $200,000 grant from the James M. Cox Foundation to support the hospital’s “Connected Patient Project,” which provides customized patient care information on tablets. • Blue Cross Blue Shield of Arizona recognized Banner University Medical Center with a Blue Distinction Center designation for delivering quality transplant care. • VisionGate received financial backing from Dignity Health in Arizona for development of a revolutionary, noninvasive test for the early detection of lung cancer, the world’s deadliest cancer. • Researchers from Arizona State University’s Biodesign Institute have identified three promising biological signals that could help detect ovarian cancer before patients display any symptoms. ASU’s new study is the first use of high density microarray technology that uses a sample of the patient’s blood to identify biomarkers for ovarian cancer.

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Lifebl HEALTHCARE / ENERGY / AEROSPACE / TECHNOLOGY

Arizona’s bioscience industry impacts lives while building a healthy business sector

nnovation is doing something in a new way to make life better and across Arizona’s bioscience industry, researchers, industry partners, and healthcare professionals are innovating the latest advancements in the life changing therapies, medical Joan Koerber-Walker devices, and services that are Bioscience providing a higher quality of life for patients here in Arizona and around the world. Companies that discover, develop and deliver life changing innovations have an added benefit. As they grow, they stimulate our economy as they support the local healthcare delivery system and also export technology nationally and globally. In addition to creating high quality, high paying jobs. With an average wage of $85,571, bioscience jobs are some of best in the state and pay well above the state’s average private sector wage of $45, 234. According to the Battelle/BIO State Biosciences Jobs, Investments and Innovation 2014 report, Arizona’s bioscience industry continues to experience rapid job growth, increasing employment by nearly 22 percent since 2007, a period which includes the deep national recession and overall declines for the state’s private sector. State bioscience firms employed 23,545 in nearly 1,300 establishments in 2012. With a direct to indirect employment multiplier of 4.1, the total jobs impact is approaching 100,000. State academic institutions accounted for $409 million in bioscience-related R&D expenditures in 2012 and NIH funding to these and other non-academic institutions totaled $182 million in 2013. Arizona inventors have had more than 1,400 patents issued in bioscience-related classes since 2009 and they span a variety of areas in medical devices and drugs and pharmaceuticals.

Arizona life science innovators deliver To make an impact, new discoveries must be developed and delivered through the best clinical partners to the 74

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lood of the new economy patients. Clinical innovations developed here in Arizona and in other parts of the world are delivered daily by caring and highly skilled healthcare professionals across the state and new therapies and treatment protocols are currently being tested for safety and effectiveness in over 1300 FDA approved clinical trials. By finding new ways to diagnose, manage and treat disease, biomedical innovation is the key to making a difference in the lives of our people and in reducing the cost to keep them healthy. For example, Diabetes is a group of diseases characterized by high blood glucose, or blood sugar, caused when the body either does not produce enough insulin or is unable to use insulin in an effective way. When not controlled, the high level of glucose can lead to serious health complications, including death. Arizona innovators at Medtronic Tempe Campus helped to revolutionize the ways in which people are screened for and live with diabetes. These advanced diabetes technologies don’t just improve quality of life; they also help to cut overall health care costs. Many of the costly complications associated with diabetes—high blood pressure, kidney failure or dialysis, heart attacks, and hospitalization requirements, to name a few—can be prevented or delayed with regular diagnostic testing and better management of glucose control. New medical device innovations, like a fully-functioning artificial pancreas—a technology that links an insulin pump with a continuous glucose monitor to provide automatic, realtime monitoring of glucose levels and delivery of insulin—can make a huge impact. The potential savings to Medicare thanks to artificial pancreas technology is estimated at $1.9 billion over 25 years, according to a study carried out on behalf of the Juvenile Diabetes Research Foundation (JDRF). Arizona’s life science innovators are globally connected. We work hard here at home, but it does not stop there. Arizona biomedical innovations are making an impact globally with life changing innovations from our state being both tested and delivered across North America, Central America, South America, Africa, Asia and Europe.

