IAMC CRE 2014 Executive Summary by Wichita Falls Chamber BRE

Executive Summary IAMC Fall 2014 Professional Forum

North Americaâ&#x20AC;&#x2122;s Competitive Advantage in Manufacturing

IAMC Fall 2014 Professional Forum North America’s Competitive Advantage in Manufacturing

Table of Contents Trends in Corporate Real Estate Departments: Growing, Shrinking, Outsourcing, In-Sourcing Page 3 CRE as Business Partner – Providing Greater Value to the C-Suite Page 8 The Capital Delivery Process – How Do You Do It Where You Are? Page 10 Developing the Disaster Planning and Recovery Binder Page 12 Prescriptions for the New Economy Page 16 IAMC Info Exchange Page 18 Try IT: The Future Is Closer Than You Think Page 20 CRE Isn’t Just Real Estate Page 23 Running Your Supply Chain with Military Precision Page 26 Supply Chain Risk Management Page 29 The Digital Factory of the Future Page 31 The Changing Landscape of Energy in North America Page 35 The Personal Leadership Payoff: How to Motivate Yourself to Win Every Time in Any Situation Page 37 Get Some Help! Page 39 Challenges & Open Innovation: Creative Solutions for Complex Problems Page 42

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Research Roundtable

Trends in Corporate Real Estate Departments: Growing, Shrinking, Outsourcing, In-Sourcing Moderators: Presenters:

Denis DeCamp, Manager of Corporate Real Estate, Akzo Nobel Ken Hagaman, Director of Real Estate, Anixter Inc. Robert Franksen, Senior Manager of Corporate Real Estate, USG Jim Hazard, EVP, E. Smith Realty

Main ideas • USG is taking proactive steps to strengthen its core business, diversify earnings, and innovate. • To achieve company goals, USG’s CRE team is helping Finance to reduce leverage and expenses. • CRE professionals must overcome challenges related to transparency, growing performance expectations, workplace change, and more. • In an overheated real estate market, CRE service providers can help companies with projects of all kinds and deliver value to the bottom line. • Participants weighed in on CRE challenges and promising topics for future IAMC sessions.

Overview In today’s competitive markets, the CRE team’s work plays a central role in improving the company’s bottom line. At USG, for example, the CRE department has outsourced most transactions and is focusing on value-added activities, such as identifying non-core assets and executing plans to monetize those assets. Looking ahead, CRE leaders should be prepared to outsource more work, accommodate changing workforce requirements, and execute projects overseas. Real estate service providers can help lean CRE teams handle special project requirements, navigate the current market where landlords hold the power, and generate value for their companies.

Context Robert Franksen and Jim Hazard discussed CRE trends from the end user and provider perspectives. Session participants brainstormed about the CRE challenges they are facing and potential topics for future IAMC sessions.

Key Takeaways USG is taking proactive steps to strengthen its core business, diversify earnings, and innovate. USG is a publicly traded company founded in 1902. The company manufactures building products (gypsum wallboard and ceiling products) and has a distribution group. USG is #1 or #2 in all core businesses, and 2013 sales were $3.6 billion. The company is vertically integrated and has over 75 production facilities, 145 distribution branches in 37 states, and sales and operations in over 20 countries. USG has developed a three-part plan to win in the marketplace: 1. Strengthen the core. Streamlining North American manufacturing and distribution operations is the focus of this initiative. USG plans to de-lever its balance sheet. Between 2007 and 2014, the company achieved $540 million in cost reductions. In 2013, USG generated net income for the first time since 2007 on $1.6 billion less in revenue. 2. Diversify the source of earnings. USG wants to build critical mass outside of North America. To accomplish this goal, the company has entered a joint venture with Boral and created the USG Boral Building Products group.

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IAMC Fall 2014 Professional Forum North America’s Competitive Advantage in Manufacturing

Another strategy for diversifying earnings has been low-cost product adjacencies. L&W Supply sells seven core products, as well as third-party products through USG distribution channels. Recent new product introductions include commercial roofing products, shower systems, and flooring. 3. Differentiate through innovation. USG focuses on highperformance products and solutions that improve energy efficiency, sustainability, and speed of construction. It has been the leader in innovation for lightweight construction products like cement board and sheetrock. Robert Franksen described USG’s five areas of business: • Gypsum wallboard. USG is the North American wallboard leader. It offers low delivered costs through a world-class logistics model and a network of high-speed plants. Plants are located near raw material sources. In 2013, USG had 26% market share in the U.S. for wallboard and gypsum panels. • Ceilings. USG holds the #2 position in this industry. Ceilings are a profitable business with stable margins throughout the economic cycle. It is heavily reliant on the commercial sector for sales. USG has three manufacturing plants in the central U.S. as well as other smaller plants. • Distribution. USG’s distribution business is L&W Supply. About two thirds of distribution revenue comes from commercial construction. Existing branches were gained through acquisitions. Looking ahead, selected greenfield growth is expected. • Quarries and Mines. USG has quarries and mines in the U.S., Mexico, and Canada. • USG Boral Building Products Joint Venture. This business arrangement gives USG critical mass to grow markets outside the United States. By adding international revenue to the portfolio, the company expects to dampen future business cyclicality by 10 to 15%.

To achieve company goals, USG’s CRE team is helping the Finance team reduce leverage and expenses. USG’s Finance team is committed to de-levering USG’s balance sheet and optimizing its capital structure. In addition, Finance wants to reduce the amount of time spent on transaction

processing and spend more time on value-added activities like decision support, control, and insightful reporting. The goal is to reduce the cost of finance as a percent of revenue to world-class levels, which is around 0.6%. The Corporate Real Estate (CRE) team is supporting Finance’s strategic initiatives by identifying all potential non-core assets and executing plans to monetize those assets. CRE has had the most success disposing of surplus properties on the distribution side, since their locations are attractive to buyers. The Property Department is composed of Mr. Franksen and one shared analyst. To fulfill its mission, the group uses best-inclass service providers and consultants in the following areas: • Corporate real estate portfolio services. USG’s current vendor for brokerage and corporate services is Jones Lang LaSalle. • Strategic planning and development. • Property tax appeals and administration. Ryan is the company’s current vendor. • Economic development consulting and leadership. KPMG provides USG with economic incentive and tax consulting services. • Lease and contract database management. USG’s current vendor for lease database management is MacMunnis.

CRE professionals must overcome challenges related to transparency, growing performance expectations, workplace change, and more. Worldwide, corporate real estate professionals face a variety of challenges. The top four challenges identified in Accenture’s 2013 Global Real Estate Survey include: 1. Aligning real estate strategy with business strategies (cited by 83% of respondents) 2. Pressure to reduce costs (80%) 3. Overgrown portfolios that result in grossly underutilized assets (76%) 4. A lack of transparency and insight across the portfolio to support decision making (60%)

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Mr. Franksen underscored the importance of real estate transparency. Without it, CRE can’t proactively meet dynamic business demands and real estate opportunities are missed. Mr. Franksen reviewed five global CRE trends: 1. Increased performance. Companies want the maximum return on their assets, including real estate. As expectations and pressures build, it will heighten the risk of underperformance. 2. Increased outsourcing. Increased demand is leading to a faster-paced evolution of CRE outsourcing. This is due in part to CRE headcount reductions and the need to find the best resources to address different activities. 3. Workplace change. Workplace transformation is the key to unlocking worker productivity and optimizing portfolios. USG, for example, is considering whether to move its R&D facility from a suburban location to a more urban one to attract better talent and to increase collaboration. 4. Shared services. CRE must become a collaborative change agent. This means participating in shared services models. 5. Emerging markets. Failure to deliver in emerging markets will become CRE’s greatest reputational risk. A small international project can be as challenging as a large domestic one. “For CRE professionals, failure to deliver in emerging markets is a major source of reputational risk. It’s important to remember that from a CRE perspective, small international projects can be as challenging as large domestic ones.” ––Robert Franksen

In an overheated real estate market, CRE service providers can help companies deliver value to the bottom line. CRE trends from the provider perspective differ from end user trends. E. Smith Realty Partners was founded in 2013 and is a minority owned, national, full-service real estate services company. The firm differentiates itself by knowing its clients, the business, and how to serve. E. Smith Realty Partners’ goal is to drive revenue for customers through cross-selling, branding, and public relations. The focus is on total operational

cost, rather than simply real estate cost. There is true team collaboration among all service lines (retail, office, industrial, and capital markets). Jim Hazard identified six CRE trends from a provider perspective: 1. The growing influence of supply chain executives. Supply chain leaders are increasingly becoming the individuals who initiate real estate deals. It is essential to understand where real estate fits into the bigger picture for the business. This is especially true in retail where the Amazon effect is making same-day delivery the norm and the location of warehouses is key to business success. 2. Healthy competition delivers premium results. Companies are splitting up real estate projects among multiple providers. This increases competition and improves results for end users. E. Smith Realty Partners is happy to share best practices with clients in an effort to deliver the best service, even if it means that information is also accessible to competitor firms. 3. Separation of portfolio requirements from special project requirements. When companies have specialized real estate needs, they need expertise and may bid out projects to different groups within a real estate firm or among multiple firms. Special projects often are associated with large capex numbers and require special attention. 4. Reap the value the company creates. Real estate providers should work with their clients’ capital markets departments. If a company’s move costs are not substantial, Mr. Hazard recommends short-term leases of about three years in length. Portfolios are at historically low cap rates. If a firm has substantial assets, the company should leverage accordingly and try to get better incentives than they originally planned on. 5. Accept and prepare for current market conditions. It is a 100% landlord market today. There are no deals to be had. Companies must make real estate decisions faster and be ready to execute immediately, otherwise properties will be lost to other buyers.

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IAMC Fall 2014 Professional Forum North America’s Competitive Advantage in Manufacturing

“Companies must accept where the market is at. In a 100% landlord market, it’s essential to make decisions faster and to execute immediately.” ––Jim Hazard

• CRE’s role as we transition from recession to economic recovery • Dealing with the Foreign Corrupt Practices Act • Economic Incentives 101

6. Who you are is greater than what you do. Many RFPs now require providers to discuss their culture and business philosophy. This is not surprising, since relationships are a central part of doing business.

• Relocation and Manufacturing in Latin America and Asia

Participants weighed in on CRE challenges and promising topics for future IAMC sessions.

• How to develop a strategic facilities plan that matches corporate goals

Session participants participated in table discussions focused on changes facing CRE departments. Major conclusions included:

• Workplace strategy

• Developing internal relationships with business units is important. These connections can streamline real estate projects, achieve cost reductions, and enhance business growth.

