States and regions that excel at economic development can accelerate economic growth and support residents and businesses in their regions through a suite of complementary programs and initiatives. Economic-development organizations (EDOs) are among the many actors that play a critical role in supporting stakeholders and communities in these ways. When managed and organized well, these organizations can make a big difference for residents.
Consider the Virginia Economic Development Partnership (VEDP), which facilitated financial and nonfinancial investment to successfully land Amazon’s HQ2 in 2018. Today, VEDP is reimagining its strategy by updating its business recruitment strategy to focus on industry clusters ripe for growth in a post-COVID-19 environment and to identify businesses with overseas operations that are looking to come back to the United States.1
Despite select success stories, many EDOs struggle to drive real change. Federal funding can help by providing the fuel for meaningful initiatives. The American Rescue Plan Act (ARPA)—which allocates $350 billion toward economic relief for state and local governments—provides an opportunity for EDOs to catalyze change (Exhibit 1). However, that impact will be realized only by EDOs that understand where they can have the most impact and have strategies and operational plans in place to deploy funds at this magnitude.
Below, we share three fundamental tools that EDOs can use to make the best use of this funding: a strategy, including steady streams of funding and flagship programs and initiatives; the right organizational design to reinforce this strategy; and rigorous performance management to monitor the strategy and design. We also outline how EDOs can tackle these fundamentals, putting themselves in a position to make the most of potential incoming funds and have a meaningful impact on residents’ lives.
Establish a strategy
Across regions, EDOs have endless lists of potential priorities and diverse stakeholders with similarly diverse and distinct priorities. Without a clear mission, EDOs could be pulled in different directions or end up overextending resources across sectors and regions, resulting in under-resourced initiatives that have limited impact. For this reason, EDOs will likely want to be purposeful in what their focus areas are and what they want to accomplish. Being clear-eyed about where they can effect the most change and building a strategy around those priorities allows EDOs to focus resources and energy on their core mission.
To craft high-impact strategies that fit their context, EDOs can start by following a few guiding principles. First, conducting an in-depth market analysis can allow EDOs to make decisions based on a comprehensive fact base of the dynamics that drive economic competitiveness. Second, EDOs will likely want to ensure they have a data-driven view of their region’s strengths; this fact base can shed light on a region’s assets and allow EDOs to avoid chasing economic-development fads where there’s a low chance of a competitive advantage. And third, by securing buy-in across sectors, EDOs can lean on local stakeholders across sectors and regions to codevelop answers and solutions to promote a shared understanding of the tough choices that need to be made, their commitment to the plan, and that they have secured the necessary funding.
With these principles in mind, EDOs can tackle three important parts of a strategy: aspirations, flagship programs and initiatives, and funding.
Aspirations
EDOs will want to set targets for key economic indicators most relevant to the region. To determine the level of their aspiration—that is, how bold their targets and goals are—EDOs should consider the political climate and the mindset of local stakeholders (Exhibit 2).
If, for instance, the strategy is to create a fast-growing region, EDOs and stakeholders may want to establish a more aspirational target. Conversely, they may consider more actionable and realistic targets in regions that have seen multiple efforts generate limited impact.
The aspiration can be guided by a focus on both sustainability and equity. Many EDOs have historically focused more on growth than on inclusion, but evidence suggests that inclusive growth is both attainable and desirable. The New Jersey Economic Development Authority, for example, incorporates inclusion in its Stronger and Fairer regional economic growth plan. It outlines initiatives to drive job growth, grow the median wage, increase venture capital investment, close racial and gender gaps, and promote this growth across regions of the state.2
Flagship programs and initiatives
Effective flagship programs and initiatives support EDOs’ stated aspirations. To ensure this alignment, the business case for an initiative will likely include plans that articulate its expected contribution to overall goals, the financial and human resources required, the financing plan, key risks, and an approach to implementation.
Effective programs and initiatives will not only align with the aspirations but also foster collaboration and generate positive impact at scale. The scope of these benefits means that multiyear strategies and data-backed investments are generally a better approach than solely opportunistic initiatives.
For example, Georgia Quick Start is a major flagship program within the Technical College System of Georgia in collaboration with the Georgia Department of Economic Development. The program, which has been consistently ranked the best workforce development program in the country,3 provides nonfinancial incentives for companies looking to locate their operations in Georgia through tailored workforce development services. More than one million workers have updated their skills through the program. The success of the Georgia program has inspired similar efforts in Louisiana and Alabama, which are now ranked second and third in the country, respectively.
