Footprint optimization as an opportunity to stay competitive in a dynamic environment

Globalization has evolved from a strategy unique to the world’s largest and most innovative companies to a general business imperative. Companies of all sizes, from nearly every industry, are increasingly deploying outside of their home regions to realize cost advantages, access new markets, or tap new talent pools. However, the individual pursuit of only one objective with each deployment can result in a far-flung, sub-optimal network of facilities. Whether pursuing an expansion or consolidation, domestically or globally, corporate deployment strategy is rapidly evolving. Companies increasingly seek to operate in areas that meet all three objectives— low cost, market access, and talent pools — within the same geographic location, to create an optimal corporate operations and location portfolio.

Deployment convergence
An aligned, comprehensive strategy focuses on business decisions that enable solutions yielding competitive advantage. Corporate location strategy and facility optimization is no different. Every corporate function and operation has an optimal location (country, region, state, city, and site) within the context of the overall business and functional strategy, and its relationship to the existing portfolio of facilities: its location footprint. Historically, deployment decisions have too often been reactive; occurring well after a critical need became obvious, such as an acute talent shortage, space constraint, or emergence of a hot market. However, a trend toward more proactive global footprint transformation is developing, where companies evaluate the deployment and location of each corporate function and operation in the context of the overall corporate and functional strategy, vision, and objectives.

Companies that focus narrowly on specific destinations to deploy new operations, such as China for low operating costs or Silicon Valley for innovative talent, often lose sight of the broader view of location characteristics necessary to optimize deployment opportunities from a strategic corporate perspective. The deployment decision process of forward-thinking companies is evolving from a linear model, focused on one primary location objective for one function, to a “convergence” model, where reducing costs, increasing revenue, and attracting and retaining talent are interdependent objectives. Under this scenario, the needs of other corporate functions are considered, and are all potentially achievable in one location. Managing the inherent trade-offs between these objectives is vital to establishing a footprint on the “frontier” of optimal deployment solutions, positioning the business to capitalize on multiple dimensions in accordance with its overall corporate strategy.

Footprint optimization
Developing a strategy to optimize the deployment of corporate operations is more complex than functionally-focused linear decision models, but increasingly important in today’s ultra-competitive global marketplace. A comprehensive deployment strategy employing a convergence model addresses questions such as:

• Which corporate functions will be successful candidates for offshore or near shore strategies? Production? Distribution? R&D? Customer contact? SG&A? Are there advantages to co-location? If so, in which geographic regions? Do we currently have operations in those markets?
• Are there locations within our current facility portfolio that demonstrate capability to host other functions, as opposed to building another greenfield location?
• Can, and should, we consolidate current operations into “flex” locations that have the potential to accommodate a wider spectrum of corporate functions? In which geographies could we successfully implement functional consolidation?
• What is the long term business case for extending offshore or near shore, versus further domestic expansion? Does global extension solve one or multiple objectives, for one or multiple functions?
• What is the optimal method for global extension? Develop a “captive” or greenfield operation? Source or contract manufacture? Joint venture? Acquire?
• What is the price of customer and market proximity? Are we sacrificing our cost position? Will we have access to a flexible and skilled talent pool?
• Will low-cost labor locations provide varied and flexible skills that will evolve with our changing requirements? Is the location low cost for all skill segments, or only for lower-level skills?
• How deep and diverse is the innovation pool in the location? Does the location have the attributes and regulatory flexibility to attract innovators regionally? Globally? Does the location allow us the flexibility to eventually deploy other corporate functions?

Successful, comprehensive deployment and footprint optimization strategies require forethought and careful planning. Investments in new, expanded, and consolidated facilities are long-term – they demand thorough consideration of current business and macroeconomic trends and the affect they will have on corporate locations. Understanding the variability and impact of geographic market growth, political and economic policy, supporting services and infrastructure, and the social and demographic trends impacting the availability and cost of talent are just a few of the many considerations that are critical to maximizing the value of corporate location investments.

Frederik Huitema
Tel: +31 (0)88 288 29 24