• Onshoring impacts on CRE • The financial considerations associated with buy vs. lease

• The role of rail in CRE • Top-line growth and how CRE contributes Sponsored by CenterPoint Energy and North Dakota Department of Commerce

• The company culture influences the work environment. Not all companies have cultures that are conducive to working from home, for example. • Many companies are locating distribution centers closer to end customers. Businesses want products placed close to end customers, rather than near the manufacturing site. • There are high expectations for the CRE team to deliver value. Corporate real estate professionals are under pressure to reduce rents and to educate the company about the changing marketplace. Although CRE teams are expected to make fast decisions, C-suite decisions are usually made slowly. The group also brainstormed ideas for future IAMC sessions. Over the next few months, members will be asked to vote on the most popular topics. Participants suggested that sessions focusing on the following areas would be useful: • Explaining the value of CRE expertise to new company leaders • Training and educating real estate professionals • Managing CRE outside North America • Structuring Master Service Agreements

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Distribution Industry Group

CRE as Business Partner – Providing Greater Value to the C-Suite Moderator:

Michael Landsburg, VP of Real Estate, NFI Industries

Overview The Corporate Real Estate Department (CRE) manages numerous activities with important strategic implications. Therefore, it makes sense that CRE and the C-suite collaborate to maximize corporate performance and flexibility. However, if CRE lacks input into corporate strategic planning, the resulting strategies can be expensive and slow to implement, and can have limited benefits for shareholders. Implementing processes that promote information sharing is essential. These may be regular meetings between CRE and members of the C-suite. Alternatively, structured processes for evaluating and approving new projects can be beneficial. Whatever approach is used to educate executives, CRE professionals must be flexible and adapt as necessary when new leaders join the organization.

Context The Distribution Industry Group discussed the CRE and C-suite relationship, and shared examples of successful collaborations.

Key Takeaways When expense reduction is a top priority, close collaboration between CRE and the C-suite is essential. Owens & Minor provides medical products logistics services for hospitals. Since the company is publicly traded, there is constant board pressure to improve earnings. Given the low margin nature of the business, the C-suite actively wants to reduce expenses.

Location decisions for the company’s 42 distribution centers (DCs) are made based on hospital client locations. Because Owens & Minor needs flexibility to move DCs in response to client requirements, 10-year leases are rare. When DCs are moved (which may happen two to three times a year), it is a costly proposition. The transition must be completed over a weekend because hospital supply needs are continual. To prevent downtime, all new automation and racking equipment must be purchased for a new DC. Given the costs associated with DCs and the company’s focus on expense reduction, to help better manage costs the CRE team created a list of all domestic leases ordered by expiration. Wayne Dishman, director of CRE, reviews this information with the CEO once per month to ensure that the CEO understands the broader business implications of all DC and real estate decisions. “Once a month, we get the CEO’s input and approval on all domestic leases. This ensures that real estate decisions are linked to business implications.” ––Wayne Dishman, Owens & Minor

To expedite executive review and approval, consider a standardized process for CRE project evaluation. Kohler is a privately held company with over 650 buildings in 27 countries. The majority of the building portfolio (85%) is company owned and the remainder is leased. The CRE function, headed by Paul Bouschard, reports to Engineering.

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In addition to Bouschard, the CRE team is composed of three staff, as well as one analyst and one space planner. Each year at Kohler the business units send hundreds of projects having real estate implications to the C-suite for consideration. To make cross-project comparisons easier, the company created a standardized project approval process called Authorized Corporate Transaction or ACT. For every project, an ACT form must be completed which includes the project title, cost, history, justification, risks, alternatives, comps for like buildings in like areas, and why the recommended option is the best alternative. Business units complete the ACT form and CRE helps with the comps. This team effort has helped the CRE group build positive relationships with the business units. Standardizing what executives see and use for decision making has expedited the project evaluation and approval process. Each ACT is reviewed by 10 to 20 people and reaching a final decision can take from 2 to 12 months. An electronic system routes ACT forms efficiently and includes user security and permissions. Efforts are under way to get ACTs approved with a dollar range for a project, but that approach has not yet been accepted.

• Educating the C-suite about CRE. The group discussed the challenges associated with educating superiors about CRE, especially if the executive responsible for CRE is from a vastly different background such as HR. Participants emphasized the need for flexibility and a willingness to adapt work styles.

Suggested Action If the C-suite doesn’t fully understand the business implications of decisions affecting real estate, create standardized mechanisms for facilitating that knowledge. There are many different approaches such as regular meetings or briefings, or a standardized review and approval process.

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“Using a standard form for projects makes it easy for the management team to evaluate the bottom line. They like to look at consistent numbers, which enable comparisons between projects.” ––Paul Bouschard, Kohler Company

Other Important Points • Decision-making speed. Session attendees participated in a poll about the efficiency of the CRE decision-making process in their organizations. About half of all attendees felt that decisions are made more quickly today than in the past, while about 30% believed decision making was slower, and about 20% suggested their pace of decision making was unchanged. • CRE’s place in the organizational structure. A survey of session participants found that CRE reports into a wide variety of places in the organization, ranging from the Csuite to the supply chain to operations. Many in the group report into operations.

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Health & Science Industry Group

The Capital Delivery Process – How Do You Do It Where You Are? Moderator:

Gig Codiga, Associate Director of CRE, Genentech

Overview In large global companies, capital projects often take longer to complete than planned, and contracting (bid through fully executed contract) can take three months or longer, even for a routine scope of work. This is a source of frustration for project teams. Company cultures often dictate whether CRE teams enjoy lightweight approval processes or multi-stage reviews. Although multiple approvals can reduce project risk, they also lengthen delivery times. Using suppliers of choice is one approach for streamlining projects, as is linking facilities planning with the purchase of long lead items like production equipment.

Context Participants discussed processes for approval of capital projects, and how obstacles and timelines can be reduced.

Key Takeaways In many organizations, a multi-phase capital project approval process is a C-suite requirement. Session participants shared information about their capital project approval processes. Different organizations require varying degrees of review and approval. The consensus was that multi-stage processes with several approvals are common. • Genentech. The capital project phases at Genentech include define, develop, execute, and close out. Teams must identify the business objectives and business case, define the team, establish the project scope, finalize the design, and engage in contractor procurement and sourcing. Projects of less than $5 million go through a Sub-Capital Governance Committee for approvals; projects

between $5 million and $10 million go through the Capital Governance Committee; and anything over $10 million must be approved by the Executive Committee. • Becton Dickinson. Becton Dickinson uses a similar process. When corporate real estate moved under procurement two years ago, the C-suite learned that the CRE team wasn’t using the same processes as the rest of the company. Company executives now require every contract to go through a signature process. • Pfizer. Pfizer has taken proactive steps to dramatically streamline its capital project process. The corporate real estate team used to have a multi-stage approval process. But they reviewed this process to assess the value of the various stages. They found that after the first review and approval, subsequent approvals didn’t add significant value. Now projects are reviewed and approved just once, and a report-in process is used for the remainder of the project lifecycle. Once a capital project appropriation (CPA) is approved, individuals can sign off on subsequent purchase orders as long as they are funded within the project. In addition, the CRE team doesn’t deal with the entire project delivery spectrum.

Detailed capital project processes can reduce risk but may translate into longer timelines. Bill Langner from the Global Real Estate Construction Group at Becton Dickinson described the company’s approach to capital projects. Completing a project typically requires between 19 and 30 months, with a target of 16 to 22 months. The capital process has six phases: pre-design (including project

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IAMC Fall 2014 Professional Forum North America’s Competitive Advantage in Manufacturing

definition), capital approval (done in parallel with pre-design), contracting, design, construction, and close out.

Some organizations find it difficult to link facilities planning with production equipment purchases.

Project inception to contract bid execution usually takes between 11 and 18 weeks, with a target of 12 weeks. The tasks associated with this phase include finalizing scope and statement of work, releasing the RFP, handling the proposal period, receiving and reviewing proposals, conducting proposal Q&A with vendors, identifying the short list of vendors, selecting the finalist, preparing/negotiating/finalizing the contract, and executing the contract.

Often, long lead items like production equipment are overlooked during the capital project approval process. It is not unusual for CRE teams to work overtime to shorten the facility completion schedule, only to find that the production equipment will arrive six months later.

Mr. Langner made the following observations about Becton Dickinson’s processes: • The capital project process flow is very detailed. The Global Real Estate Construction Group uses a five-page capital process flow that outlines the steps required from project inception to capital budget approval. For stakeholders outside the group, the five-page document was streamlined to a two-page process map. • Asking for seed money up front saves time. Seed money is requested to begin planning. That saves about six months. • Accurate project scope information is essential to efficient contracting. During the pre-design phase, an iterative process is used to solidify the user requirements. Internal staff define the requirements and outside design firms complete them. Design build firms help confirm budget numbers. The delivery package that comes out of the pre-design phase is schematic design and a cleanedup basis of design. • Various factors can prolong project delivery. Scope redefinition throughout a project inevitably results in delays. Other things that slow projects include hesitation to approve the project, proposals that exceed the project budget, and vendors that take exception to agreements late in the process. • A consistent project team is recommended. Adding new project team members during the process can lead to reinventing the wheel. This is especially true on the procurement side. It is preferable to maintain a consistent team throughout a project. This can be challenging when internal staff are not dedicated to the project.

“We need to talk to people in the company who care about speed to market for new products and explain that a key aspect of speed to market is project delivery. They must understand how company processes affect the time it takes to get our work done.” ––Session participant

Pfizer addressed the issue by putting real estate and production equipment purchasing for R&D under one capital planning function. The CFO and real estate person for R&D must co-approve all projects, whether they are for equipment or facilities. These leaders also co-present the overall R&D capital plan to the R&D leadership team. Co-partnership and holistic approval processes have been very helpful.

Other Important Points • Master service agreements. Bringing third parties in under an MSA isn’t always a time saver. It typically takes 4 to 6 weeks to negotiate the agreement, input information into the ERP system, and generate a purchase order. • Suppliers of choice. If suppliers of choice understand a company’s processes, standards, and expectations, it can result in more consistent service delivery. If relationships aren’t based on trust, it can lead to friction and wasted time. “Contractors must be partners, not adversaries. You have to set expectations at the outset” ––Session participant

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Manufacturing Industry Group

Developing the Disaster Planning and Recovery Binder Presenter

Raymond Ocasio III, Manager of Real Estate, Gulfstream

Overview For manufacturers, particularly of expensive capital equipment, a business continuity plan is a must. Gulfstream Aerospace’s main aircraft assembly facility is located in hurricane-prone Savannah, Georgia. The company cannot allow natural disasters or anything else to destroy parts worth millions, disrupt mission-critical supply chains, or slow production for customers that have put up large sums to have multi-million dollar aircraft built for them. The company’s reputation and market share could be jeopardized if production were out for long. Likewise it would be intolerable if a data breach allowed hungry competitors access to Gulfstream’s intellectual property or other proprietary information. Fortunately, Gulfstream’s comprehensive business continuity plan greatly mitigates such risks. It is the result of intensive brainstorming and consensus forging among senior leaders. It is work that is never done, as the plan is continually being refined in the attempt to leave no imaginable scenario unaddressed.

Context In this workshop, participants learned about the creation and composition of the business continuity plan that Raymond Ocasio spearheaded for Gulfstream, a division of General Dynamics. They brainstormed about what a business continuity plan should cover and discussed their own corporate practices and cautionary tales.

Disruption of Business Doesn’t Have to Mean Chaos During a summer storm in 2014, lightning struck 420-volt power lines at Gulfstream’s main plant in Savannah, where most of its aircraft lines are manufactured. The plant lost power; manufacturing stopped completely. The aircraft service center, an important business, experienced intermittent power outages. But the company was ready, having invested the time to create a thorough business continuity plan. As soon as the power went out, Mr. Ocasio and leaders from the Security department, the Environmental Health & Safety division, and the adjacent airport’s fire department met in one of the company’s three emergency command centers. These control rooms are powered by generator and outfitted with video monitoring equipment, Internet access, wireless controls, and everything else the company needs to assess, react, and communicate in an emergency. Everyone had pre-assigned roles and responsibilities to carry out that they knew well. Some of the first actions taken: • “Safety first” is the company’s motto in a crisis, so the area with dancing power lines was secured to ensure that no one could get near them.

