Regina Executive Leadership Outlook Quarterly Report April 2017
Table of Contents Executive Summary
3
Economic Outlook
3
Executive Confidence Index
4
Current Conditions
4
Survey Highlights
5
Risk Management
6
Additional Questions
11
Conclusion
14
About the Report
15
Survey
15
Executive Interviews
15
Executive Summary The 2017 First Quarter RELO showcases a forward and strategic thinking business community, operating within a transitional economy.
strategic advice to the Premier, the largest group of respondents emphasized the need to strategically invest in human and physical infrastructure, and the need to positively communicate our economic strengths. This significantly outweighed suggestions to focus on austerity. Just as businesses are investing in their future and thinking strategically about what comes next, there is a hope that decisions being made today will position the GRA for long-term success. Executives similarly recommended that the GRA needs to actively engage in investment attraction, while encouraging our leaders to invest on infrastructure renewal.
Conducted in early March, 2017, prior to the federal and provincial budget release, this edition features an examination of the depth of risk mitigation strategies employed by our business leaders. Along with the Executive Confidence Index, we asked our executives what advice they would provide the Premier in light of the provincial economic slowdown, and sought their advice on what can be done to sustain Regina’s economic stability despite provincial budgetary concerns.
Executives in the GRA both understand and mitigate their risk and plan for the future. Over 70% of executives run organizations that systematically evaluate corporate risk, and 65% have a formal risk mitigation plan. GRA businesses are acquiring competitors, investing into innovation, strategically optimizing their supply chain and exploring new markets.
This quarter saw a slight drop in the Executive Confidence Index to 2.21. While down from the previous quarter of 2.23, the index is still well above where it was six months ago. Executives are less optimistic on the state of the economy compared one year ago, and nearly half report that their profitability decreased over the past year. While most indicators have slowed, there remain critical areas of optimism. This includes 84% of employers intending to employ more or the same amount of employees, and 84% of respondents indicating the Greater Regina Area (GRA) economy will stay the same or improve over the next year.
The Greater Regina Area economy remains stable and diversified. However to sustain this economic stability, executive leaders tell us we must be proactive and strategic, while continuing to tell the GRA story.
Executives believe that declining internal revenue combined with a slowing provincial economy and a decline in government spending present the greatest risks to the GRA’s economy. When asked to provide
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While most indicators have slowed, there remain critical areas of optimism.
Economic Outlook Executive Confidence Index
2.5
The Executive Confidence Index is a single statistic calculated to gauge leadership confidence in future economic prospects. It is an average taken from questions asking executives to look ahead 12 months. These questions ask executives about the future of the GRA’s economy, about their business’ future investments, future number of employees, future sales revenue and future profitability. In each question, a numeric value is assigned to a verbal response. A value of ‘1’ indicates an expected decrease. A value of ‘2’ indicates an expectation of the status quo, while a value of ‘3’ indicates an expected increase.
2.08
2.11
2016 Q2
2016 Q3
2.23
2.21
2016 Q4
2017 Q1
2
1.5
1
This statistic assumes equal weight across all five economic questions. The result is an average among all responses. In this calculation, the lowest possible result is 1.0 and the highest possible result is 3.0. A result above 2.0 means that executives are optimistic about the economic outlook for their business, while a result under 2.0 means that executives are pessimistic about the economic outlook for their business.
Current Conditions A calculation similar to the Executive Confidence Index will tell us how executives feel about today’s economic conditions compared to one year ago. In the first quarter of 2017, executives rate the current economic condition of their business, compared to one year ago, at 1.91, just under the neutral mark and 10 points lower than in the previous quarter
In the first quarter of 2017, the Executive Confidence Index is 2.21, a positive result above the neutral mid-point. This number represents a decrease of 2 points (2.23) from the last survey conducted in the fourth quarter of 2016. Note that the Executive Confidence Index is still well above where it was six months prior.