Strategic investments drive growth TGen was founded through public-private partnerships in 2002 to leverage new scientific discoveries from the mapping of the human genome and accelerated the state into the era of

genomics and personalized medicine. In 2003, Arizona made a $500 million investment in research infrastructure and it paid off 7:1. Facilities that were born from that investment, including ASU Biodesign, UA BIO5, the NAU Applied Research and Development Building, and others are places in Arizona where life changing innovation is discovered, developed and delivered. Additional public-private investments launched the Critical Path Institute (C-Path) in 2005. The City of Phoenix has been a strong partner in the birth of the Phoenix Biomedical Campus and its growth to include both the UA College of Medicine Phoenix and recently the Arizona Cancer Center’s expansion into Phoenix in partnership with Dignity Health. Scottsdale’s Cure Corridor is thriving and a home to both HonorHealth and the Mayo Clinic. To the east, Banner MD Anderson now calls Gilbert home while in the west, Cancer Treatment Centers of America is combining traditional therapies with the latest innovations to bring new hope to cancer patients. In the north, you will find Arizona’s largest medical device employer, W.L. Gore and Associates. In the south, global leaders Cord Blood Registry, SynCardia Systems, Inc., Sanofi and Ventana, a member of the Roche Group, are delivering life changing innovations worldwide. Today, the work of Arizona bioscience innovators has contributed to saving the lives of patients suffering from the Ebola virus, delivered new diagnostics and therapies for cancer patients, created medical devices that help patients manage chronic diseases including heart disease and diabetes, and C-Path is accelerating the path to a healthier world by leading global consortia to address worldwide solutions to diseases including tuberculosis, asthma, Alzheimer’s disease, lung cancer and many more. To be globally competitive, Arizona must to continue to commit to the resources it takes to compete. This requires Arizona citizens, working with our elected leaders to ensure we keep making “life” better while building a stronger economy within our state today and tomorrow. When we all work together to make this happen, we all benefit. Joan Koerber-Walker is president and CEO of the Arizona Bioindustry Association and chairman of the AdvaMed State Medical Technology Alliance in Washington, D.C. AB | May-June 2015

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Group forms an energy of its own

Michelle De Blasi, an environmental and energy law partner with the law firm of Gammage & Burnham, and Chris Davey, president of EnviroMission, continue to make an enormous impact on Arizona’s energy landscape. The two co-chair the Arizona Energy Consortium, which in April announced the formation of its own 501 (c)(3) nonprofit organization. Before venturing off on its own, the AEC operated under the umbrella of the Arizona Technology Council. “In an ever-changing energy market, the AEC will continue with its collaboration with key stakeholders to develop the Arizona Energy Roadmap and Solar Strategic Plan,” said Davey, who is developing a cutting-edge utility scale solar energy project in Arizona. “We will continue working with others to build on the foundations of a long-term, statewide plan for the energy industry to ensure it is a key economic driver for the state and the region as a whole.” Comprised of more than 200 members, the AEC is the only allencompassing energy group in Arizona.

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Arizona shines bright with clean-energy jobs

Arizona had the fifth-highest number of clean-energy jobs posted in the nation in 2014, according to a report by Environmental Entrepreneurs. The report, which does not track actual hiring but the number of renewableenergy job announcements instead, said Arizona companies announced plans to hire 3,402 last year, out of nearly 47,000 nationwide. Almost all of the jobs estimated for Arizona were solar energy related, with most of those coming from the planned Solar Wind Energy Tower in San Luis, which could create 2,350 jobs, according to its backers.

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Impact players • SRP Senior Engineer Kyle Cormier and Joe Nowaczyk, former director of electronic systems, received the Electric Power Research Institute Technology Transfer Award for enabling technologies to make grid modernization more reliable for SRP customers and the overall power industry into the future. • Banner Health’s Cardon Children’s Medical Center implemented lowcost energy-efficiency measures that resulted in savings of more than 2 million kWh in the first year. Banner also updated several buildings, resulting in 1.5 million kWh of savings. The combined energy savings are equivalent to powering more than 190 homes for a year. • Through APS’ Solar for Schools and Government program, Harmon Solar has completed photovoltaic solar panel arrays for schools in Cottonwood, Douglas, Oak Creek, Prescott Valley and more Arizona cities. The savings in energy consumption is equivalent to removing 5,400 cars from the road. • Tempe-based First Solar announced that Apple has committed $848 million for clean energy from First Solar’s California Flats Solar Project in Monterey County, Calif. It is the largest agreement in the industry to provide clean energy to a commercial end-user.