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IAMC Fall 2014 Professional Forum North America’s Competitive Advantage in Manufacturing

• On any given day 13,000–15,000 people might be on campus, including 12,000 employees and various vendors and contractors. Within the first 10 minutes, an automated notification system briefed everyone affected and alerted everyone to work shift changes via voice message, text, and email. People indicate receipt of such messages by pressing a button or clicking, so the company knows whether any personnel are unaccounted for in an emergency. Gulfstream issues smartphones to all employees to simplify the process. • For components that must be kept at certain temperatures or they will be ruined, loss of power is a serious problem, potentially costing millions of dollars in seconds. To ensure that never happens, two facilities (chilling and auto-glazing) have two levels of backup generators. Still, checking that those facilities hadn’t lost power was another immediate priority. The local electricity provider, Georgia Power, is on the command center’s speed dial; a Georgia Power field representative remained in close contact with Mr. Ocasio throughout the incident. Also on speed dial are non-local contractors and suppliers who could help the company resume normal operations if a regional emergency incapacitated its local partners. Had this disaster been a hurricane with the force of Katrina, out-of-state contractors would have assembled at road closures so they could get to Gulfstream’s Savannah campus as soon as roads reopened. If normal production processes had remained impossible for very long, the business continuity plan would have dictated that aircraft assembly operations be moved to hangars at the nearby airport. Assembled planes would have been flown to company locations in Texas. But in this instance, power came back up in about five hours, and production processes resumed as normal. The business continuity plan had kept operations (albeit not the usual ones) running smoothly.

Key Takeaways Business continuity planning helps organizations recover faster from disasters. Business continuity plans help companies restore missioncritical functions in the face of disasters that make normal business impossible. Disasters might disrupt production; they might interfere with the supply chain’s smooth functioning; they might create a human capital shortage. Anticipating what might go wrong and planning proactively how to deal with those scenarios is well worth the time and resources expended. With solid business continuity plans in place, the organization will get back up on its feet faster, at less cost and with less chaos. Some of the key objectives of business continuity planning include: • Safeguarding human life. • Minimizing confusion during an emergency (e.g., over who is responsible for doing what). • Prioritizing facilities, functions, and processes; determining what resources each would need to return to normal operations. • Minimizing the loss of vital data and records. This is very important to Gulfstream, whose competitors would love to access its proprietary data. Rather than store data in the cloud as many companies do, Gulfstream keeps it in servers encased in “i-fortresses,” which Mr. Ocasio called “literally waterproof vaults.” “We’ve built i-fortresses that could float down the Savannah River and not have any loss of data in the servers. In the event that we couldn’t get to it for days, our data is safe. . . . From a security standpoint, we didn’t want that out there in the cloud.” ––Raymond Ocasio

The process involves senior leaders forging consensus on what is most critical to the business. Business continuity plans start with clear understanding of what is most critical to the business; i.e., which functions, facilities, and resources most need to be safeguarded and

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which processes need to be restored first. These decisions must be made by senior leaders; the heads of each functional area need to take the time, often laborious work, to forge consensus on these tough but critical decisions. Only then can more detailed planning take place. It is helpful to hold business continuity planning discussions offsite, away from workplace distractions. After the prioritizing is done comes brainstorming about different kinds of disasters, their possible effects on operations, and the actions to take under those hypothetical scenarios. From those discussions, a plan is gradually built and continually revisited and refined. “We start thinking about types of events and how you recover. So we’re always brainstorming. People say, ‘What if this happened?’ ‘What if that happened?’” ––Raymond Ocasio

Other best practices include figuring out what procedures to implement under disaster scenarios. Other best practices in business continuity planning include: • Make sure decisions are data-based. Getting the right information to make the critical prioritization decisions is hugely important. • Figure out what new processes, procedures, and policies you may need under various disaster scenarios. For example, how would you safely shut down the systems of a building you had to evacuate? How long would you pay employees who were unable to return to work? We often take connectivity for granted, but how would you communicate with your other locations if telecommunication systems and the Internet weren’t operating? How about if you couldn’t reach them physically via roads? “How do you think about connectivity to the outside world? It’s roadways. It’s rail. It’s the supply chain. . . . [The] connectivity world expands exponentially as you start thinking about its different components.”

• Set up an emergency command center. Or establish several, as Gulfstream did, powered by generators and outfitted with comprehensive IT systems. Suggested Action: Set up emergency command centers. —— Have one point person in charge of execution of the business continuity plan. —— Create “disaster packs” for key personnel. At Gulfstream, senior leaders and those responsible for executing business recovery plans have stored for them several “disaster packs” of emergency provisions including satellite phones (in case conventional telecommunications systems are down): one pack at their homes, one at each of the firm’s command centers, and one at a hotel. —— Build redundancies into manufacturing processes and supply chains. In the event that some of your usual facilities or suppliers are rendered inoperative, you want to have ways to resume operations without using them. If they are mission-critical resources, two fallback plans might be prudent (called “N + 2” redundancy). Suggested Action: Build redundancies into manufacturing processes and supply chains. —— Create plans for all locations company-wide. Tailor business continuity plans to the most likely disasters for locations, considering geopolitical risks, climate, the potential for social unrest, etc. —— Involve vendors and suppliers in business continuity planning. Make them aware of how your plan may affect them, and learn what they would do to meet the demands of your business in the event of a disaster. If they in turn have suppliers whose business disruption would affect your business, you will want to know their business continuity plans too.

––Raymond Ocasio

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IAMC Fall 2014 Professional Forum North America’s Competitive Advantage in Manufacturing

—— Maintain good partnerships with local electric power, transportation, police, and civic authorities. Involve them in your business contingency planning. You don’t want to be calling senators in the midst of an emergency like Katrina so that you can pass a roadblock to access your facility, as one workshop participant had to do! Make plans in advance so that you will be granted access.

—— Continually develop and improve plans. There are so many potential disasters that could affect operations in various ways that no business continuity plan is ever complete. Keep working to flesh it out further to address more scenarios and become even more prepared. Sponsored by TeamCalifornia

—— Test business continuity plans via disaster scenario simulations. Incorporate learnings from these exercises into plan improvements. Suggested Action: Test business continuity plans via disaster scenario simulations. —— Use drills to train employees on what to do and expect under emergency conditions.

our thAnks to IAmc members And stAff for JoInIng us lAst september. we hAd AmAzIng forum And look forwArd to seeIng you AgAIn!

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Pub_QcExecutiveSummary_v4.indd 1

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General Session

Prescriptions for the New Economy Presenter:

Lou Dobbs, Host of Lou Dobbs Tonight, Fox Business News

Overview Polls show that Americans are concerned that their national leaders can’t lead and the country is headed in the wrong direction. Plenty of issues suggest so. But it is not too late to change that direction. All Americans must get involved and help build a brighter future.

Context In expressing disappointment and hope, Mr. Dobbs candidly shared his world view.

Key Takeaways America’s national leadership is lacking. Much is going wrong in America today: • The national debt is being ignored. The U.S. economy is $17 trillion but the national debt is rapidly approaching $18 trillion. The budget deficit will be an estimated $560 billion this year alone. That is down from the $1 trillion level of a few years ago, but is still extremely high. Elected officials are ignoring this problem; the media isn’t holding politicians accountable; and the public seems to be accepting this state of affairs. • The current economic recovery has been the weakest since World War II, creating far fewer jobs and generating far less business investment than usual. The labor force participation rate of 62.8% is the lowest in 35 years. Some 93 million Americans are not in the labor force. What little growth

the economy has experienced over the past few years is a testament to the power of capitalism. • The Obama administration’s policies are misguided, both foreign and domestic. “International adventurism” gets America involved in conflicts that are not its own, sacrificing American lives for reasons far removed from defending national interests. Additionally, America legally admits more immigrants than any 10 other nations combined. • The American people are disillusioned with the current administration. According to Pew and Gallup polls: —— 70% of Americans think the country is headed in the wrong direction. —— 52% judge Obama’s presidency to be a failed presidency, and 57% of those people regard his foreign policy as a disaster. —— 60% would prefer to see Republicans controlling Washington. • Leaders in both parties are lacking. Lou Dobbs cannot find a single leader in Washington, of either party, acting in the people’s interests. Out of the lips of Democrats and Republicans alike comes only “semantics, parsing, and obfuscation.” None talks with the “plain-spokenness” that characterized the hard-working, moral Americans of generations past.

Energy independence is a bright spot on the horizon but requires visionary leadership. The United States’ and Canada’s emerging energy independence is one bright development, a “miracle of the 21st

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century.” The geopolitical conflicts of the future will be based on energy. America needs leaders with the vision and competence to leverage energy independence for the nation’s benefit.

The U.S. is approaching a defining moment. America needs to “get back to business,” with pro-business policies that allow hard-working small business people to grow their companies unfettered by onerous levels of taxation or regulation. “We have an economy on the precipice of great things. It’s also on the precipice of moving in an entirely different direction. ––Lou Dobbs

The mid-term congressional elections in November 2014 represent a critical juncture. Americans will determine “who we are and where we are headed as a nation.” Mr. Dobbs (accurately) forecast that the Republicans would win control of both the House and Senate.

Americans need to get involved in politics and help create the future. Mr. Dobbs urged people to get involved in local politics, to take part in helping to build a better future. Washington sorely needs a pipeline of talented young leaders to replace those leading the country today. Mr. Dobbs looks to local districts around the country to supply it. It is not too late to change the direction in which America is headed, but it is the responsibility of us all to help do so.

Sponsored by: Angelo, Gordon & Co., Cassidy Turley, Greater Conroe Economic Development Council, San Bernardino County Econ. Dev. Agency, GO Topeka Economic Partnership, Kansas Dept. of Commerce

The Ideology of Lou Dobbs Mr. Dobbs explained the values he grew up with, the America he remembers, the gap in that ideal versus the reality of today, and his belief in Americans’ ability to create a better future. Some quotes: • “I was raised to say what I mean and mean what I say, and if I start a fight to finish it.” • “I’m a free-enterprise, free-market capitalist.” • “I’m neither an isolationist nor a defeatist. I’m an American. I remember when Americans were defined by plainspokenness, high moral standing, ethics, ingenuity, ability to adapt, and willingness to work relentlessly to build a better life for our families.” • “I’m sick and tired of folks who’ve never put their own butts on the line yet are willing to send our men and our women into war without understanding what they are talking about.” • “Growing up, I was never told that there will be easy choices and hard choices and to knock the easy ones out of the park but just skip over the hard ones.” [Referring to the national debt.] • “The issues go on and on, but the reality is that the national media refuses to hold accountable those who make public policy choices and to look at the consequences of those choices.” • “Those who worry about the future, I join you. But I also know that we still have ... that future to seize for ourselves and to shape for ourselves.” • “[People say] let’s take back America. … It’s not America we have to take back. It’s our own pride, work ethic, sense of self, and sense of our own future and that of our children.” • “The future is definitely not what it once was, but it is still ours to determine. And I believe enough in Americans to believe that it’s going to be a bright future indeed.”