Current Index
2.5
2.23 2.08
2.11
1.87
1.85
2016 Q2
2016 Q3
2
2.21
2.01 1.91
1.5
1
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4
2016 Q4
2017 Q1
Future Index
Survey Highlights
In the next 12 months, will your firm’s total FIXED INVESTMENTS…
Executive Confidence Index is 2.21, down by 2 points from the previous quarter results. Overall the confidence index indicates optimism with only a very small decrease. There is a significant decrease from 58.0% in Q4, 2016 to 13.3% in respondents that think the economy is performing better today than one year ago. More (48.9%) feel the economy is doing worse. Compared to Q4 2016, there is a 3.3% decrease in respondents that expect the economy to perform better. 62.2% expect GRA’s economy to perform at about the same level over the next 12 months, this percentage decreased over the last two quarters,from 75%(June 2016) to 68.1% (November 2016) and now 62.2%
Q4 2016
Q1 2017
% Change
Decrease
10.6
15.9
50.0
Stay the same
48.9
45.5
(6.95)
Increase
40.4
38.6
(4.46)
In the next 12 months, will the number of people your firm EMPLOYS…
The largest group (45.5%) expects their business’ fixed investments to stay the same over the next 12 months. 15.9% of participants expect their investments to decrease over the next 12 months, which is a 5.3% increase from last quarter.
Q4 2016
Q1 2017
% Change
Decrease
12.8
16.3
27.3
Stay the same
55.3
51.2
(7.41)
Increase
31.9
32.6
2.19
In the next 12 months, will your firm’s sales REVENUE…
Over half (51.2%) say the number of employees in their business will remain the same over the next year; however, 32.6% expect to employ more people over the next year, which has increased (from 31.9%) since last quarter. Over half (51.1%) expect sales revenue to increase in the next 12 months. This is only 1% lower when compared to last quarter (52.1%). Just over a third (35.6%) of respondents had their revenue increase over the last year; the same amount (35.6%) said the sales revenue of their business had decreased over the last 12 months.
Q4 2016
Q1 2017
% Change
Decrease
14.6
17.8
21.9
Stay the same
33.3
31.1
(6.61)
Increase
52.1
51.1
(1.92)
In the next 12 months, will your firm’s PROFITABILITY…
Almost half (45.5%) expect their business profitability to remain the same over the next year, while 34.0% expect their profitability to increase. 20.5% expect a decrease, which is higher than last quarter, when 14.6% expected a decrease. Tables 1-4 demonstrate the percentage change in responses from last quarter. There is a slight decrease in the level of optimism from Q4 2016 to Q1 2017 when looking ahead 12 months.
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Q4 2016
Q1 2017
% Change
Decrease
14.6
20.5
40.4
Stay the same
47.9
45.5
(5.01)
Increase
37.5
34.0
(9.33)
Risk Management
SURVEY QUESTION:
How frequently does your organization conduct a risk assessment? Over half (56.5%) conduct regular risk assessments on an annual or more frequent basis. Only 10.9% say they do not conduct a risk assessment, 26.1% only do so on an as needed basis.
Risk management is increasingly a focus for boards and executive. Over the past couple of years, we have seen the impact of corporate risks such as volatility in resource prices impact companies in Regina and the greater area. SURVEY QUESTION:
Does your organization systemically evaluate corporate risk? A large majority (70.2%) of organizations operating in the GRA systematically evaluate corporate risk.
A large majority (70.2%) of organizations operating in the GRA systematically evaluate corporate risk.
More frequent than quarterly
6.5%
Quarterly 80.0%
17.4%
Annually
70.2%
32.6%
70.0% Less often than annually, but on a regular basis
2.2%
60.0%
26.1%
Sporadically
50.0%
40.0%
We do not conduct a risk assessment
10.9%
29.8%
30.0%
4.3%
Other 20.0%
NO
Other Comments: • We
constantly monitor leading indicators relevant to specific business units.
• As
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required; can be quite frequently if necessary.
35.0%
30.0%
25.0%
20.0%
15.0%
10.0%
YES
5.0%
0.0%
0.0%
10.0%
SURVEY QUESTION:
SURVEY QUESTION:
I n your organization, who is accountable for ensuring risk management is conducted on an ongoing basis? The Senior Executive Team is most commonly (65%) accountable for ensuring risk management is conducted on an ongoing basis. Followed by CEO (57.5%) and Board of Directors (30%). Only 7.5% have a risk manager accountable.
