Looking to land: increasingly, finance executives are taking the pilot's seat in site selection

CFO: Magazine for Senior Financial Executives,  Jan, 2005  by Randy Myers

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THE BOEING CO. HAS A LOT RIDING ON THE 7E7 DREAM-Liner, the superefficient midsize passenger jet it plans to start producing in 2008. The company has already pumped billions of dollars into development of the aircraft, which it hopes will recapture some of the market share it has lost in recent years to European competitor Airbus SAS. So deciding where it would assemble the 7E7 was no small matter. Over the course of the plane's production life, the wrong site could add hundreds of millions of dollars to the company's costs.

Given the stakes, it's not surprising that Boeing tapped one of its senior financial executives, Craig Saddler, to oversee the site-selection process. As vice president of business management for the 7E7 program, Saddler has overall fiduciary responsibility for its success. "We started producing the Boeing 747 and the Boeing 737 in the late 1960s, and we're still selling both of those planes today," notes Saddler. "These are 30-, 40-, even 50-year decisions."

Boeing is hardly alone in turning to the finance department for site-selection help. According to real estate services firms, CFOs and other senior financial executives are increasingly getting the nod to lead major site-selection programs. A variety of reasons is cited, including a growing desire to subject site decisions to the same sort of return-on-investment analysis demanded of other capital expenditures. It's not enough anymore simply to know whether a particular location has the appropriate communication and transportation infrastructure in place, or even how those factors might influence supply chain costs. Companies also must consider how the depth and breadth of the labor force in a particular location will affect their staffing ability; how wage structures compare among various locales; what the tax consequences of a decision will be; and how any financial incentives proffered by state or local governments might factor into the equation, perhaps even influencing how the deal is financed.

"We try to get the CFO involved as early as possible," says Ed McCallum, senior principal with site-selection consultants McCallum Sweeney Consulting Inc., based in Greenville, South Carolina. "We want to understand whether their [company's] financing, their cost structure, or the degree to which they're leveraged is strategic to the site-selection process, or just one of many factors to be considered." McCallum says that financial considerations are frequently glossed over in the site-selection process, "particularly when you're dealing with people who are more manufacturing or technically oriented. They'll say, 'We won't worry about that; we'll let the finance guys worry about that: But you can't worry about it after the fact; you have to integrate it into the process."

"I think companies have woken up to the changing economic environment and realized they have to shift their focus to where their real cost drivers are and what the value of each is," adds King White, senior vice president with real estate services firm Trammell Crow Co. That argues, he says, for a broader, holistic site-selection analysis that the CFO is uniquely qualified to undertake--particularly since he or she must consider the interests of the entire organization, not just one function. "The CFO can look at all the competing interests," confirms Gary Bingham, director of marketing for Puerto Rico Industrial Development Co.'s New Business Development Group, "and decide which location makes the most sense."

Even Sarbanes-Oxley is prompting a bigger role for CFOs in site-selection decisions, if only indirectly. According to Bob Hess, managing director in charge of the supply-chain and workplace-solutions consulting practice at real estate services firm Cushman Wakefield, Sarbanes-Oxley's emphasis on transparent financial reporting is steering companies away from doing only high-level documentation of their real estate decisions in favor of creating a well-documented paper trail and making clear the justification for the transaction itself, especially when creative financing or significant debt structures underpin the move. Because CFOs oversee the financial-reporting process, this, too, argues for their greater participation in the site-selection process.

THE PLANE FACTS

Boeing began the search for an assembly site for its 7E7 plane in May 2003. Saddler headed up a team that included tax, finance, manufacturing, real estate, and human-relations experts from Boeing, assisted by consultants from McCallum Sweeney. Early on, they decided that the assembly plant should be located in the continental United States, because that's where Boeing's engineering expertise resides and because it was already familiar with this country's airplane-certification requirements. Once the team whittled the field down from more than 80 possibilities to approximately 10 finalists, Saddler began visiting each site personally.