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Workshop

IAMC Info Exchange Moderators:

Margaret Grissom Gittner, Principal, Peake Consulting, LLC Jennifer Lantz, Executive Director, Wilson Economic Development Council

Overview In small group discussions, corporate end users, economic developers, and service providers shared information about how to better meet the challenges associated with the industrial and manufacturing sectors. A few of the groups reported out on highlights from their small group discussion. A few highlights are summarized below.

Key Takeaways Session participants shared their thoughts on industry trends, CRE challenges, and incentives. After engaging in small group discussions, several tables offered a brief report out to the entire group. Several key themes emerged: • Industry trends. One group discussed re-shoring of manufacturing. Low energy costs are an advantage to locating plants in the United States. Worldwide, there seems to be a thirst for investment in the United States. International companies are acquiring American businesses to gain a presence in the U.S. market. In the pharmaceutical sector, industry consolidation is occurring. • CRE concerns. CRE professionals face challenges in today’s landlord market. It is difficult to find and then lock in space that will meet supply chain requirements. Deal times and durations are a concern. CRE teams feel pressure to complete deals quickly, yet approvals at higher levels in the organization often slow the process. As organizations search for locations, they are looking at labor and transportation costs, as well as the operational efficiency of buildings. In some instances, sustainability

considerations, such as LEED or solar, are a factor. More generally, CRE teams are trying to determine which activities to outsource versus keep in-house. • Incentives and tax credits. One group felt the top incentives are grants, tax credits, and utility incentives. Another group felt “cash is king” and front-end incentives were most attractive. Open questions included how to structure tax rebates and how to negotiate incentives. • Workforce issues. One group felt the younger generation of workers doesn’t retain information well, in part because they are distracted by smartphones and other digital devices. They described this as “digital dementia.”

Additional Comments Since time did not allow for all tables to report their findings, notes were submitted to the session organizers. A summary of additional conclusions and recommendations from these notes includes: • Day-to-day activities. Participants are challenged by business cyclicality and other non-controllable risks, as well as unexpected new requirements and regulations. Real estate markets are tightening and it is quickly becoming a landlord market. Many organizations are signing fewer long-term leases so companies can be more flexible and chase emerging customers. Some CFOs are concerned about interest rate risk. CRE performance is measured in terms of the team’s day-to-day contribution to the organization, namely the ability to acquire or dispose of key properties. CRE teams are challenged by redeveloping or reusing older facilities that are very large. With surplus properties, environmental issues are also a

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concern. Construction with flexible use is seen as a smart, value-driven exit strategy. • Incentives. Session participants observed: —— Economic incentives are nice-to-have, but aren’t the key factor in projects. Profitability and livability are more important. If the basic project numbers don’t work, incentives aren’t an issue. Incentives don’t make a bad project good; they make a good project better. —— Economic developers need to work with the legislature to be more proactive with stakeholders and customers. Areas of collaboration could include working with schools on internships and apprentice programs, fasttrack permitting, fast-track plan review, and fast-track re-use/intended use permitting. Economic developers need to be in sync with city planners and developers. —— Training incentives are valuable because they create a long-term asset in the community that remains if the company leaves. —— Infrastructure money up front is more attractive than tax credits over a 20-year period. Other attractive incentives include impact fee avoidance or reduction. —— Startup New York offers a tax-free incentive to companies, as well as employees. Startup employees don’t have to pay income tax for a period of time. Grand Rapids, Michigan, is also considering this concept. —— CREs struggle with navigating the EDC structure from state to state. One group suggested that perhaps IAMC could create an online directory with each state’s structure and a single point of contact. • Innovation. Participants discussed a wide variety of innovations. For example, material handling technology and IT advancements are allowing for higher cube space and smaller building footprints. On the workforce side, innovations that were mentioned included: —— ShaleNET. This site has oil and gas industry training and education opportunities. It is a multi-state program which includes Pennsylvania and surrounding states. Partners include academia, industry, and economic developers. The site developers sought guidance from the Gulf Coast states.

—— Employee initiatives. Some companies are actively recruiting employees to work at home, while others are actively bringing employees back into the workplace. —— Open office plans. Given the increased emphasis on collaboration, some offices are moving to open plans where people can sit wherever they like. • Hot trends. Participants identified the following trends: —— More business models are shifting to talent attraction, meaning that in the future, talent will drive facility locations. In the manufacturing sector, labor and workforce analysis is starting earlier in the facility development process. One group suggested that in the future, communities with talent will be able to charge a premium for infrastructure and other services. —— Green buildings may be important for securing investors, but sustainable building features don’t drive facility decisions unless they contribute significantly to the project ROI. Builders are routinely constructing LEED buildings for long-term cost savings, but they are not always pursuing official LEED certification. —— E-commerce is creating demand for distribution and warehousing, as companies want to stock products closer to their customers. —— Drones are being used to look at buildings and properties. • IAMC member interaction. Participants like the intimate feel of IAMC and hope the organization will maintain that atmosphere. At future forums, members would like to keep the “what’s your favorite app” and the information exchange sessions. Another suggestion was a “speed dating” session with corporates. With regard to the IAMC website, participants recommended including a photo of every member in the online directory and adding a social networking component to the site. One group suggested creating an IAMC smartphone app which would help members find one another when they are traveling. Sponsored by the EDC of Utah and Missouri Partnership

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General Session

Try IT: The Future Is Closer Than You Think Speaker:

Tan Le, Founder and CEO, Emotiv Lifescience

Overview The brain is a person’s most vital organ; it is involved in everything a person does. However, to date, the cost of studying the brain has limited our understanding of it, as scientists have mainly focused on damaged brains, not healthy ones. While scientists and doctors continue to study the brain to find early disease markers and better interventions, new technologies and research are focusing on how to keep brains healthier for longer. Initial findings show that there are a few simple things we can do to help keep our brains agile and healthy, and help fight decline due to age, disease, and trauma.

Context Tan Le, founder and CEO of Emotiv Lifescience, discussed the impacts of everyday factors on the brain and shared simple strategies for lifelong brain health. She also demonstrated new technology that has great promise in increasing the understanding of how the brain works, and answered numerous audience questions.

Key Takeaways Invest in your “cognitive reserve” to help your brain fend off the effects of aging and injury. Scientists have long known that the human brain develops continuously from infancy through adulthood. Around age 40, the brain begins a slow process of decline. But this decline can be slowed by focusing on brain health.

The brain is capable of adapting and changing, and it rewires itself based on daily thoughts, actions, and experiences, not just during development, but throughout life. This adaptability has significant implications on preserving lifelong brain health. “We really need to take into account what investment will we make in this asset that is so fundamental to us enjoying everyday life. . . . Start to think about investing into your cognitive reserve . . . your brain bank.” ––Tan Le

As with financial investments, the idea of investing in your brain bank is that you will have a reserve to fall back on if something happens. This investment can help ward off and fend off some of the decline that happens with age. In the event of a brain injury, like those that can occur with stroke or trauma, an otherwise healthy brain may be resilient. There are three things that can help you build your cognitive reserve: physical exercise, mental exercise, and stress reduction. Together, they can improve memory and slow brain atrophy.

Suggested Action Plan how to improve your brain health by focusing on the three main aspects: physical exercise, mental exercise, and stress reduction.

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Physical exercise slows down brain atrophy that commonly begins around age 40. Physical exercise isn’t just good for the body; it is a key component in keeping the brain healthy. It can slow down the atrophy that begins occurring in the brain around a person’s 40th birthday. Any exercise that elevates your heart rate helps keep the brain healthy. To keep your brain in shape, spend just 20 to 30 minutes daily doing some sort of cardiovascular exercise. The impact of diet on brain health hasn’t been a major focus for Le and her team; she has not identified any specific foods that improve mental capacity. But because diet impacts physical well-being, she believes it does have an effect on cognitive well-being.

Suggested Action Add 20 to 30 minutes of cardiovascular exercise to your day. Find something you enjoy; for example: jogging, dance, biking, swimming, or walking.

Novel, challenging, and diverse mental exercises stimulate the brain. It takes more than regular mental activity, like reading, to stimulate the brain. Lifelong brain health comes from mental exercises that meet three criteria: • Novel: The exercise must be something you haven’t done before. • Challenging: Easy tasks don’t help the brain as much as difficult ones. It requires mental effort to stimulate the brain. • Diverse: It should be different from what you do every day. Over time, whatever exercises you pick will not stimulate the mind as they once did. For example, if you start doing crossword puzzles, the first 10 or 100 are likely to exercise the brain as they are new, challenging, and different from what you usually do. But as time goes on, the value of what your mind gets from doing crossword puzzles is marginal.

“Our brains are advanced learning machines, so when you do a lot of something, it becomes really good at it.” ––Tan Le, making the case for doing new, challenging activities

Whatever mental exercises you choose, they should add value into your daily life. Business professionals who go to conferences and meet new people are exercising their minds. Meeting new people and remembering names and what people do helps with memory, planning, attention, and social engagement.

Suggested Action Do something new, challenging, and diverse to exercise your mind. It doesn’t have to be a brain puzzle; you can do anything that meets these criteria, from learning a new language to taking up a new sport to attending events and meeting people.

Today’s fast-paced technology can contribute to stress, which is detrimental to brain health. Small amounts of daily stress can help with focus and performance. When that stress becomes chronic, it has a negative impact on brain health. Managing and limiting stress is important for keeping the mind healthy. One source of stress is the fast-paced, blinking, flashing, moving modern world. A National Geographic study on the effects of nature on the brain found that humans are hardwired to pay attention to anything that moves quickly or changes rapidly. This makes evolutionary sense because in the wild, rapid change and movement can mean danger or death. “We’re subjected to things that move very quickly—cars, lights, traffic lights, phones—all these things strain our internal network and create huge burdens on our brain.” ––Tan Le

Spending time in nature and away from all the rapid motion can help replenish the brain and decrease stress levels.

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Suggested Action Regularly spend time outdoors, surrounded by nature. Walk in a park or go for a hike and get away from the rapid motion of modern technology.

Restful sleep is one of the most important components of stress reduction and improved brain health. Sleep can help improve memory, reduce stress, and even ward off debilitating disease. Throughout the day, the brain builds up toxins, which may result in diseases like Alzheimer’s. A restful night’s sleep serves to wash away those harmful toxins from our brains and lower the risk of disease. “When you go to sleep, it’s as if you are taking a toothbrush and cleaning off the plaque that builds up in your brain.” ––Tan Le

Le also emphasizes that it is the quality of the sleep that matters most, and not the quantity of sleep. While 8 to 10 hours of sleep are often cited as ideal numbers, if that sleep is interrupted by a phone that beeps every time a new email comes in or anxiety over the emails that need to be answered, it isn’t a useful sleep. If you wake up rested, even after a short five-hour sleep, then Le considers that a good night’s rest that will be helpful to the brain.

Other Important Points • No magic pill: In situations where behavioral-based interventions exist, Tan is not a proponent of drug-based treatments. Spending time improving brain health and memory is usually more effective than a medication. • Lower-cost brain research: Emotiv Lifescience is working on low-cost options to better understand the human brain. In addition to helping researchers better understand how to predict and combat brain diseases, their technology has helped a patient control her wheelchair using her mind, shown drivers the amount of distractions in the car, and helped market researchers see how shoppers respond to brands in a supermarket. • The high cost of the brain: More than 2 million people worldwide suffer from some form of neurological impairment, from anxiety and depression to diseases like Alzheimer’s and autism to brain injury caused by stroke or trauma. The economic cost of treating these—and many other—brain problems is $2 trillion, annually. Sponsored by McCallum Sweeney Consulting, Inc.