Does your organization utilize any of the following risk management tools? The majority (65.2%) of organizations utilize a risk management plan. Only 32.6% utilize a risk framework, and 21.7% utilize risk registries.
80.0%
80.0%
70.0%
70.0%
65.0% 57.5%
60.0%
65.2%
60.0%
50.0%
50.0%
40.0%
40.0%
32.6%
30.0% 30.0%
30.0%
20.0%
20.0%
21.7%
7.5%
10.0%
2.5%
0.0%
Other
Line Managers
Risk Manager
Senior Executive
CEO
Board of Directors
0.0%
10.0%
5.0%
Other responses were: • Quality
control manager
• Everyone
is encouraged to identify new risks or changes in existing risks
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Risk Registry
Risk Measurement Framework
Risk Management/ mitigation plan
Below are the key themes of responses from survey respondents when asked what worried them about the key risk area:
SURVEY QUESTIONS:
Please consider the below types of risks. What do you perceive to be the single greatest risk to business continuity in your organization over the next year?
REVENUE • W illingness
to adapt to new trends Increasing competition in a down-trending market will put profitability under pressure
What do you perceive to be the single greatest long-term risk to business continuity in your organization beyond the next year? The majority believe that “Revenue Risk” is both the largest long-term (54.3%) and short-term (54.3%) risk to business continuity in the GRA. A large group of organizations (42.2%) did see their primary short-term risk change when asked to consider if the risk was the same in the long-term. Operational Risk is the only key risk concern to be seen as more of a short term risk decrease from 15.2% to 4.3% of organizations believing it is the top risk.
• Ensuring
continued focus on new sources of revenue to ensure stability
• Customer
expense reductions
• Economy
/ reduction in consumer and government spending
• Lack
of recovery of economic conditions, and even worse, deterioration of current situation
• Disruptors
54.3%
54.3%
60.0%
• Job
coming into our industry
growth/contraction and its impact on population growth
• Capacity
issues to market and communicate our value in a compelling way to increase profile and revenue
Short Term Long Term
50.0%
• Increased
taxes, implementation of new types of taxes, and/or reductions in consumer spending impacts the bottom line
40.0%
• Cash
Revenue
Expense
13.0%
4.3%
Compliance
8.7%
8.7%
Reputational
8.7%
4.3%
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Operational
6.5%
0.0%
4.3%
10.0%
15.2%
20.0%
flow will be challenging in the resource sector for the next few years
17.4%
30.0%
• Global
Employee
8
pressures
OPERATIONAL
EXPENSE • Compressed
margins
• Monitoring
• Keeping
input costs down to compete with large multinational and overseas company in our industry
• Supply
of goods for sales can be volatile on a year to year basis
• Capital
dollars are required for development
• Emergence
• IT
REPUTATIONAL • Excessive
• Capacity,
concerned with ramp up costs for a new program.
• We
• Attracting
senior talent from limited talent pool in Saskatchewan
time and capital training new employees that leave for other employment
COMPLIANCE • Ensuring
business continues to be compliant in an ever-changing world
new people
• Retirements
strong capacity
• Privacy
and the challenge of back filling with quality people
• More
• The
attractiveness of our employees continues to be high in the marketplace causing increased turnover
• Managing
negative focus in the public can damage the brand
operate within a demographic that requires a great investment in development
• Spending
• Maintaining
of digital competitors putting pressure on current
processes
EMPLOYEE
• Training
of process
taxation is killing business and jobs
• Increasing
regulatory burdens on business creates uncertainty
• The
carbon tax and changes to resource taxes are ongoing uncertainty
capacity in relation to workload
• Uncertainty
our sector
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in the continuity of regulations that govern
The majority believe that “Revenue Risk” is the largest risk to business continuity in the GRA.
Each risk’s probability result was multiplied with its impact result from the previous two questions to demonstrate the comparative magnitude of each risk. This showed the slowing provincial economy was seen to be the greatest risk scoring 17.08 out of 25, followed by decline in government spending (13.59) and volatility of oil price (12.32).