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HEALTHCARE / ENERGY / AEROSPACE / TECHNOLOGY

Green gen

PHOTO BY SHAVON ROSE, AZ BIG MEDIA

DON HAWLEY: “I’m a huge believer in a leader being able to marry their skill sets with younger, brighter professionals,” said the CEO of Innovative Green Technologies. “There is magic that occurs in that mentor-menthe relationship that will help every company.” 78

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nes

Hawley brings Silicon Valley experience to Arizona technology sector

on Hawley is a lifelong entrepreneur from Silicon Valley who went to school at the University of California, Berkeley and started several technologybased companies in the San Francisco Bay area until about nine years ago. Today, Hawley is CEO of Scottsdale-based Innovative Green Technologies, which is working to reduce harmful emissions and consumption for diesel engines. Az Business: What is Arizona doing right

to foster the growth of companies like Innovative Green Technologies?

Don Hawley: Arizona is infinitely more business friendly than other states. Favorable tax rates make is less costly to do business in Arizona compared with California, which is attractive to newer companies that have to watch their pennies. Arizona is also blessed with Arizona State university and the University of Arizona, which supply a constant stream of new grads. When you have high-quality young talent, that is a great resource. AB: Is there a flip side to that? Are there

things other states are doing better?

DH: California and Silicon Valley has a huge amount of venture capital available to technology companies. You have a very concentrated place to go to raise capital, which is very important for early-stage companies. They are used to that environment in California. In Arizona, that is more difficult. There is not a well-established venture community here. The angel community is not as active as some would like. The capital raised is more difficult in Arizona, but it’s not that difficult for seasoned executives to do their capital raises in California and bring it back to Arizona. AB: Beyond capital, what else can

Arizona do to fuel the tech sector?

DH: There is a group that I am a part of

called Valley Advisory Group. It’s a group of generally retired CEOs who made themselves available to assist Arizona-based companies with not so much economic capital, but with experience capital and networking capital. Arizona is uniquely qualified because there is a huge number of retired executives here. When I participated, we had about 30 retired executives or CEOs who want to give back to the community. That is a humungous asset that is not as well tapped as it could be in Arizona. If I had a magic wand, I would be encouraging more collaboration between groups like Valley Advisory Group and start-ups. The knowledge capital that resides here in Arizona is extraordinary and hasn’t been utilized like it should be. AB: Is Arizona doing enough legislatively

to help companies like your company succeed?

DH: Probably not. One of the things I was very encouraged by was Arizona’s R&D credit opportunity. We participated in it last year, learned that it wasn’t really what it was cracked up to be, and the company didn’t benefit from it. The company is an LLC and the benefit passed through to the owners, who are weather people and don’t need the benefit. The company needs the benefit. The Arizona Legislature had proper intent when creating the benefit, but poor execution. AB: What tech industries have the

greatest potential for growth in Arizona?

DH: Because of the hub of positive activity around the downtown medical school, biotech is a big opportunity for Arizona. The other area with potential for growth is the energy area in which we are participating, which I call transitional technologies in the green area. The focus isn’t on renewable energy, because its economic time hasn’t come yet, but finding ways to make fossil fuels more efficient. I can see that really taking hold in Arizona.

AB | May-June 2015

/////TRENDSETTERS HEALTHCARE / ENERGY / AEROSPACE / TECHNOLOGY

Impact players • Arizona State University has been selected by NASA to design, deliver and oversee the Mastcam-Z imaging investigation, a pair of color panoramic zoom cameras, on the next rover mission to be launched to the surface of Mars in 2020.

PHOTO BY SHAVON ROSE, AZ BIG MEDIA

LEE BENSON: The CEO of Able Engineering and Able Aerospace operates his companies out of a state-of-the art, 200,000-square-foot facility at Phoenix-Mesa Gateway Airport.

Sky’s the limit

Sequestration hasn’t hurt every Arizona aerospace company. “For the last 12 years, we are growing at better than a 20 percent compounded annual growth rate,” said Lee Benson, CEO of Able Engineering and Able Aerospace. “This year, we could grow as much as 35 percent.” Benson has turned Able in an Arizona success story. Since buying the business that would become Able Group of Companies in 1993, Benson has taken the company from $30,000 in sales in 1994 to a projected $100 million in sales this year. He has also gone from three employees in 1993 to more than 450 today and is expecting to employ more than 1,000 by 2020. Able includes two main divisions — Able Engineering & Component Services and Able Aerospace. Able Engineering & Component Services provides component repair, overhaul and approved replacement parts solutions for rotorcraft and fixed-wing aircraft. Able Aerospace develops and manages Able’s FAA approved replacement parts inventory. This division has built a global reputation for its engineering and development of lower cost and typically longer lasting replacement parts solutions. “We intentionally designed our company to be recession proof,” Benson said. “We knew we needed a lot of customers to do that and we now have 1,000 customers in 60 countries.”