Suggested Action Get a good night’s sleep. If you need to, turn off your phone or remove other stimulants that may keep you awake and restless.

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Workshop

CRE Isn’t Just Real Estate Presenter: Moderator:

Julieann Dow, Manager of Economic Development, Lockheed Martin Corp. Robert Franksen, Senior Manager of Corporate Real Estate, USG Corp. Denis DeCamp, Manager of Corporate Real Estate, Akzo Nobel J. Tate Godfrey, CEcD, Executive Director, IAMC

Overview

Key Takeaways

Corporate real estate professionals face competing challenges: reducing company expenses, reacting to the changing economic landscape, promoting economic development, and more. During the recent recession, many CRE teams divested unnecessary sites and increased company agility by reducing the length of leases and including “out clauses.”

CRE professionals must balance business needs with economic development goals.

Although companies’ direct interests are the top priority, corporate real estate leaders also want to develop productive relationships with economic developers. Having these relationships in place before projects emerge can streamline site selection and approval processes. Looking to the future, CRE professionals believe outsourcing, international expansion, and pressure to improve performance are likely trends.

• Economic incentives and workforce development programs improve project profitability and are attractive to customers. Lockheed Martin’s business is based on winning government contracts. For 15 years, the company has proactively pursued economic development as part of its projects. Lockheed Martin partners with communities and uses incentives to lower bid prices for government clients. If workforce partnerships strengthen the local pool of employees, those programs are highlighted in bid documents.

Context The panelists discussed corporate real estate concerns and challenges ranging from incentives to portfolio management, and relationships with economic developers. The group also fielded questions from the audience.

Economic development is an important aspect of many corporate real estate deals. In successful projects, benefits to an organization’s bottom line are balanced with community benefits. Considerations and examples include:

• Streamlined processes can be as valuable as economic incentives. USG has a paper mill in New York where a gypsum mine and plant had been shut down. The company upgraded the plant and increased the number of jobs at that location. In response, the state offered a streamlined application process that sped approvals. • Companies’ need for flexibility may be a challenge for economic developers. Many businesses are moving operations closer to customers. After a study, Akzo Nobel

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centralized 18 distribution centers into eight locations that were more favorable to the company’s customers. For the new distribution centers, the corporate real estate team negotiated seven-year contracts with the option to move out earlier. This flexibility is good for the business, but is often challenging for economic developers. It is difficult to offer economic incentives when it is unclear how long the business will be in the area. “We are moving away from longer-term commitments and going to where our customers are located.” ––Denis DeCamp

Economic trends influence how CRE teams approach portfolio management. When economic events like the recent recession and government budget sequestration arise, businesses tend to take a closer look at all costs, including corporate real estate. Portfolio management may be affected in different ways: • Consolidation of sites. During the recession, USG closed half its branches and moved customer service to company headquarters. Surplus and non-core real estate assets were sold. Streamlining the corporate real estate portfolio contributed to SG&A reductions. As a result, last year, USG generated net income for the first time since 2007. • Reduced manufacturing capacity. Both USG and Akzo Nobel reduced manufacturing capacity in response to the recession. Akzo Nobel consolidated two facilities that were operating at between 65% and 70% capacity. Although one community lost jobs, another gained. • Shorter leases. Lockheed Martin leases one third of its properties. For leased facilities, government budget sequestration had a big impact. The company had started preparing in 2008 and 2009; the CRE team renegotiated leases to durations of one year or less and included “out clauses” to increase flexibility. The average lease length decreased from 3.5 years to between 1 and 2 years.

“To deal with sequestration, we renegotiated leases to one year or less and are willing to pay more for increased flexibility. Leases longer than a year have to get exception waivers.” ––Julieann Dow

To deliver the greatest value, economic developers should cultivate relationships. The panelists agreed that strong relationships with economic development representatives are helpful as they navigate projects. Knowing frontline economic development employees is more useful than “meet and greets” with the governor. Corporate end users would find a resource directory helpful, as well as assistance with municipal processes. “It’s good to have relationships with economic development teams before projects emerge. The red tape can be mind boggling. We need a roadmap of programs and how to get them.” ––Robert Franksen

Other Important Points • Workforce quality is critical. For site selection, availability of qualified employees is very important. Lockheed Martin, for example, does workforce studies as a first step during the site selection process. If the workforce isn’t available, expansion will not occur in that location. • Sustainability and site selection. Many company facilities must meet LEED requirements and some vendors require sustainable work processes. However, sustainability incentives are not a primary factor in site selection. • The future of CRE. When asked what innovation in CRE would look like over the next 10 years, Mr. Franksen identified five trends: 1) pressure to improve performance; 2) increased outsourcing; 3) high levels of workplace change; 4) more shared services; and 5) increased activity in emerging markets. Ms. Dow agreed that international activity will increase and Mr. DeCamp foresees CRE executives as facilitators of outsourced activities.

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Suggested Actions • Understand how economic trends affect CRE and determine what changes your organization wants based on these trends, like shorter leases. • Understand how your company’s objectives can fit with objectives of those in economic development. • Build long-term relationships with economic development. Sponsored by the EDC of Utah and Missouri Partnership

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General Session

Running Your Supply Chain with Military Precision Presenter:

General William “Gus” Pagonis, U.S. Army (Retired), Chief of Logistics in the Gulf War; Former EVP of Logistics for Sears Roebuck and Co.

Overview

Every supply chain is different, requiring tailored approaches to moving goods most efficiently. There are five essential elements of any tailored supply chain that need to be managed, all of which are tied together by information systems:

While supply chains all are different, and their tailored solutions are unique, it is worthwhile for leaders in charge of corporate supply chains to learn the best practices that work for others and adapt them. General Pagonis parlayed best practices and lessons learned from his logistics leadership roles in the military to the corporate world at Sears.

1. Strategy 2. Vendors and suppliers 3. Measures of finance and productivity

Context

4. Third-party logistics providers

General Pagonis shared best practices in logistics and leadership that served him well in both military and business contexts.

5. A point person or liaison who serves as the single point of contact coordinating all of the activities

Tailored supply chains have common elements to be managed

Key Takeaways While supply chains are different, requiring tailored approaches, best practices can be broadly applicable. The term “supply chain” is a concept that refers to an integrated set of activities focused on planning, coordinating, and managing the flow of products from suppliers to customers. The supply chain is the flow of products from suppliers to customers s plier Inventory Management

Sup

Logisticians

All Store Formats

Forecasting

Transportation

Receiving

Planning

Distribution Network

Returns

Replenishment

Delivery (Customer, Stores)

Backroom

Vendor Relationships

Reverse Logistics

Inventory Data Integrity (Quality)

Strategy

3PL/ Internet

Finance & Productivity

Information Systems

Known Vendors/ Suppliers

SPOC/Liaison

Given these similarities, best practices that work for some supply chains may work for others, despite their differences. General Pagonis found that much of what worked for him in his military logistics role translated well to the corporate envi-

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ronment at Sears. He recommends that logistics leaders draw from the best practices of others, adapting them as needed.

Best practices in logistics leadership include creating a negative-free work environment. General Pagonis’ best-practice lessons include: • Have a “single point of contact.” Every important initiative should have one go-to person who is accountable for its successful implementation, a “single point of contact.” When General Pagonis presented to General Norman Schwarzkopf a plan for moving 520,000 troops, 150,000 vehicles, 2,000 helicopters, and 2,000 tanks to the Persian Gulf in short order, he didn’t expect to have anything to do with the plan’s implementation. But Schwarzkopf said, “I like the idea—implement it. It’s yours.” General Schwarzkopf wanted a single point of contact to coordinate all logistics. Pagonis orchestrated and oversaw every aspect of deploying the troops and all they needed to fight a war. “In the first year [at Sears], having a single point of contact, pulling everything together, we saved almost $200 million without firing one person, because we had efficiencies.” ––General William “Gus” Pagonis

The Balanced Scorecard management system that he used at Sears was rolled out across the entire organization so that only initiatives that advanced Sears’ corporate objectives were pursued. Having quantifiable objectives works well to motivate, because people want clarity regarding what is expected of them, so they can meet and exceed those expectations. “I am convinced that people want to be led. But they want good leadership. They want to be told what you want so that they can do what you want and still be able to use their skill sets. The key to all this is quantifiable objectives.” ––General William “Gus” Pagonis

Have concrete goals with quantifiable objectives DRIVE PROFITABLE REVENUE GROWTH Achieve Supply Chain Integration & Visibility

BE CUSTOMER CENTRIC

BE A DIVERSE, HIGH PERFORMANCE TEAM

Manage Cycle Time

Develop Associates

RELENTLESSLY PURSUE IMPROVEMENTS in PRODUCTIVITY and RETURNS Improve Asset Productivity, SVA, Inventory Reduce Cost

Manage Service & Unbundle Cost

Quantifiable Objective’s

Linked to Evaluation Reports And Balanced Scorecard

• Keep strategies simple so everyone understands what they need to do. In war, it is essential that the people on the ground understand not just the plan but what they need to do. “A simple plan, well executed, will get solid results. Your people will understand it and be able to implement or modify it to get the job done.” ––General William “Gus” Pagonis

• Motivate people with quantifiable objectives aligned with the strategy. Part of keeping strategies simple is giving people quantifiable objectives so they know precisely what they are supposed to be working toward. General Pagonis advises translating strategy into specific goals and further translating goals into quantifiable objectives.

ACTIONS ACTIVITIES

IT Is The Glue: Leverage Information Technology

. . . BOTTOM LINE

Suggested Action Translate strategy to goals and goals to quantifiable objectives, so that everyone understands what they are supposed to be doing and why.

• Keep progress toward goals unambiguous with a simple red/green monitoring system. Use just those two colors to indicate whether objectives have been reached, both for personnel evaluation reports and project dashboards (which feed into other dashboards and reports in the Balanced Scorecard system). Permitting a third color like yellow to indicate partial progress (e.g., when delays

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are unavoidable) is usually a mistake; it will be overused to avoid the stigma of red. Instead, it is important to create work environments where reds, and other negatives, aren’t feared. Reds are natural to expect prior to goal achievement. If objectives were readily achieved in short order, they would not reflect high standards. “You can make a dashboard that’s as fancy as you want or as simple. The key, though, is green and red.” ––General William “Gus” Pagonis

Suggested Action Keep progress toward objectives unambiguous with just red and green to indicate what has been achieved and what hasn’t; no yellows for partial progress.

• Create “negative-free” work environments where people are not afraid to report bad news. It is highly important that people at all levels are unafraid to pass along news of problems and potential remedies. It is through hearing what is going wrong that leaders are alerted to opportunities to improve operations or nip problems in the bud. Negative news is valuable. But both positive and negative information must be discussed without retribution. “If you don’t lose your cool, people will not be afraid to give you negative information. Negative information is the power of any organization.” ––General William “Gus” Pagonis

• Use ups/downs reporting. It is those on the front lines of an operation, actually doing the work to execute the strategy, who can often best spot what is working and what is not. It was by talking to sergeants after the war that General Pagonis found a brilliant solution for how to clean and disinfect all of the war equipment before shipping it back. “Ups/downs reporting” is a great way to tap people’s perspectives. Have them submit in writing (not meetings, where people tend to agree with what

others have said) a few-line recap of what is going right in the organization (the “ups”) and wrong (the “downs”), along with suggested solutions. Use a 3 x 5 index card (or an electronic approximation) with a limited amount of space for writing, to keep comments factual and to the point. When several cards mention the same “down,” it could be serious problem. This technique can also be used for personnel evaluations. • Require managers to hold “sensing sessions” with their teams. Another technique is to hold “sensing sessions,” or monthly meetings to find out what is really going on from team members’ perspectives. Commit to responding to issues raised promptly; e.g., within 48 hours. • Have daily stand-up meetings. Leaders can keep tabs on what is happening daily by holding 10-minute stand-up meetings for their direct reports. Keep everyone standing as a reminder that time is not to be wasted; updates should be concise and limited to just the necessary information.