SURVEY QUESTIONS:
Consider the list of risks below. For each risk indicate the impact to your business in the next year. Please rank each risk on a scale between 1 and 5; where 1 = very low impact and 5 = very high impact. Consider the list of below risks. For each risk, what is your opinion regarding the probability of this risk occurring in the next year. Please rank each risk on a scale between 1 and 5; where 1 = very low probability and 5 = very high probability. When asked to assess the probability and impact of specific risks on each organization, the decline in government program spending was seen as the most probable (4.13 out of 5) and the slowing provincial economy to have the highest impact (4.16 out of 5).
Oil Price volatility
Continued low value of the Canadian Dollar
Decline in government program spending
4.13% 3.29%
Changes in input/material cost
3.62% 3.40%
2.42%
2.91% 2.91%
Unfavourable NAFTA renegotiations
2.87% 2.80%
Retirement of key executive or staff
2.20% 2.38%
Foreign currency management
2.40% 2.00%
0.00
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1.00
2.00
3.00
4.00
9.10% 8.47% 8.03%
Retirement of key executive or staff
3.76%
Changes in input/material cost
9.77%
Unfavourable NAFTA renegotiations
2.91% 3.36%
Continued low value of the Canadian Dollar
12.32%
Agricultural commodity quality, yield and pricing
4.11% 4.16%
Agricultural commodity quality, yield and pricing
13.59%
Decline in government program spending
Slowing provincial economy
Oil Price volatility
17.08%
Slowing provincial economy
5.23% 4.80%
Foreign currency management
0.00
5.00
10
5.00
10.00
15.00
20.00
Additional Questions
• Start
putting together a budget that allows public sector spending to get the economy in Regina moving again and stop outsourcing anything and everything to suppliers outside of the province
SURVEY QUESTION:
I f you had the opportunity to advise the Premier, what action(s) would you recommend to address the economic challenges facing Regina and the greater area? How can we operate from a position of strength as opposed to crisis management? When asked what action(s) would you recommend the Premier could take to address the economic challenges facing the Greater Regina Area, 32.5% of the comments suggested strategic investing in innovation, infrastructure, and green technology. Only 18.4% of the comments spoke to some form of tax strategy, making cases both for and against a PST increase.
• Transportation
Improvement in two ways. Air transportation heavier Air Cargo. North-south corridor for truck traffic to connect with interstate in the US.
• Invest
in innovation; prioritize the environment and sustainability; find efficiencies within the crowns
• Increase
investment in infrastructure for municipalities, RM’s and First Nations
• Look
at direct provincial investment in job creation and business expansion rather that tax credits that can take years (if ever) to materialize
INVESTMENT COMMENTS • Invest
in Innovation
• Continue
• Allow
Carbon Tax so funds can be reallocated towards Green Technology (diversify)
to invest in physical and social infrastructure projects
• Concentrate
the spending so that we have decent health care facilities in the major cities then find ways to get sick people to the facilities. Improve capacity by leveraging what already exists
• Our
long-term economic outlook is directly linked to our ability to provide a well-educated and strong workforce. We must ensure more children are well-educated and graduating high school so they can become independent, contributing and productive members of our society.
• Regina
/ Saskatchewan still the land of opportunity. Let’s invest in telling the story. We have available labour, affordable real estate, positive tax and regulatory environment, transportation links, etc.
• Developing
diversified local economies than can weather the storms of global upheaval and uncertainty. Strategically investing in and supporting targeted sectors to encourage local business growth.
TAX STRATEGY COMMENTS
• Invest
in uranium processing plant in northern Sask. Look at nuclear power plant for northern Sask.
• Continue
to look for ways to balance the budget without adding new taxes that can damage commerce.
• Make
water management (sustainable supply for environment, communities and economic development) storm water management (climate change adaptation) and drought proofing a long-term focus for the province. Water management is core to advancement of our economy.
• Increase • Do
PST by 1% instead of cutting government wages
not lower taxes, Do not cut program funding
• Reverse
tax breaks that the government has implemented during its time in office
• Prioritize
road maintenance around economic value not political leverage. We can’t afford it.
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• Allow
Carbon Tax so funds can be reallocated towards Green Technology (diversify)
• Reduce • Resist
• Consolidate
the RMs, there is no basis for this level of governance
• Facilitate
/ Kick start. Let’s identify our strengths and competitive advantages and build on our strengths and successes to date
programs and lower taxes on small business
the temptation to materially change the tax structure of SK
• Be
more open to attracting business. Take down barriers to entry and provide world class services at reasonable prices such as hydro, water, etc.