Funding
While ARPA may provide EDOs with a large influx of funds that they can use to accelerate their current projects and priorities, a consistent funding stream is essential for continuous success and a critical part of a well-rounded strategy. But many EDOs struggle to secure stable funding—in part because most funding for EDOs comes from the public sector and is tied to the annual budget process. It is not uncommon for legislators to call to reduce EDO funding or to completely defund specific projects or initiatives. This disruption can hamper the effect EDOs and their programs can have and makes longer-term investments and flagship projects difficult to pursue and see to completion.
To solve this challenge, some EDOs have been able to generate revenue from assets such as buildings and parking spaces and to create state-owned enterprises. Others have invested in evergreen funds that provide returns that can be reinvested.
Determine the right organizational design
The right organizational design is a critical factor in reinforcing the strategy because it will help EDO leaders clearly define and deprioritize economic areas that are not relevant to an EDO’s mission. By being deliberate in the design process, EDO leaders can further hone the organization’s efforts and align stakeholders while making the best use of their resources. EDOs can organize themselves by sector, by region, or around enablers such as regional talent.
An organization designed around sectors can be a good fit for EDOs focused on job creation because it can help them to focus their resources, set targets by sector, and build the right expertise. For example, JobsOhio organized itself around nine sectors. For each sector, the organization hired experienced executives who could “speak the language” and understand the needs of companies considering relocation or expansion into Ohio. In 2020 alone, JobsOhio completed deals that could result in about 60,000 jobs and nearly $8 billion in capital investment.4
EDOs that aspire to create inclusive growth can consider a regional approach, which allows them to maximize ROI by introducing a competitive process to identify the best ideas. For example, New York established ten regional economic-development councils comprising stakeholders from business, academia, local government, and nongovernmental organizations (NGOs). The regional economic-development councils were tasked with developing strategic plans that emphasize each region’s strengths and unique assets. Regional councils compete for annual funding to implement projects identified as priorities in their regions. Since the councils’ inception in 2011, the initiative has funded $6.9 billion in projects, creating more than 240,000 jobs.5
An emerging model is to organize EDOs around enablers such as talent, innovation, infrastructure, or business climate. EDOs might consider this approach if they’re interested in creating impact across sectors and regions. One example of this is in Georgia. In addition to a best-in-class workforce development program, Georgia is also organized around key enablers such as innovation through the Georgia Center of Innovation.
Of course, whatever approach they take, EDOs will likely want to collaborate across regions, functions, enablers, and sectors to avoid silos and enact efficient and timely decision making. (For more on organizational approaches, see sidebar, “Five archetypes.”)
Ensure continuous, rigorous, and transparent performance management and reporting
EDOs will likely want to go beyond narrow measures of success such as GDP increases, corporate relocations, or job creation and instead track metrics that are directly relevant to their strategy and aspirations. Indeed, they can consider tracking elements such as GDP growth per capita, productivity, direct investment, labor force participation, and median household income.
To evaluate their organization’s performance and inform its strategy, EDO leaders can track efforts across three areas:
- Macroeconomic context: Assess the region’s overall performance on a series of macroeconomic indicators, sector performance, and competitiveness factors, including disaggregation by subregion and groups (such as gender, race, and ethnicity) to ensure sufficient granularity in the assessment.
- EDO benchmarking: Compare the EDO with predefined peers across key performance areas—including the outcomes achieved and the efficiency with which they are achieved; customer feedback; performance on strategic programs; and internal organizational, operational, and stakeholder engagement considerations.
- Strategic implications: Going forward, synthesize the considerations for the findings, including considerations for existing or planned strategic efforts, program and tool implications, and transformation opportunities or key questions to address.
In addition, EDOs can evaluate implications of each area on diversity, equity, and inclusion (DEI). These implications would analyze, for example, how macroeconomic outcomes differ across demographic groups, how EDO investments and programs are contributing to DEI outcomes, to what extent equitable and inclusive representation is achieved across the organization, how the organization works, and who the organization partners with.
While it’s common for EDOs to take a retrospective look at performance and measure against peer organizations during strategic planning processes, which may occur every few years, effective EDOs regularly measure progress against goals and objectives. With this understanding in hand, EDOs can adjust their strategy and organizational design as needed.
With the federal government deploying American Rescue Plan investments, automation and income inequality accelerating, and competition among communities for deals to spur growth and attract talent continuing, EDOs have a real opportunity to position themselves and their communities for future success if they move swiftly. By thoughtfully designing the organization and its priorities, constantly assessing its performance, and revisiting this design—and pairing this with a bias toward taking action—EDOs can increase the value of their investments to better the lives of those they serve.