Other Important Points • Manager vs leader. There is a big difference between a manager and a leader. Managers focus on administering and maintaining with a short-range view and an eye on the bottom line; they rely on control, accept the status quo, and strive to do things right. Leaders focus on innovating and developing; they operate with a long-range view and an eye on the horizon. They challenge the status quo and strive to do the right thing. Three important traits of leadership are expertise, organizational creativity, and empathy. • Gaining respect. Leaders gain respect not by having charisma but by projecting presence. • Control and command. General Pagonis believes in a management system of centralized control with decentralized execution.

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Workshop

Supply Chain Risk Management Presenter:

General William “Gus” Pagonis, U.S. Army (Retired), Chief of Logistics in the Gulf War; Former EVP of Logistics for Sears Roebuck and Co.

Overview

General Pagonis dedicated one full-time employee to Sears’ crisis operations center; that person performed maintenance functions such as ensuring that the phones and computer systems remained operational. When a crisis struck, requiring more personnel at the center, outsourcing was the solution. That way, no one had to be pulled from their day jobs only to have to get caught up with their regular work in the evening. Outsourced transportation professionals, obtained from the network of a transportation department colleague, manned the center as needed. General Pagonis is a big believer in outsourcing; he outsourced troops from various countries during the Persian Gulf War.

A crisis taxes the organization’s resources; not being prepared for a crisis does so even more. Having resources dedicated to dealing with a supply chain crisis before one occurs is always smart, whatever the size of your operation.

Context General Pagonis offered comments on supply chain risk management and took questions from the audience.

Key Takeaways A good crisis-mitigation strategy: Set up a crisis operations center before a crisis hits. One of General Pagonis’ first orders of business when he joined Sears was to set up a crisis operations center. The civilian community tends to ignore the potential for a crisis until one strikes, then scrambles to react. An important lesson from General Pagonis’ military experience: figure out crisis strategies beforehand, and dedicate resources to cope optimally in advance of a crisis. After all, some crisis or other that disrupts the supply chain is bound to happen. For example, workers at the port of Los Angeles tend to strike every five years when their contract renews. Spending the resources in advance to mitigate the high cost of a supply chain crisis when it arrives is always money well spent. “I don’t care how big or small your outfit is . . . it’s always smart to set up a crisis center before the crisis.”

The operations center worked so well that there ceased to be crises, since handling the occasional supply chain disruption became business as usual. Events like a freak ice storm in Atlanta that disrupted Sears’ regular appliance distribution network proved to be no problem.

Suggested Action Set up a crisis operations center before a crisis disrupts your supply chain.

“Eventually, we no longer had any crises. . . . We were able to handle everything.” ––General William “Gus” Pagonis

––General William “Gus” Pagonis

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IAMC Fall 2014 Professional Forum North America’s Competitive Advantage in Manufacturing

Other supply-chain management tips include bypassing the chain of command to give voice to all levels of the organization. As General Pagonis fielded questions from the audience, more lessons and practices on supply chain management emerged: • Set up a team of “Ghostbusters.” General Pagonis formed a “special hit team” at Sears, which he called his “Ghostbusters.” They were a group of five young, high-potential individuals whom he deployed to various special projects to support his objectives. They had access to the entire supply chain. For example, the Ghostbusters might spot a reason to activate the crisis operation center that otherwise might not have been recognized so early. They would also work to mitigate the length of disruption in the chain during a crisis—for example, meeting with Los Angeles port authorities during strikes to find ways to move Sears’ shipments nonetheless. • Bypass the chain of command to hear from the rank-and-file. Your organization carries a wealth of great ideas, but often the people with those ideas have no way of sharing them with the leaders who can act on them.

Suggested Action Assemble a small team of high-potentials to deploy as problem solvers wherever needed along the supply chain.

out of the loop. Inform them that you will be talking to their team and why, and recommend that their troops “back-brief” them on the issues shared. Reinforce this message to the people you meet with, telling them to share only information that they also report to their supervisors. • Hire veterans. Veterans make great employees. They are hard-working people of high integrity who you can be confident don’t use drugs (given the military’s no-tolerance policies). They want to work, particularly the disabled, who have fewer employment opportunities. “If you could hire a veteran, you’re getting a person of high integrity, no drug use . . . who wants to work. I would strongly recommend anybody who’s disabled.” ––General William “Gus” Pagonis

Other Important Point What to do after school? A pressing issue facing America is the need to do something about the large numbers of college graduates who have majored in fields in which they can’t find work. Not enough people are going to trade schools that qualify them for specific jobs. In Germany, tests after high school determine whether a student should go on to study at a four-year college or a go trade school. Sponsored by the City of Ontario, California

Leaders need to bypass the chain of command to provide a way. For example, they might visit factories and have line workers write down what they see going right and wrong in the company along with any solutions they see. When the assumption is that there are things going wrong, people feel freer to speak their minds. “The teaching lesson is: Your greatest ideas are found in your organization. People just don’t have a way of getting them to you. You need to bypass the chain of command.” ––General William “Gus” Pagonis

• When bypassing the chain of command, get middle managers’ buy-in. Middle managers must not feel left

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Workshop

The Digital Factory of the Future Presenter:

William King, Ph.D., Chief Technology Officer, Digital Lab for Manufacturing

Overview Although North American manufacturing hasn’t been viewed as highly innovative, this $3 trillion industry is on the verge of a huge wave of innovation as digital technologies transform factories, supply chains, and the workforce. When digital manufacturing initiatives connect 50 billion machines, largescale industry disruption is inevitable. Manufacturing leaders recognize the power and potential of digital manufacturing, but few have invested in the necessary technological and organizational capabilities. The organizations that emerge as digital manufacturing winners are working on new approaches to strategy, execution, talent, technology, and data. The Digital Manufacturing & Design Innovation Institute (DMDII) is prepared to help. This publicprivate partnership’s research agenda will reduce the risks associated with early innovation in digital manufacturing.

Context William King discussed how digital technologies are changing manufacturing, the new threats and opportunities created, and how the DMDII can smooth the transition.

Key Takeaways Digital links and data analytics are transforming the manufacturing landscape. Traditionally, manufacturing has created value through commoditized labor and a linear process of product design, fabrication, and delivery. Today’s manufacturing landscape looks very different:

• Materials. Costs are increasing, while supply is constrained. • Production. Overcapacity has led to reduced profitability. • Labor. Costs are increasing worldwide and skills gaps have emerged. • Outsourcing. The separation of designers and makers has slowed innovation. • Data-sharing barriers. Technology, skills, incentives, and security are among the obstacles to sharing information. The future of manufacturing will bear little resemblance to the past. Digital links will exist between design and fabrication. Machines, factories, and supply chains will be connected, offering greater transparency into supplier factories. As data is aggregated and analyzed across the product lifecycle, it will be possible to leverage the power of data analytics and networks to do more with existing resources. “Manufacturing is the next sector to be disrupted by online and digital technologies. There is more than $1 trillion on the table.” ––William King

Data is generated at every phase of the product lifecycle, from design through end of life. Manufacturing already generates over 1,800 petabytes of new data per year—more than any other sector. Unfortunately, most data is thrown away. The goal of digital manufacturing is to aggregate this data and generate information that supports decision making.

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“From a business metric perspective (e.g., cost, revenue), how important a driver can digital design & mfg be in creating value in each of these areas?”

Manufacturing already generates more data than any other sector Annual new data stored by sector, 2010 Petabytes Manufacturing Government Banking Communications and Media Retail Professional Services Securities and Investment Services Healthcare Education Insurance Transportation Wholesale Utilities Resource Industries Consumer and Recreational Services Construction

Product innovation

1,812 911 773 776 424 397 336 375 276 273 256 245 207 166 116 87

1 Discrete manufacturing constitutes 1072 petabytes; Process manufacturing 740 petabytes SOURCE: IDC; McKinsey Global Institute analysis

To make this a reality, the Digital Manufacturing and Design Innovation Partnership has been created. DMDIP has a $70 million cooperative agreement with the U.S. Department of Defense and $250 million in matching funds from industry, academia, government, and community partners. Over 500 companies are participating.

Digital manufacturing has the potential to trigger large-scale industry disruption. In the past decade, digital technologies and the Internet have connected one billion people. This has driven massive changes in entertainment, communications, collaboration, and social marketing. When digital manufacturing connects 50 billion machines, those machines will become adaptive and self-correcting. Problem solving and continuous improvement will go social and mobile. Analytics will be predictive and the industrial app economy will explode. Digital manufacturing technologies are currently in the early adopter stage. As these technologies gain traction, large-scale industry disruption is likely over the next 15 years.

With digital manufacturing, value will be derived across the full value chain. Digital manufacturing is kickstarting a paradigm shift. Traditionally, operations has been viewed as a cost and execution vehicle in manufacturing. However, it is now seen as an engine for innovation and growth. In a survey by the DMDII, respondents suggested that digital design and manufacturing will be an important driver for product innovation, reduced time to market, revenue growth and more.

Revenue & Growth drivers

-5

Time to market for new products

-7

Revenue expansion of existing business

Cost (manufacturing, supply chain, capital) Service levels

-31

-14

-15

-4

-5

-26

Product quality Conventional cost and quality drivers

-27

-12

-18

-4

Operations agility

-17

-23

Product design, operations, capital productivity, R&D, and supply chain management are where the greatest value will be derived from digital manufacturing solutions. Value will be derived across the full ‘value chain’

Little/no value

Considerable

Modest

Significant

“Where is the greatest value going to be derived along the value chain after implementation of digital manufacturing solutions?”

-6 -11

Product design & development

-10

Production (capital productivity)

Resource productivity & sustainability

-17

Operations strategy & management

-12 -18

Collaboration platform Human capital

-12

Risk management

-17 -13

End-of-life/disposal

-35

-26 -32 -40 -37

-23 -24 -27 -36

24 27

-24

-13

Service

-20

-12

Supply chain management

-23

-12

Research & discovery

45 39

-17

-7

New "digital" business innovation

Sourcing

-5 -12

Production (operations)

19 23

29 27

14 12

30 18

Product design, operations, capital productivity, R&D, and supply chain management were highlighted as areas of greatest value

In production operations, next-generation data and analytics can drive value in several different ways: • Yield and resource productivity. Live process data combined with environmental factor information can determine the optimal parameters for maximizing profit per hour including yield optimization, energy efficiency, and root causes of quality failures. • Asset reliability. Operating and failure data along with predictive analytics can optimize maintenance strategies and identify drivers of unplanned downtime. • Real-time performance management. Intelligent dashboards can provide updates on key performance metrics, as well as alerts about emerging issues and recommended actions.