FIND SAVINGS RESPONSIBLY COMMENTS SURVEY QUESTION:
• Manage the deficit in a more responsible manner, it’s not just about cutting
Given Regina’s economic stability, what recommendations would offer to position our community for continued growth, despite the provincial budgetary concerns? Please ensure your response is related to improving the Regina economic outlook.
• Budgeting
needs to be done more conservatively so we can live within our means if commodity prices decline
• Have
the courage to make the tough decisions on government expense
When asked what recommendations they would offer to position the Regina community for continued growth, despite the provincial budgetary concerns, 27.1% of comments expressed ideas for investment attraction, including enhanced coordination between regional stakeholders, as well as, supporting Economic Development Regina in focusing economic growth efforts.
• Continue
on the Transform agenda and make courageous, although potentially unpopular, decisions on how services are delivered
• Debt
and deficit to GDP is far better than most provinces. Accept a 2–3 year deficit. Adjust government spending but don’t increase income tax, decrease current incomes from Regina city provincial government workers, or transfer revenue losses to municipal government.
The next largest theme supported by 18.8% of commentary again suggested strategic investing in areas such as technology and major projects such as the Regina Revitalization Initiative.
OTHER COMMENTS • An
overall plan is needed opposed to knee-jerk reaction of focusing on a single budget year to find the $1.2 B in cuts
INVESTMENT ATTRACTION STRATEGY COMMENTS
• An
urban agenda is needed by the provincial government as the urbans are the economic drivers
• Consider • Involve
• A
• Support
growth and don’t try to subsidize the rest of the City on the backs of new entrants
accepting a deficit budget with a plan to remediate
more Saskatchewan Businesses in major projects
• Get
• Efficiency
and productivity are pitiful due to years of cutbacks with no thought about program delivery or policy, look at successes elsewhere in the world for inspiration
the GTH going faster
• Regina
and Sherwood RM need to resolve the issues and function as the “Greater Regina Region”
• Bolster
our Economic Development agency so that they can determine where we should be focusing our efforts towards economic growth
• Connect
Business Leaders to economies where success has already been achieved for Global competitiveness
www.praxis-consulting.ca
successful head office strategy would have tremendous spin off effects
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• Keep
PROMOTE REGINA
taxes and cost of services down to attract growth
• Continue
• Focus
on job/investment attraction - support your agencies doing that with budget increases
• We
need to counter the current “vibe” being generated by the provincial government which seems to be negatively impacting people’s perceptions
• Work
with more foreign investment to occur to help build stronger trade exports
OTHER
• We
need better coordination between province, municipality, private sector, and key stakeholders (e.g. Econ. Dev. Agency)
• Attract
to market the City to the country and the world
• Use
local suppliers and try and stimulate the mid-sized owner managed sector
senior manager/executive leadership to Regina
• Leverage
transportation infrastructure in and around Regina to grow manufacturing exports
INVESTMENT COMMENTS
• Open
• Know
who has the opportunity to grow their business and the economy and use resources like EDR to support them as best as they can
• Invest
in innovation and technology
• Focus
on infrastructure renewal
• Increase • Continue
• Change
on reducing spending, providing private sector the opportunity to perform functions currently managed by govt.
• Increase
in technology spend
provincial laws to allow Uber. We need better access to various forms of transportation. Being a car-centric, car-reliant city is no way to grow
• Look
• Invest
in science for oil /coal/ uranium environmental issues invest in the future of Saskatchewan long term
for meaningful ways to engage first nations in business
• Support
the development of Women in business as a way to drive growth and success for Regina businesses
city development Regina Revitalization Initiative!
• Involve
everyone in the Saskatchewan economy and not the select few that are politically aligned with government
SUPPORT ENTREPRENEURS COMMENTS to pursue the Entrepreneurship strategy
• Continue
to encourage entrepreneurs to set up businesses in the city by reducing the red-tape associated with the activity
• Commitment
tourism. Direct ties to export
• Change
to invest in infrastructure projects
appropriate, accelerate Regina Revitalization Initiative development timeline
• Continue
the Cities Act so that cities have more autonomy
• Focus
• As
• Inner
business cargo gateway opportunities to/from Regina
to investing in startup companies/entrepreneurs
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27.1% of comments expressed ideas for investment attraction when asked what recommendations they would offer to position the Regina community for continued growth.