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Using drones to review insurance claims

The Federal Aviation Administration approved USAA’s request to test how unmanned aircraft systems, also known as drones, could help speed review of insurance claims from its members following natural disasters. USAA is one of the first insurers to be granted the approval for such testing. “We’re proud to be among the first insurers approved to test this technology,” said Alan Krapf, president, USAA Property and Casualty Insurance Group. “It’s our responsibility to explore every option to improve our members’ experience.” USAA will work with PrecisionHawk to efficiently research and develop best practices, safety and privacy protocols and procedures as it further develops plans for operational use. 80

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• The Arizona Division of Occupational Safety and Health Consultation Department recently acknowledged Honeywell Aerospace’s Deer Valley location as a “STAR Site,” for demonstrating exemplary and comprehensive, safety and health management systems. • Tucson-based World View Enterprises, a 2014 Arizona Innovation Challenge grant recipient, develops and manufactures high-altitude balloon technology that provides trips to near space for tourism, R&D and industry uses. World View’s unmanned balloons carry payloads for communications, surveillance, research and for launching microsatellites. • For the third consecutive year, Mesa Airlines’ Maintenance and Engineering Department has been awarded the Federal Aviation Administration’s prestigious Employer’s Diamond Award of Excellence. • In April, Sen. John McCain recognized the contributions of Raytheon’s Tucsonbased missile defense experts, honoring them for programs that protect the United States, deployed forces and allies abroad from the growing threat of shortto long-range ballistic missile attacks.

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HEALTHCARE / ENERGY / AEROSPACE / TECHNOLOGY

Life after sequestration Arizona aerospace companies capitalize on stateâ&#x20AC;&#x2122;s advantages to overcome defense cuts

AB | May-June 2015

s budget-balancing attempts go, sequestration can have Steven G. Zylstra Technology an especially chilling effect. By its very design, it was supposed to be so bitter a pill to swallow that it would practically force legislative cooperation on budget reform. Who could rationally favor across-the-board, automatic budget cuts over strategic budget reduction? Because compromise couldnâ&#x20AC;&#x2122;t be reached in Washington, Arizona now lives in a reality of inelegant cuts to defense spending, where successful programs and those with peacetime merit are both impacted. The math is simple. When there is a lowered defense budget, companies that fulfill military contracts have less business, which means secondary and tertiary suppliers feel the impact, too. Thatâ&#x20AC;&#x2122;s sobering news for Arizona, where almost 80 percent of military spending is in the form of contracts. More than 95,000 jobs in the state are supported by that spending, according to findings from the National Conference of State Legislatures. Arizona defense spending reached its peak in 2012, when the state fulfilled $13 billion in federal defense contracts. Post sequestration, that spending stands at $8 billion, down 38 percent. The hard truth is that billions of dollars less are entering the Arizona economy. While it is an especially blunt instrument, sequestration is merely one specific cause of reduced defense spending. Other sources contribute, too, like the drawdown of U.S. operations

in Iraq and Afghanistan. With fewer soldiers stationed abroad, less spending on logistical support is required. In times like this, it is important to remember our state does not have its military bases as a matter of historical accident. The bases were opened in Arizona because it makes a wonderful natural laboratory for technological testing, training and innovation. Four of our seven bases specialize in aviation training. With 300 clear days every year, plus open desert suitable for propellant and collision testing, the Grand Canyon state is especially suited for the training. Such virtues serve commercial aviation just as well as they do military aviation, which means companies with diversified contracts will weather this reduction in military spending. Arizona companies can continue to meet the avionics needs of the private sector and develop aeronautic innovations that keep airlines competitive. The growing field of private space tourism represents an emerging opportunity for Arizona to shine. Arizona is a leader in unmanned drone technology, a growing field that remains in military demand even after troop withdrawals. While there is general war-weariness after two decade long overseas conflicts, a Washington Post/ABC News poll has found that two out of three Americans favor the use of airstrikes against enemies abroad. With the worldâ&#x20AC;&#x2122;s largest unmanned aerial systems training program at Fort Huachuca, Arizona is positioned to benefit from post-war changes in defense priorities. Yes, sequestration is a hard pill to swallow for the organizations that fulfill military contracts but business has always been defined by evolving to meet demand. Companies that address needs in the private sector as well as serve realigning military interests can continue to thrive post sequestration, thanks in part to the many aerospace testing advantages provided by our state.