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Although organizations recognize the importance of digital design and manufacturing, most lack the necessary capabilities. The majority of DMDII survey respondents (81%) feel that digital operations are a critical driver of future competitiveness. Yet, few (only 14%) currently have a “high” digital capability. These industry leaders identified eight key attributes required for successful digital manufacturing. 1. Advanced manufacturing equipment. Equipment such as 3D printers, metal injection molding machines, and lowcost sensors, as well as new physical tools like glasses and other wearables, will be needed to improve the speed and richness of communication. 2. Fast, simple data. Accelerated information flows will be necessary to share data across the product lifecycle. Fast, simple data enables real-time feedback to factory operators and supervisors, as well as early alerts for engineers if service events arise. 3. Intelligent systems. These systems automatically translate data into insight and recommended actions without human intervention. 4. Big data analytics. Advanced analytics transform big data into insights and action. 5. Standardization across products. This enables standard ways of working across products and locations. 6. Mobility across the value chain. When bottlenecks are removed, information can be shared anywhere and anytime across the value chain. Cloud-based solutions allow machines and people to be connected worldwide for a fraction of the cost of prior systems. 7. Personalized data integration. Data from different sources and applications can be unified into dashboards and KPIs that are visible to the C-suite, as well as to the business, plants, lines, and operators. 8. Collaborative platforms. These platforms allow companies to stream videos to illustrate a factory or supplier event. Social platforms will promote expert help with problem solving or design collaboration.

Organizations must address shortcomings to make digital manufacturing a reality. Research suggests that digital manufacturing initiatives won’t be successful unless senior leaders focus on several areas within the organization. Examples include: • Strategy and execution. Organizations must develop strategies that articulate how digital manufacturing will enable competition. In addition, digital strategies must be translated to specific initiatives which are clearly communicated by leaders. Well-defined metrics and KPIs should support the initiatives. • Talent and organization. Digital manufacturing must be supported by individuals with sufficient design and manufacturing skills, as well as in-house staff with IT and technical skills. • Technology. The top technology barriers for digital manufacturing include dated software models; a lack of industry standards; inadequate software for 3D design, modeling, and manufacturing; and insufficient IT infrastructure in terms of bandwidth, storage, and power. • Data. When it comes to digital manufacturing, several data obstacles exist. Legacy systems and a lack of data standards hinder innovation. In addition, insufficient data sharing between manufacturing and design leads to suboptimization and missed trend opportunities. In general, manufacturing systems suffer from a lack of cyber security compared to other corporate systems. “With any change, there will be winners and losers. The winners will prepare now for strategy and execution.” ––William King

To address these gaps, the DMDII has a targeted research agenda. To facilitate the transition to digital manufacturing, the DMDII is focusing on five areas: 1. Advanced Manufacturing Enterprise (AME). This initiative addresses information system integration throughout the product lifecycle, digital links between design and fabrication, and smart factory and supply chain management.

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2. Intelligent Machining (IM). This program integrates smart sensors and controls to enable equipment to automatically sense and understand the current production environment. This allows equipment to conduct “selfaware manufacturing.” 3. Advanced Analysis (AA). This initiative utilizes highperformance computing to model materials, products, and processes to enable “design with manufacturing in mind.”

Suggested Action Make sure to consider digital manufacturing when developing corporate real estate strategies. Knowledge workers will be needed to support digital manufacturing. This implies that future manufacturing facilities will need to be located where knowledge workers live.

4. Open Source Platform. The Digital Commons is an open source software platform that supports data aggregation, analysis, and action. 5. Cyber Physical Security. The goal of this program is to meet industry and national needs for security, trust, and intellectual property protection within the manufacturing environment.

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General Session

The Changing Landscape of Energy in North America Speaker:

Thierry Vandal, President and CEO, Hydro Québec

Overview High energy prices and increasing greenhouse gas emissions troubled the North American energy industry at the end of the last decade. Since then, the energy landscape has changed drastically and unexpectedly as new, lower-cost sources of U.S.-based natural gas came online, and renewable energy resources improved their affordability and gained popularity. Seemingly overnight, this has transformed the U.S. and Canada from importers of natural gas to exporters. As electric grids improve and renewable power comes to the forefront, energy companies are able to provide more competitive and predictable electricity prices to customers, including industrial customers.

Context Hydro Québec president and CEO Thierry Vandal provided insight into the quickly changing landscape of energy in North America.

Background Hydro Québec is a large power utility for the province of Quebec, with 60 or so power plants and around 500 substations. The company has around 20,000 employees working on about 150 sites, and owns or leases roughly 500 buildings. The organization manages about 10 million square feet of office space, with a large real estate group. The company also has one of the industry’s largest research centers, with expertise in areas including energy storage, power electronics, and battery materials. The company’s power generation is 100% clean renewable power.

Hydro Québec competes in a very competitive market. Over the past 20 years, industrial power rates have increased by 1.4% per year on average, which is below the inflation rate of 1.9%.

Key Takeaways The energy industry landscape has changed radically and unexpectedly. The North American energy industry has experienced changes since the first oil well was drilled in Pennsylvania in the 1850s. Soon after, domestic coal became the low-cost source of energy, and was expected to power North American homes and businesses into the foreseeable future. Later, nuclear power was touted as a necessary non-carbon source of power. As recently as 2008 energy experts envisioned natural gas import terminals along the east coast of the United States to bring in gas from Russia, Algeria, and West Africa as American natural gas production was expected to decline. At the time, wholesale prices remained high, as market demand increased, and hurricane season was a key factor in inflating prices in autumn. Greenhouse gases, which trap heat in the atmosphere, were on the rise in North America, and any decrease was seen as unlikely without major economic restructuring. Now, just six years later, the landscape of energy in North America has changed significantly. Natural gas prices are down 67% from 2008 and are projected to remain at this low level going forward. Low gas prices and environmental concerns—including the impact of the tsunami in Japan and

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IAMC Fall 2014 Professional Forum North America’s Competitive Advantage in Manufacturing

the disaster at the Fukushima nuclear plant—have created a decline in interest for coal and nuclear power. “Under the combined pressure of lower natural gas prices and a cascade of new environmental regulations, coal plants are converting to gas or are being decommissioned in significant numbers.” ––Thierry Vandal

Hurricane season no longer weighs heavily on prices, as key sources of natural gas have moved inland from the Gulf states to states such as Pennsylvania, Tennessee, and Mississippi. The natural gas trade between continents continues to develop, but the U.S. is no longer expected to import gas; it has become the exporter. “Now, most if not all of these projects [gas import terminals] have been cancelled and replaced by a major new push to build LNG export terminals. We were going to bring it [gas] in and now we are going to push it out.” ––Thierry Vandal

The electric power industry is guided by three key principles: affordable, renewable, and clean. The renewable power space has seen tremendous development, especially within the past decade. Wind power represents 4% of North American electricity production. Within the next few years, Vandal expects Québec will have 4,000 megawatts of installed wind capacity, up from almost nothing 10 years ago.

“In my segment of the [energy] market— electricity—our actions are really guided by three very simple words: affordable, renewable, and cleaner.” ––Thierry Vandal

The focus on renewable power also helps limit greenhouse gas emissions. Wind power and hydro power, which is a significant source of electricity for Québec and the U.S. Northeast, have a similar footprint in terms of greenhouse gas emissions. The footprint for solar is higher, yet still improves upon traditional energy sources.

Smarter grids mean better service for electricity customers. Electric companies are making their grids smarter, which provides improved service to customers. Automated, interactive grids can share necessary information, which improves the reliability of the systems. Large-scale energy storage is a major area of research and development for companies like Hydro Québec, which has partnered with Sony and with the University of Texas to solve the storage problem. Storage is important, especially as intermittent sources of energy like wind and solar are used. These systems will help with the fluctuation of these sources and stabilize supply, which is critical when events that could otherwise cause outages occur. Sponsored by Greater Oklahoma City Partnership, Hickey & Associates, LLC., Wyoming Business Council

The affordability of solar energy is contributing to a surge in expected regions, like sunny California, as well as in unexpected areas, like New Jersey and Massachusetts. Both the drop in the price of solar panels, as well as subsidies and tax credits for those who install and use solar energy, are driving some of the demand in this market. In Québec and some neighboring states and provinces, hydro power is a significant source of electricity. A clean and renewable resource, water-powered electricity is also more cost-efficient than wind or solar power.

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Leadership Development Seminar

The Personal Leadership Payoff: How to Motivate Yourself to Win Every Time in Any Situation Presenter:

Dr. Alan Zimmerman

Overview Many successful people accomplish as much in one or two months as average people do in one or two years. They sail through difficult situations and deliver on personal and organizational goals without excuses or exceptions. The vast majority of highly successful people use the Personal Leadership Payoff Principle to navigate the path to greater productivity. Individuals who exhibit personal leadership have self-confidence, a consistent positive attitude, and a willingness to take constructive risks. These attributes help people lead more fulfilling and productive lives.

Context Alan Zimmerman discussed the three components of personal leadership: unshakeable confidence, a positive attitude, and constructive risk taking. He offered tips on how to develop each of these competencies.

Key Takeaways The first step to achieving personal leadership is to develop unshakeable self-confidence. Self-confidence forms the foundation of personal leadership. If leaders don’t believe in themselves, others won’t follow them. A Harvard researcher found that the top factor in success is self-esteem. Individuals perform based on how they see themselves. By improving one’s self-confidence and self-esteem, it is possible to improve one’s performance. “Why talk about self-confidence? Because you perform based on how you see yourself. No one outperforms their self-esteem or self-image.”

Dr. Zimmerman offered three techniques for building unshakeable confidence: 1. Survey your strengths. Write a list of the 50, 100, or 200 things you are good at. 2. Affirm yourself. Talk to yourself positively. Repeating messages like “I like myself” or “I can do it” 20 times a day for 21 days creates mental osmosis, and positive messages move to the subconscious mind. Athletes use this technique extensively. Positive affirmation is important because research shows that 80% of self-talk is negative. “Mind binders” are Dr. Zimmerman’s term for negative thoughts that people tell themselves. Examples include: “I can’t give a presentation” or “I’m not good at cold calling.” If you find yourself thinking a negative thought, stop and tell yourself, “Cancel, cancel.” “The one protection against mind binders and other negative thoughts is affirmation.” ––Alan Zimmerman

The subconscious is an information processor, not a truth detector. As a result, the subconscious mind accepts whatever a person tells it and acts accordingly. This is evident in the field of study called behavioral kinesiology. Behavioral kinesiology shows that people are much more effective in their personal and professional lives when they think positive thoughts and are less effective when thinking negative thoughts. It only takes 30 seconds of negative messages for a person to lose their motivation.

––Alan Zimmerman

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IAMC Fall 2014 Professional Forum North America’s Competitive Advantage in Manufacturing

3. Listen to and acknowledge praise. When you receive a compliment or praise, say thank you. This affirms the positive message, rather than brushing it off.