Conclusion Many businesses are planning for the future with optimization, innovation and new ideas, and it is believed the government and community leaders throughout the GRA should plan in the same way, as it the decisions today will shape the prosperity of tomorrow.
This edition of RELO illustrated how the Greater Regina Area (GRA) business community prepares for risk and highlighted executive sentiment regarding the largest perceived risks to regional businesses and the economy. While the recent quarter showed a slight decrease in the Executive Confidence Index, the overall ranking of 2.21 demonstrates the overall optimism within the GRA. The majority of executives surveyed plan to employ the same amount or more people within the next year, and perceive the GRA economy to be stable.
With a continued positive Executive Index and solid risk management plans among our business leaders, the GRA should continue to experience stable economic growth.
Over half of all organizations in the GRA evaluate risk, with most of those having formal risk plans. Executives understand how to identify and mitigate risks, which has positioned them well during this transitional economy.
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About the Report The survey is distributed to a list of approximately 90 senior business leaders. The survey has an additional component entitled “The Economic Outlook”. This is a set of static questions asked each quarter that inform a unique Executive Confidence Index. This index is used to measure how confident executives are in Regina’s overall economy across each quarter.
Economic Development Regina (EDR), in partnership with Praxis Consulting (Praxis), began a quarterly publication entitled, “Regina Executive Leadership Outlook” in September 2014 that captures the thought leadership of senior business leaders in the Greater Regina Area (GRA) on key issues facing Regina and surrounding areas. Each quarter, Praxis and EDR pick a specific topic as the focus of the publication. Praxis then develops a survey questionnaire to gather quantitative data and an interview questionnaire to gather qualitative data using the chosen topic.
Survey
Executive Interviews
ieldwork for this project included 47 surveys completed F by CEOs and senior executives in Regina’s business community. Survey responses were received via an online survey, delivered to each participant by email. Responses were collected March 13 – March 22, 2017.
raxis and EDR also request in-person interviews with Regina P area-based executives to supplement the survey responses. Individuals are selected for an interview when their perspective, industry, or background aligning closely with the survey topic. All interviewee data remains confidential unless otherwise agreed upon by the interviewee for media use.
total of 91 survey invitations were sent; the response rate is 52%. A Margins of error cannot be applied to this type of non-probability sample.
Nine (9) executives were invited to participate in this quarter’s interview process. Five (5) were able to participate.
I n many cases data is captured on symmetrical, verbally-anchored five-point response scales. • On
this scale, responses of 1 or 2 are negative; a response of 3 is neutral, and responses of 4 or 5 are positive.
• This
report shows frequency of response at every option in the response set, along with a mean, to indicate the overall level of response.
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About EDR
About Praxis
Economic Development Regina Inc. (EDR) is the economic development agency for the Greater Regina Area.
Praxis Consulting is Saskatchewan’s largest locally-based management consulting firm.
EDR is a not for profit economic development corporation, governed by a volunteer board of directors. EDR provides leadership to the community to support industry growth and diversification through retention and expansion of existing business and encouraging investment, development of industry and tourism.
Praxis works collaboratively with clients in the facilitation of growth and excellence. Leveraging an unmatched wealth of experience across multiple sectors, Praxis adds value to their clients through:
In collaboration with key stakeholders, we work to identify, develop and promote opportunities that advance economic prosperity and ensure the Greater Regina Area offers a vibrant and diversified economy for investors, is a positive destination experience for visitors and offers a high quality of life for residents. David Froh, VP Sector Development E: dfroh@economicdevelopmentregina.com P: 306-789-5099 ext 230
• Research:
Information gathering and data analytics.
• Strategy:
Thought-leadership, rigorous planning, and pragmatic strategies.
• Results:
Cascading strategy and culture within the organization.
Val Sluth, Managing Principal E: info@praxis-research-strategy.ca P: 306-545-3755