Steven G. Zylstra is president and CEO of the Arizona Technology Council. AB | May-June 2015

HEALTHCARE / ENERGY / AEROSPACE / TECHNOLOGY

Software industry powers Arizona’s economy

According to findings from the Greater Phoenix Economic Council’s Market Intelligence program, the Valley’s Information and Communication Technology (ICT) sector is is poised to grow by 14 percent in the next five years, 4.5 percent faster than the national average. The ICT sector represents the convergence of telecommunication and information technology. It has ushered a new era of next-generation computing and electronics, cloud computing and big data. The ICT sector is significant to the current and future Greater Phoenix economy, the report says. It represents a strategic opportunity to drive innovation and technology development for sustained economic growth. Here’s a look at the numbers: • Nearly 70,000 people are currently employed in ICT industries across more than 3,770 establishments in Metro Phoenix, contributing in excess of $11 billion to the Gross Regional Product in 2014. • ICT is projected to reach 76,000 jobs within the next five years in Metro Phoenix. • By sub-industry categories, custom computer programming services is the largest with more than 10,800 jobs and it is projected to add 4,410 jobs by 2019. • Other high growth ICT industries include computer systems design services, which will add 2,180 jobs, and data processing, hosting and related services, which will add 1,220 jobs by 2019.

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Providing power to students

Gilbert-based CampusLogic emerged victorious as the winner of Venture Madnes, a bracket-style pitch competition presented by Invest Southwest in partnership with the Arizona Commerce Authority. CampusLogic is a student financial aid self-service platform that gives students a simple, TurboTax-like way to apply for and receive financial aid. CampusLogic delivers a Software as a Service (SaaS) solution for colleges and universities, which decreases administrative costs, lowers security risks and dramatically improves the student experience. The company’s goal is to increase borrower understanding and simplify the financial aid process.

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Impact players • The Anita Borg Institute named Scottsdale-based GoDaddy to its Top Companies for Women Technologists Leadership Index. • San-Francisco-based Beepi, which allows customers to buy and sell their car from the comfort of their home, chose Phoenix as its first expansion city outside of California. • The Department of Commerce said BioAccel and the Greater Phoenix Economic Council will receive a portion of the $10 million grant from its Regional Innovation Strategies program. • In a recent ranking by Bestcollegereviews.org, Northern Arizona State University was listed as the No. 1 online school of 2015. • Texas-based Cypress Growth Capital made its first Arizona investment at a Tempebased digital advertising consultant, Genius Monkey. The investment of $2 million was royalty-based. • Phoenix-based OrbHealth launched mobile applications for both patients and physicians to collect, disseminate and provide health data for both parties. • Phoenix Children’s Hospital will provide tablets geared with an educational-based mobile app to every patient bedside by this fall. • Avnet’s MaryAnn Miller was named among the National Diversity Council’s 2015 Top 50 Most Powerful Women in Technology.

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30 YEARS OF EXCELLENCE AB | May-June 2015

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Not if, but when HEALTHCARE / ENERGY / AEROSPACE / TECHNOLOGY

Arizona businesses need to realize the risk of data breaches, experts say By MICHAEL GOSSIE

“It will never happen to us.”

That misperception puts businesses at risk for data breaches, experts say. “The most common mistake is assuming your company won’t be breached because you’re not a large, multi-national company similar to the ones whose breaches are covered by the national media,” says Ari Bai, shareholder at Polsinelli. “In reality, however, every company is a target. Hackers, be they individual vigilantes, criminal organizations or nation-states, look for any and all data, and often the most accessible is that in smaller companies. Plus, small companies make for good ‘practice’ for hackers. Thus, when a company ignores the risk and does not set forth the proper protocols for protection and response, it is essentially asking to be breached.” The 2015 Association of Corporate Counsel (ACC) Chief Legal Officers Survey revealed that one quarter of general counsel report their companies have been hit by data breaches. And according to the 2015 Cyberthreat Defense Report, more than seven in 10 respondents said their networks were breached in 2014, up from 62 percent in 2013. The average cost of a data breach in 2013 for companies in the Unites States was $5.85 million. The scariest part about the threat of a data breach is that experts agree that there is no way to completely protect a business from becoming the victim of a data breach. “Once we develop a way to protect ourselves from something, the hackers are already using a new technique,” Bai says. “This is

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why preparation is so important. Liability for lack of preparation can financially devastate a company. You are going to get hacked — with preparation, you don’t have to lose lawsuits.”