Deploying a positive attitude is the second component required for personal leadership. Attitude is the fuel that helps people and teams achieve their goals. As a result, a positive attitude is an essential ingredient in personal leadership. It is possible for people to make themselves positive and enthusiastic. Dr. William James from Harvard noted that the greatest discovery of the 20th century is that you can have any quality you want in a personality, if you just act as if you have it. Dr. Zimmerman shared four ways to develop and maintain a positive attitude: 1. Become an actor, not a reactor. People who are actors proactively decide how to feel and behave. They set the tone at home and work. In contrast, reactors let others define how they feel and act. For example, reactors may become moody and negative when they encounter someone who is difficult. Dr. David Riesman explained in The Lonely Crowd that 85% of Americans and Canadians are reactors. Mature leaders are actors, not reactors. “You have a choice—you can control your emotions, or your emotions can control you. Mature leaders are actors; they control their emotions.” ––Alan Zimmerman

2. Don’t catch the other person’s disease. Don’t become angry or negative, just because a colleague, friend, or family member is. If an individual acts enthusiastically in a consistent way, people will follow his or her leadership. A basic principle in psychology is that enthusiasm is contagious. People like to work with colleagues who love what they are doing. 3. See the positive in all situations. Even bad situations have something good in them. Winston Churchill said optimists see the opportunity in every difficulty, while pessimists see the difficulty, not the opportunity. Focusing on the positive helps maintain a positive attitude.

budget,” “That won’t work here,” and “It’s not practical.” A study by 3M found that it takes seven compliments to overcome the effect of one piece of negative feedback. Even when people think and project negative feelings, those thoughts are perceived by the subconscious mind and negatively affect performance. The one protection against killer thoughts and statements is affirmation—talk positively to yourself. Consider taking a list of killer statements back to the office and give everyone on the team a copy. At the next staff meeting, challenge people not to use those comments for an hour. It will change the dynamics from negative to positive.

Leaders take constructive risks and try new things. In today’s world, effective leaders live a life filled with risk. When people live with too much fear, they don’t have room for confidence, motivation, and self-esteem. People who aren’t willing to take risks end up with distant relationships. Personal leadership means taking the risk of departure, leaving one’s comfort zone, and trying something different. When people take risks, they grow in terms of self-esteem and selfconfidence. Even if things don’t work out as expected, it takes courage to try something new and different. Those who are best at leading change have lots of personal experience with change. Leaders skilled at change management constantly leave their comfort zone and try new things.

Other Important Points • Can work, purpose, and risk prolong life? Research has found that individuals who stay in their comfort zones die earlier. At Honeywell, for example, 50% of engineers are dead within two years of retirement age. After retirement, people need purpose, risk, and challenge. One’s self-esteem can’t be solely based on one’s job. • Dr. Zimmerman’s Tips. Sign up online for Dr. Zimmerman’s Tuesday Tip. This weekly email offers new and powerful strategies on attitude, motivation, and leadership. Sponsored by the Cedar Hill Economic Development Corp.

4. Minimize “killer” thoughts and statements. Common negatives heard in workplaces include “It’s not in the

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Workshop

Get Some Help! Moderators:

Mark Eichkorn, Director of Facilities and Real Estate, Caris Life Sciences Sean Nugent, Life Sciences Consultant/Kalon BOM

Context Moderators Mark Eichkorn and Sean Nugent collected and categorized questions of interest to participants, and threw the questions out for discussion and comment. Areas of discussion included workforce demographics and strategy, manufacturing trends in the U.S., incentives, and certified sites. The key points from the discussion are summarized below. All participants and their companies have been kept anonymous.

Key Takeaways Workplace Strategy Q: In recent years, there have been increases in working from home, which suggests reductions in corporate real estate. Further, given the workforce demographic of the future, is it wise to get out of leases and consolidate into owned space? A: Early experiments with working from home have met with mixed success. In many cases, people arenâ&#x20AC;&#x2122;t prepared to work from home and productivity plummets. One participant noted that at a prior employer, productivity increased 30% the first quarter that people worked from home, but then decreased 10% in the second quarter as employees went out during the day to do errands or pick up their children. To determine whether working from home is right for your organization, it is essential to understand the company culture and what the organization is driven to do. In industrial and life science companies, for example, most people work from the office. For companies with a knowledge

workforce, engaged employees are essential for collaboration and innovation. That is accomplished most often through face-to-face interaction in the office. From a corporate real estate (CRE) perspective, the fit-out capital to convert owned space for employees is often more costly than continuing to lease. Session participants are seeing more programs to change the shape and size of office space, as well as to set up hoteling.

Impact of Technology on Real Estate Strategy Q: How are technological innovations like robotics, threedimensional printing, and the digital factory affecting short- and long-term real estate strategy? A: Participants from different parts of the U.S. noted that three-dimensional printing is a growing trend. For example, a plant that was designed to manufacture jet engine parts is starting to use 3D printers to create some parts. Due to these machines, the plant may never employ the 400 employees that were initially expected. Looking ahead, technological innovations may lead to facilities requiring less square footage.

Manufacturing Investments in the United States Q: The Boston Consulting Group recently published a report on the shipping economics of global manufacturing which suggested that manufacturing costs in Mexico are lower than China based on a productivity adjusted basis, and that U.S. manufacturing costs are about 3% higher than China. As part of their manufacturing location decisions, are IAMC member companies evaluating ways to rebalance manufacturing costs? Are economic development representatives seeing manufacturers consider the U.S. as

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IAMC Fall 2014 Professional Forum North America’s Competitive Advantage in Manufacturing

a reshoring destination for future expansion and investments? A: Session attendees shared information about what is happening in their regions with regard to manufacturing. —— Georgia. Industries that have adopted automation technology, such as automobile and aerospace companies, are more concerned with utility costs than wages. In Georgia, for example, utility costs are considerably lower than in the EU. At another conference session, a site selection consultant from Europe indicated that many German companies are looking to relocate manufacturing to the United States due to lower energy costs. Although wages may be lower in Mexico, operations often incur additional costs associated with security. —— North Dakota. Many OEMs are reaching out to companies in the state before looking overseas for contract manufacturing opportunities. —— Pennsylvania. For the first time in many years, manufacturing is the top industry sector in terms of new facility openings in the state. Chinese manufacturers are entering the area, due in part to the strength of the “Made in USA” brand. —— South Carolina. Several manufacturing facilities have recently opened in the state for industries including carbon fiber production, tire manufacturing, and even textile manufacturing. —— Mexican border. Maquiladoras offer proximity to end consumers and work well for companies that want to expand into the U.S. and Latin American markets. Many Chinese companies are establishing twin plants.

Incentives Q: Which out-of-the-box economic incentives are most beneficial and why? A: Participants were in favor of reduced business and occupation taxes and expedited permit reviews. In locations where it is difficult for the state to offer economic development incentives, it would be helpful if local and municipal level incentives were provided.

Organizational Structure Q: How are companies organizing real estate transactions, strategy, and ongoing facilities management? (The questioner said that at their organization, strategy and real estate are under one umbrella, while facilities management is in another part of the organization. They want to unify all three but are unsure how to make it efficient and effective.) A: There is no right or wrong answer. One participant suggested that the new structure needs to mirror and connect with the way the business is structured. In terms of leadership, a key question is who can handle all three disciplines. After the restructuring, it will be important for outside business and economic development partners to have a single point of contact who is familiar with real estate, strategy, and facilities management.

Collaboration Among End Users, Economic Developers, and Service Providers Q: What is the best way to get end users, economic developers, and service providers together earlier in a project rather than waiting until the last minute? A: The moderators noted that this topic will be driven back to the IAMC Program Committee, since it comes up repeatedly. Session attendees said there are many reasons why projects don’t proceed as smoothly as hoped. For example, end users may not be confident about the viability of a project, or may not understand how things work at the state and vice versa. One economic developer noted that it is important to have a nondisclosure agreement when working on a project. In many cases, trust is the central issue. There are times when a business should insist on bringing all the players to the table who will participate in the decision making or provide program support services in the future. This can develop trust. Generally speaking, it is easier to do business with people that you know. IAMC Forums are valuable because they help build relationships and cultivate trust.

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Certified Sites Q: How large a role do certified sites play in the site selection process? A: There are several challenges associated with certified sites. No standard exists for certified sites, so the label means different things from state to state. In addition, every project is different. A certified site that will work for one project may not work for another. Despite the challenges, session participants felt that site certification could be valuable to end users and economic developers. —— Utah developed the SURE Sites program, which is a state-wide database. Communities can opt into the program and add sites to the database.

The moderators indicated that certified sites would be a good topic for a future IAMC workshop.

Workforce Demographics Q: What is the impact of the aging workforce on Millennials? A: Every day for the next 10 years, 10,000 people in the U.S. will retire. Both companies and states need to think about succession planning. Many states are starting K-12 workforce development and internship programs to help build the employee base and retain companies. Sponsored by Prologis

—— A vendor developed a “qualified sites” designation which offers a level of assurance to end users that some due diligence has been performed on a site. —— One end user suggested that certified sites benefit both end users and the state’s economic development reporting. He recommended developing a thorough project RFP which includes information such as the proposed square footage, expected transportation/ truck traffic at the site, waste water requirements, and seasonal business cycles. The RFP should ask states to identify their top three sites. A certification program can help states prioritize the best options for users.

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General Session

Challenges & Open Innovation: Creative Solutions for Complex Problems Speaker:

Shaifali Puri, Executive Director of Global Innovation, NIKE Foundation

Overview Technology is enabling people to connect and solve problems in entirely new ways. Various “challenges” and “contests” are engaging people—from different countries and backgrounds, with different areas of expertise—to offer novel solutions to pressing problems. The newfound ability to crowd-source solutions is proof that the world has changed dramatically, and is wide open. The future is quite exciting.

Context Shaifali Puri shared her perspective on new ways of problem solving that connected technologies enable.

Key Takeaways Technology is connecting the globe. Internet and mobile phone technologies are rapidly connecting the world. By the end of 2014, 3 billion people will be online, giving 40% of the world’s population access to the Internet. As rapidly as the Internet has grown in the developed world, it has grown even faster in emerging markets. From 2000 to 2012, the Internet growth rate across the world was 566%. But it was 3,300% in Africa; more than 2,600% in the Middle East, and over 1,300% in Latin America. As astounding as Internet adoption has been, mobile phone penetration has grown even faster. There are currently 7 billion mobile phone subscriptions, with 96% penetration globally and 89% penetration in the developing world. Mobile phones are truly a leapfrog technology.

New technologies provide new ways of solving problems. As everyone in the world becomes connected, it is possible to instantaneously share information with anyone. This makes is possible to pose questions to the world community, and for anyone to supply answers. Ms. Puri shared examples of difficult questions posed in the form of challenges or contests, and how those challenges were responded to. In one situation, a challenge focused on solutions to address folic acid deficiency. More than 60 entries were submitted within 30 days. The winning submission came from an Argentine living in New Zealand; the second-place submission came from a 60-year-old man in a remote Indian village; and the third-place submission came from four PhD students at Northwestern University who came from four different countries and different scientific fields (chemical engineering, electrical engineering, molecular biology, and international macro and development economics). These students meet once monthly where they pick a problem and try to devise a solution. In another example, a 15-year-old devised a diagnostic test for pancreatic cancer. The teenage boy used Google, open source scientific journals, Home Depot, and borrowed laboratory space. Compared with previous tests, the test he devised is 168 times faster, 400 times more sensitive, and 26,000 times less expensive. Global access to the Internet and mobile phones makes it possible for people anywhere to connect, access information, and offer insights to solve problems, in ways that were previously unthinkable. Sponsored by: Tri-City Development Corp.

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IAMC Thanks Its Fall 2014 Professional Forum Sponsors QUÉBEC CITY HOST COMMITTEE

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