Being prepared Like any potential business catastrophe, limit a business’ risk of becoming the victim of a data breach starts with preparedness, according to Paul Stoller, shareholder at Gallagher & Kennedy. “Every company should work with its legal professionals and IT staff to create and to implement a comprehensive data privacy and security plan, which will help to remove, or at least to reduce, the risk of many of the common causes of breach,” Stoller says. Leon B. Silver, office co-managing partner at Gordon & Rees, says all companies, no matter their size, need to adopt data security as a core business practice throughout the organization and not look at it as something that is taken care of by one department or by an outside vendor. “Policies on mobile devices, passwords and encryption are just part of an overall culture of data security awareness,” Silver says. “But be aware, a breach can happen.” Heather Buchta, partner at Quarles & Brady says business leaders need to engage in some internal due diligence and ask themselves these questions: • What internal policies are in place to protect data? • Is there a policy against removing devices from the business location? • Is there a policy to encrypt data? • Even more basic, what kind of data does a company have?

Advice from experts Here is what Valley legal experts advise businesses to do to lower their risk of a data breach:

Ari Bai, shareholder; and Nick Verderame, associate, Polsinelli: “Start preparing now. Bring in technical and legal help to assess your data and risk levels, create technical protections, implement company procedures to protect against leaks, educate your employees and leadership, organize annual ‘fire drill’ tests and prepare a reaction and notification procedure.”

» Heather Buchta, partner, Quarles & Brady: “Know your business. Know what data you have. Have an incident response plan in place in advance to facilitate the handling of an event when it occurs. Note I said, ‘when it occurs,’ not ‘if it occurs.’”

Ari Bai

Heather Buchta

» Leon B. Silver, office co-managing partner, Gordon & Rees: “Begin by assessing risk, including the availability of special ‘cyber risk’ insurance, which is not just for hacking and may provide coverage for both investigation and response costs, as well as defense and/or indemnity for third-party claims.”

» Paul Stoller, shareholder, Gallagher & Kennedy: “The best practice for a business is to create and maintain a comprehensive data privacy and security plan. That begins with an audit of the business’s data and the development of policies and procedures to manage its confidential information. Then, it is essential to train employees on both the policies and procedure and the potential threats to the data’s security.”

Leon B. Silver

“Risk of a breach increases as the volume of data a company has increases and oftentimes the data wasn’t even used by the business,” Buchta says, “which is creating an increased risk for no business purpose.” Despite a company’s best efforts to lower its risk of a data breach, Buchta says today’s hackers are getting more sophisticated and businesses always have the added risk of employee error. “The risk really lies in what was done ahead of time to try and prevent and breach and how the incident is handled afterward,” she says.

After the breach While a business can be proactive in taking the appropriate steps to minimize risk and being well equipped to handle a loss or theft if data or information, there are no measures that provide a guarantee of security, Silver says. “In fact, virtually every mid- to large-size company has already likely been breached, but the extent is either not known, or is not significant,” Silver says. “A big source of loss continues to be human error. That, coupled with continually evolving technology and more sophisticated theft/hacking measures equates to an ongoing need to stay ahead of the curve and simply arm yourself the best you can by adhering to and enforcing strict privacy policies following a thorough risk assessment.”

Paul Stoller

Nick Verderame

So what should you do if you’ve taken all the proper steps to reduce your risk of a data breach and your businesses is still victimized? “The first thing is always to identify the source and to fix the issue that caused the breach so that there is not any further loss or theft of data,” Stoller says. “After that, the business needs to work with its IT professionals to investigate what caused the leak, to identify those persons who may be affected and to preserve evidence of what happened.” Stella says it’s also imperative to work with legal professionals to determine a business’ legal obligations after a breach, including notifications to affected persons and government agencies. “Don’t delay in investigating and don’t delay in calling in the experts,” Buchta says. “Businesses should have an incident response plan and that plan should identify the key players to investigate and manage a breach — legal counsel, IT forensics, operations/HR, public relations and the executive team.” Because experts say a data breach is almost inevitable, it’s crucial for a business to develop and enforce sound privacy policies, including a response plan should a breach or loss occur, Silver says. “Such policies will also need to evolve over time as technology continues to improve,” he says. “The bottom line is to expect the unexpected, think ahead, keep thinking ahead, and do your best to prepare.”

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